The 70 percent rule is a quick way to estimate the maximum price you might pay for a distressed property.

It starts with the property’s expected after-repair value, multiplies that amount by 70 percent, and then subtracts the estimated rehabilitation cost.

The result is a preliminary maximum allowable offer.

The rule is widely associated with house flipping, but BRRRR investors also use it to screen potential acquisitions. It can help you reject overpriced properties before spending hours on detailed underwriting.

However, the 70 percent rule is not a complete BRRRR analysis. It does not directly account for rent, loan terms, refinance costs, holding time, debt-service coverage, taxes, insurance, or the amount of capital that may remain in the property.

Use it as an initial filter—not as proof that a deal works.

What Is the BRRRR 70 Percent Rule?

The standard formula is:

Maximum allowable offer = After-repair value × 70% − Estimated repair costs

You may also see maximum allowable offer abbreviated as MAO.

The rule assumes that the portion of the property’s value not included in the purchase price and repair budget provides room for other expenses, risk, and potential profit.

For example, assume:

• After-repair value: $250,000
• Estimated repairs: $50,000

The calculation is:

$250,000 × 70% = $175,000

Then subtract the repairs:

$175,000 − $50,000 = $125,000

Under the 70 percent rule, the preliminary maximum offer would be:

$125,000

Why Is 70 Percent Used?

The 70 percent figure attempts to leave a 30 percent margin between the completed property value and the combined purchase price and repairs.

That remaining portion may need to absorb:

• Acquisition closing costs
• Loan points and fees
• Interest
• Taxes
• Insurance
• Utilities
• Permits
• Inspections
• Contractor overruns
• Holding costs
• Selling costs for a flip
• Refinance costs for a BRRRR
• Market changes
• Investor profit or retained equity

The rule does not assign a specific amount to each expense. It simply creates a broad cushion.

That is why it is a rule of thumb rather than a complete formula.

The 30 Percent Is Not Automatically Profit

Suppose the property has a $250,000 ARV.

Thirty percent of the ARV is:

$250,000 × 30% = $75,000

That does not mean the investor earns $75,000.

The $75,000 may need to cover:

• Purchase and refinance transaction expenses
• Financing costs
• Carrying costs
• Construction overruns
• Leasing costs
• Unexpected repairs
• A lower appraisal
• The investor’s required return

The actual result may be much smaller.

The 70 Percent Rule Was Not Designed Specifically for BRRRR

The rule is most commonly used as a house-flipping and wholesaling screen.

A flipper generally expects to:

1. Purchase the property.
2. Complete the renovation.
3. Sell the property.
4. Pay selling expenses.
5. Retain the remaining profit.

A BRRRR investor generally expects to:

1. Purchase the property.
2. Complete the renovation.
3. Rent the property.
4. Refinance the property.
5. Retain it as a long-term rental.

That difference matters.

A BRRRR investor normally does not incur immediate real estate commissions and seller closing costs. However, you may incur:

• Refinance lender fees
• Appraisal costs
• Title and settlement costs
• Prepaid taxes and insurance
• Escrow deposits
• Permanent-loan points
• Lease-up expenses
• Long-term reserves
• Additional interest during seasoning

You must also ensure that the rent supports the completed property.

A deal can satisfy the 70 percent rule and still produce weak rental cash flow or insufficient refinance proceeds.

The 70 Percent Rule Is Not the Same as 70 Percent LTV

These two percentages are often confused.

The 70 Percent Rule

The acquisition formula is:

ARV × 70% − Repairs = Preliminary maximum offer

It is an investor screening guideline.

70 Percent Loan-to-Value

Loan-to-value compares a loan balance with the property’s value.

The formula is:

Loan amount ÷ Property value = LTV

For example:

$175,000 loan ÷ $250,000 value = 70% LTV

LTV is a lending measurement.

A lender may offer a refinance at 65%, 70%, 75%, or another LTV depending on the property, borrower, program, rent, credit, reserves, and underwriting standards.

The fact that you purchased according to the 70 percent rule does not guarantee a 70 percent LTV refinance.

Similarly, a 70 percent LTV refinance does not prove that your acquisition met the 70 percent rule.

