Real estate flip profit with the 70% rule check

The 70% Rule Real Estate Investors Use

The 70% rule says maximum purchase price should be 70% of ARV minus repair costs. A property with 300,000 ARV and 40,000 repair estimate should not be purchased above (300000 × 0.70) - 40,000 = 170,000. The 30% margin covers selling costs (6-8%), holding costs, contingencies, and profit. This rule keeps flip investors from overpaying and ensures deal-level profitability even if something goes wrong. The calculator flags whether your proposed deal meets this threshold.

Why Selling Costs Eat Profit

Typical selling costs on a flip: realtor commissions (5-6% of sale price), staging (500-2,000), closing costs (1-2%), capital gains tax depending on holding period and structure. Combined: 8-10% of ARV. On a 300,000 flip, 24,000-30,000 exits before any profit calculation. Many beginner flippers underestimate these costs because they budget based on repair costs alone. Selling costs eat the back end of every flip.

ARV Estimation Is Where Deals Go Wrong

ARV should come from comparable sales of already-renovated properties in the same neighborhood, not from optimistic gut feel. Three comps sold within the last 6 months, same or better condition than your renovated property, within 0.5 mile radius is the standard. Zillow Zestimate and similar algorithmic estimates are unreliable — they often miss 10-20%. A professional comparative market analysis (CMA) from a local agent is worth its small cost. Getting ARV wrong means everything else in the calculator is wrong.

Holding Costs the Calculator Does Not Model

Between purchase and sale, the investor pays mortgage (if financed), property tax, insurance, utilities, HOA fees if applicable. A flip held 6 months might incur 15,000-25,000 in holding costs that further reduce profit. Include these in your offer calculation by subtracting from ARV before running the calculator, or treat the calculator output as before-holding-cost profit. Speed of rehab and resale materially affects flip economics — projects running 6 months instead of 3 often halve profit.

Worked Example

Purchase price 180,000. Repair costs 40,000. ARV 300,000. Selling costs 8%. Desired profit 30,000. Selling costs dollar amount: 300,000 × 8% = 24,000. Total costs: 180,000 + 40,000 + 24,000 = 244,000. Flip profit: 300,000 - 244,000 = 56,000. ROI: 56,000 / (180,000 + 40,000) = 25.5%. Max offer for 30k target profit: 300,000 - 40,000 - 24,000 - 30,000 = 206,000. 70% rule check: 180k + 40k = 220k vs 70% of 300k = 210k. FAILS the 70% rule by 10k — deal is tight and any cost overrun wipes out profit.

Common Flip Profit Killers

Repair cost overrun — budget 15-25% contingency on repair estimates. Market softening during rehab — ARV drops 3-5% as you finish. Holding longer than planned — every month adds 2,500-5,000 in mortgage and holding