Start With a Defensible ARV

The formula is only as reliable as the after-repair value entered into it.

An overstated ARV produces an overstated maximum offer.

Suppose the actual supportable ARV is $225,000 rather than $250,000.

Using the same $50,000 repair estimate:

$225,000 × 70% = $157,500

$157,500 − $50,000 = $107,500

The allowable offer falls from $125,000 to $107,500.

That is a difference of:

$17,500

Before relying on the formula, you should understand how to estimate ARV using renovated comparable sales.

A strong ARV estimate should reflect:

• The completed property type
• Above-grade living area
• Bedrooms and bathrooms
• Location
• Condition
• Renovation quality
• Lot and parking
• Recent closed sales
• Market changes
• Seller concessions where relevant

Do not use the highest nearby sale merely because it makes the acquisition price work.

Use an Accurate Rehab Estimate

Repair costs are subtracted dollar for dollar in the standard formula.

If you underestimate the rehab by $15,000, your maximum offer is overstated by $15,000.

Assume:

• ARV: $250,000
• Initial repair estimate: $40,000

The calculation is:

$250,000 × 70% − $40,000 = $135,000

After a detailed inspection, you discover that the realistic repair cost is $55,000.

The revised calculation is:

$250,000 × 70% − $55,000 = $120,000

The correct maximum offer is now $15,000 lower.

This is why a rough per-square-foot assumption should not replace a detailed BRRRR rehab budget.

Your repair estimate should consider:

• Roofing
• Foundation and structure
• Electrical
• Plumbing
• HVAC
• Kitchens and bathrooms
• Flooring and paint
• Windows and doors
• Exterior repairs
• Drainage
• Environmental issues
• Permits
• Demolition and disposal
• Contractor overhead
• Contingency

You should also distinguish between repairs needed for basic rent readiness and upgrades needed to support the projected ARV.

Basic 70 Percent Rule Example

Assume you are evaluating a three-bedroom single-family property with:

Item	Amount
Estimated ARV	$240,000
Estimated rehabilitation	$45,000

The calculation is:

$240,000 × 70% = $168,000

$168,000 − $45,000 = $123,000

Your preliminary maximum offer is:

$123,000

If the asking price is $150,000, the property does not satisfy the rule.

That does not automatically mean the property is a bad investment. It means the asking price exceeds this particular screening threshold.

You would need to conduct a full analysis before deciding whether a higher offer is justified.

A More Complete BRRRR Example

Now consider a property with:

Project assumption	Amount
After-repair value	$250,000
Rehabilitation budget	$50,000
70 percent rule purchase price	$125,000
Acquisition closing costs	$4,000
Financing and holding costs	$12,000
Total project cost	$191,000

The total project cost is:

$125,000 + $50,000 + $4,000 + $12,000 = $191,000

The spread between ARV and total project cost is:

$250,000 − $191,000 = $59,000

That $59,000 is not automatically available cash or profit.

It represents the difference between the estimated completed value and the estimated total cost before refinance expenses.

How the Example Might Be Financed

Assume a short-term lender provides:

• 90% of the purchase price
• 100% of the approved rehab budget

Purchase financing:

$125,000 × 90% = $112,500

Add the rehab financing:

$112,500 + $50,000 = $162,500

The short-term principal balance is approximately:

$162,500

Your initial cash contribution may include:

Cash requirement	Amount
Purchase down payment	$12,500
Acquisition closing costs	$4,000
Financing and holding costs	$12,000
Initial cash contribution	$28,500

This simplified example assumes the rehab remains within budget and does not include additional reserves for draw delays or emergencies.

What Happens at a 70 Percent LTV Refinance?

Assume the completed property appraises for $250,000 and the permanent lender offers a 70 percent LTV loan.

The gross refinance loan is:

$250,000 × 70% = $175,000

Assume refinance costs equal 3 percent of the new loan:

$175,000 × 3% = $5,250

The refinance calculation is:

Refinance item	Amount
Gross permanent loan	$175,000
Short-term principal payoff	−$162,500
Refinance costs	−$5,250
Estimated cash returned	$7,250

You initially contributed $28,500.

After receiving $7,250, the capital remaining in the property is:

$28,500 − $7,250 = $21,250

The property met the 70 percent rule, but you did not recover all of your initial cash.

That is not necessarily a failed BRRRR. You must still evaluate:

• Equity
• Monthly cash flow
• Debt-service coverage
• Capital remaining
• Reserves
• Long-term repair risk
• Alternative uses of the cash

What Happens at a 75 Percent LTV Refinance?

Assume the lender instead approves 75 percent LTV.

The gross loan becomes:

$250,000 × 75% = $187,500

Assume refinance costs remain 3 percent:

$187,500 × 3% = $5,625

Refinance item	Amount
Gross permanent loan	$187,500
Short-term principal payoff	−$162,500
Refinance costs	−$5,625
Estimated cash returned	$19,375

Capital remaining becomes:

$28,500 − $19,375 = $9,125

The higher-LTV loan returns more capital, but it also creates:

• A larger monthly payment
• Lower debt-service coverage
• Less equity
• Greater sensitivity to vacancy and repairs

You should determine whether the added capital recovery justifies the higher leverage.

The complete decision belongs within your BRRRR refinance strategy, not within the acquisition formula alone.

Why a Property Can Meet the Rule and Still Fail

The 70 percent rule evaluates only three numbers:

• ARV
• Percentage factor
• Repairs

A BRRRR deal depends on many more variables.

BRRRR Calculator

Rent May Be Too Low

A property may have a strong ARV but weak rent relative to its value.

Suppose the completed property is worth $250,000 but rents for only $1,800 per month.

The rent may not adequately support:

• Taxes
• Insurance
• Vacancy
• Management
• Maintenance
• Capital reserves
• The permanent mortgage

The acquisition discount does not correct weak rental economics.

Insurance and Taxes May Be Too High

Two properties with the same value and rent can produce very different cash flow when taxes and insurance differ.

The 70 percent rule does not account for either expense.

The Refinance May Be Smaller Than Expected

A lender may restrict proceeds because of:

• Lower appraisal
• Lower permitted LTV
• Debt-service coverage
• Borrower income or credit
• Seasoning requirements
• Cost-basis restrictions
• Property condition
• Ineligible property type
• Required reserves

Fannie Mae’s cash-out refinance requirements illustrate how ownership periods, existing debt, documented investment, LTV limits, and other underwriting requirements can affect refinance eligibility. Investor, DSCR, portfolio, and private lenders may apply different standards.

The Project May Take Too Long

The formula does not include a completion date.

A project delayed by permits, contractor problems, materials, inspections, or leasing can incur thousands of dollars in additional costs.

The Rehab May Not Create the Expected Value

You can complete the budgeted work without reaching the projected ARV.

The market may not recognize every dollar spent.

You May Run Out of Cash

The property can remain economically viable while the investor experiences a liquidity crisis.

You may need cash for:

• Rehab draws
• Change orders
• Loan extensions
• Utilities
• Insurance
• Taxes
• Refinance costs
• Additional appraisal requirements

A strong rule-of-thumb result does not replace adequate reserves.

Why a Property Can Break the Rule and Still Work

A deal that exceeds the 70 percent threshold is not automatically bad.

For example, assume:

• ARV: $250,000
• Rehab: $25,000
• Purchase price: $155,000

The 70 percent rule would produce:

$250,000 × 70% − $25,000 = $150,000

The actual purchase price is $5,000 above the guideline.

The deal may still work if:

• Holding time is short
• The rehab is simple and predictable
• Financing costs are low
• Rent is strong
• Taxes and insurance are reasonable
• The refinance supports the debt
• The property has multiple exit options
• You accept leaving more cash invested

The $5,000 difference should be evaluated within the full project, not treated as an automatic rejection.

When a Lower Percentage May Be Appropriate

You may decide to use 65 percent or another more conservative factor.

A lower percentage may be appropriate when:

• ARV is uncertain
• The rehab is extensive
• The property is unusual
• Comparable sales are weak
• Short-term financing is expensive
• Holding time may be long
• The market is declining
• Selling or refinance costs are high
• You require a larger equity cushion
• The property has environmental or structural risk

For a $250,000 ARV and $50,000 rehab:

ARV factor	Maximum offer
65%	$112,500
70%	$125,000
75%	$137,500
80%	$150,000

A 65 percent rule creates a $12,500 lower purchase ceiling than the standard 70 percent formula.

That difference may compensate for greater uncertainty.

When a Higher Percentage May Be Reasonable

Some investors use 75%, 80%, or another factor when:

• The renovation is light
• Holding time is brief
• Comparable sales are strong
• The property has reliable rent
• Financing is inexpensive
• Transaction costs are limited
• The investor accepts a smaller equity margin
• The property is in a highly competitive market

A higher percentage is not inherently wrong.

The problem occurs when the percentage is increased solely because the property cannot be purchased at 70 percent.

You should adjust the rule because the economics justify it—not because you want the deal to qualify.

The Rule Behaves Differently at Different Price Points

A fixed percentage does not account for the way transaction expenses behave.

Some costs increase with property value, while others are relatively fixed.

For example:

• Appraisal costs may not double when the ARV doubles.
• Title or legal costs may remain within a similar range.
• Real estate commissions often rise with sale price.
• Rehab cost depends more on property condition than ARV.
• Financing costs may depend on both loan size and time.
• Taxes and insurance vary by location and property.

Lower-Value Property Example

Assume:

• ARV: $120,000
• Rehab: $30,000

The 70 percent rule produces:

$120,000 × 70% − $30,000 = $54,000

The remaining spread may be too small after fixed closing, financing, and holding expenses.

Higher-Value Property Example

Assume:

• ARV: $600,000
• Rehab: $50,000

The rule produces:

$600,000 × 70% − $50,000 = $370,000

This creates a much larger nominal spread.

The investor may be willing to pay more than 70 percent of ARV if the expected expenses and required return do not consume the full cushion.

That is why the same factor does not fit every price point or market.

Repair Cost Sensitivity

Using a $250,000 ARV:

Rehab budget	Maximum offer at 70%
$35,000	$140,000
$40,000	$135,000
$50,000	$125,000
$60,000	$115,000
$70,000	$105,000

Every additional dollar of repairs reduces the maximum offer by one dollar.

This creates a useful negotiating framework.

If an inspection identifies $10,000 in additional work, the preliminary purchase ceiling also falls by $10,000.

ARV Sensitivity

Using a $50,000 rehab budget:

Estimated ARV	Maximum offer at 70%
$225,000	$107,500
$235,000	$114,500
$245,000	$121,500
$250,000	$125,000
$260,000	$132,000

Every $10,000 change in ARV changes the maximum offer by:

$10,000 × 70% = $7,000

This is why small ARV disagreements can materially affect your offer.

The Rule Does Not Include Acquisition Closing Costs

The formula subtracts repairs but usually does not separately subtract purchase closing costs.

The Consumer Financial Protection Bureau identifies items such as appraisal fees, title insurance, government taxes, and prepaid taxes, insurance, and interest among common mortgage closing costs.

Investment and short-term loans may also involve:

• Origination points
• Underwriting fees
• Document charges
• Legal fees
• Draw fees
• Inspections
• Extension fees
• Minimum interest
• Broker fees

Those costs must be added to the project separately.

The Rule Does Not Measure Cash Required

Two deals with the same MAO can require very different investor contributions.

Cash requirements depend on:

• Lender advance rate
• Whether rehab costs are financed
• Draw timing
• Closing costs
• Interest reserves
• Contractor deposits
• Required reserves
• Refinance costs
• Appraisal shortfalls

A property can meet the rule but require more liquidity than you possess.

Your analysis should distinguish between:

• Total project cost
• Loan amount
• Cash needed before closing
• Cash needed during rehab
• Cash required at refinance
• Capital remaining after refinance

The Rule Does Not Measure Cash Flow

The 70 percent rule does not use rent.

That is a serious limitation for BRRRR investors.

After calculating a preliminary acquisition price, you still need to estimate:

• Gross rent
• Vacancy
• Management
• Maintenance
• Taxes
• Insurance
• Utilities
• Association fees
• Capital reserves
• Permanent debt service

A BRRRR property should work as a rental after the refinance.

A large equity spread does not compensate indefinitely for negative monthly cash flow.

The Rule Does Not Measure DSCR

Debt service coverage ratio compares property income with debt payments.

A lender may use DSCR to determine whether the property supports the proposed loan.

The 70 percent rule can indicate an attractive acquisition while the property fails the lender’s coverage requirement.

This can happen when:

• Rent is low relative to value
• Taxes and insurance are high
• Interest rates are high
• The proposed loan is too large
• Operating expenses are underestimated

Your refinance must work under the lender’s actual formula.

The Rule Does Not Include Refinance Costs

A refinance can involve:

• Appraisal
• Title work
• Settlement fees
• Recording charges
• Points
• Lender fees
• Prepaid interest
• Escrow deposits
• Taxes
• Insurance

These costs reduce the cash returned to you.

A gross refinance loan of $175,000 is not the same as $175,000 of available proceeds.

The Rule Does Not Guarantee Profit or Equity

The formula can produce a favorable offer while:

• The ARV is wrong
• Repairs are understated
• The market declines
• The property does not qualify for financing
• The renovation is poorly executed
• The rent is insufficient
• The project takes too long

It is a screening device, not a guarantee.

A BRRRR-Specific Way to Refine the Rule

You can use the 70 percent result as a starting point, then work backward from the expected refinance.

Assume:

• Conservative ARV: $250,000
• Target refinance LTV: 70%
• Estimated refinance costs: $5,250
• Desired post-refinance liquidity buffer: $5,000

Expected permanent loan:

$250,000 × 70% = $175,000

Subtract refinance costs and desired buffer:

$175,000 − $5,250 − $5,000 = $164,750

This suggests that the short-term principal you want to repay should not exceed approximately:

$164,750

Assume short-term financing covers:

• 90% of purchase price
• $50,000 rehab

The purchase portion that can be financed is:

$164,750 − $50,000 = $114,750

If that equals 90% of the purchase price:

$114,750 ÷ 90% = $127,500

The refinance-based purchase ceiling is approximately:

$127,500

The standard 70 percent rule produced $125,000.

In this example, the two methods produce similar results. In another deal, they may differ substantially.

The refinance-based method still does not replace cash-flow analysis, but it connects the purchase price more directly to the BRRRR exit.

Use a Full Deal Analysis After the Initial Screen

Once a property passes the preliminary rule, complete a broader BRRRR deal analysis.

Your analysis should include:

Acquisition

• Purchase price
• Closing costs
• Loan fees
• Initial cash requirement

Rehabilitation

• Detailed scope
• Contractor estimates
• Contingency
• Permits
• Draw timing

Holding Period

• Interest
• Taxes
• Insurance
• Utilities
• Security
• Lawn or snow service
• Loan extensions

Rental Operations

• Market rent
• Vacancy
• Management
• Maintenance
• Taxes
• Insurance
• Capital reserves

Refinance

• Conservative appraisal
• LTV
• DSCR
• Seasoning
• Closing costs
• Loan payment
• Capital returned

Long-Term Result

• Equity
• Cash flow
• Cash-on-cash return
• Capital remaining
• Reserves
• Exit alternatives

The deal should survive reasonable changes to more than one assumption.

Stress-Test the Rule

Do not evaluate only the base case.

Test at least the following:

ARV 5% Lower

For a $250,000 estimate:

$250,000 × 95% = $237,500

Then recalculate the offer and refinance.

Rehab 15% Higher

For a $50,000 estimate:

$50,000 × 115% = $57,500

Recalculate the total cash required and capital remaining.

Project Three Months Longer

Add three months of:

• Interest
• Taxes
• Insurance
• Utilities
• Maintenance
• Loan extension charges

Rent 5% Lower

Determine whether the completed property still produces acceptable cash flow and debt coverage.

Refinance LTV 5 Percentage Points Lower

If your base case assumes 75%, recalculate at 70%.

You can use the BRRRR calculator to compare changes in ARV, rehab costs, loan-to-value, refinance proceeds, and capital remaining.

Evaluating several acquisition, rehab, and refinance scenarios? Rehab Valuator provides advanced BRRRR deal analysis, rehabilitation budgeting, and investor and lender reporting when you need a more detailed project model.

Should You Make an Offer Above the Rule?

You may decide to offer above the formula when the full underwriting supports it.

Before doing so, identify exactly why the higher price is acceptable.

Possible reasons include:

• Stronger rent than comparable properties
• Lower-than-normal operating costs
• Minimal holding time
• Low-cost financing
• Light and predictable repairs
• Strong comparable sales
• Multiple exit strategies
• A smaller required equity margin
• A long-term investment objective
• A lower required return

Avoid vague reasoning such as:

• “The neighborhood is hot.”
• “Values always increase.”
• “The appraisal should come in higher.”
• “I don’t want to lose the deal.”
• “Another investor will pay it.”

A higher offer should come from revised numbers, not pressure or optimism.

Should You Offer Below the Rule?

Yes.

The calculated MAO is not a required offer.

You may offer less because of:

• Additional risk
• Seller motivation
• Uncertain repairs
• Poor property access
• Title problems
• Tenant issues
• Environmental concerns
• Financing difficulty
• Long closing timeline
• Market weakness
• A larger required return

The rule creates a ceiling, not a target.

Your actual offer may be lower.

How Wholesalers Use the Rule

Wholesalers sometimes use the formula to estimate what a rehab investor may pay.

A wholesaler may calculate an investor’s probable MAO and then subtract the intended assignment or wholesale fee.

For example:

• Investor MAO: $125,000
• Desired wholesale fee: $10,000

The wholesaler may seek to contract the property at:

$125,000 − $10,000 = $115,000

As the end buyer, you should calculate the deal independently.

Do not assume the wholesaler’s ARV, repairs, or buyer price is correct.

Common 70 Percent Rule Mistakes

Treating It as a Lending Rule

The formula does not determine what a lender will finance.

Using an Optimistic ARV

A high ARV inflates the purchase ceiling.

Underestimating Repairs

Every missing repair dollar directly overstates the offer.

Ignoring Closing and Financing Costs

The 30 percent margin must absorb costs that are not shown separately.

Forgetting Holding Time

A delayed project can consume the margin quickly.

Ignoring Rent

BRRRR requires a sustainable rental, not only an equity spread.

Assuming Full Capital Recovery

Meeting the rule does not guarantee that the refinance returns all invested cash.

Applying 70 Percent in Every Market

The correct margin depends on property value, costs, risk, and objectives.

Treating the MAO as the Required Offer

You can and often should offer less.

Rejecting Every Deal Above the Formula

A property slightly above the threshold may still work after full underwriting.

A Practical 70 Percent Rule Checklist

Before relying on the result, confirm:

• ARV is based on relevant renovated comparable sales.
• The planned rehab supports the projected finished condition.
• The repair budget includes permits and contingency.
• Acquisition closing costs are estimated separately.
• Financing and holding costs are included.
• Rent is supported by comparable rentals.
• Taxes and insurance are verified.
• Refinance LTV and DSCR assumptions are realistic.
• Refinance costs are included.
• Capital remaining is calculated.
• The project has adequate liquidity.
• Lower ARV and higher rehab scenarios have been tested.
• You understand why 70 percent is appropriate for this deal.
• You have completed full underwriting after the initial screen.

Final Perspective

The BRRRR 70 percent rule is useful because it is fast.

It allows you to combine ARV and repair costs into a preliminary purchase ceiling and quickly identify properties that may not offer enough margin.

Its simplicity is also its limitation.

The formula does not determine rent, cash flow, financing eligibility, refinance proceeds, capital recovery, or long-term return.

Use the rule to decide whether a property deserves further analysis.

Then replace the shortcut with a complete model of the purchase, rehab, holding period, rental operation, refinance, and long-term investment.

A property does not work because it meets the 70 percent rule.

It works when all the numbers remain viable after realistic costs, financing, rent, and risk are included.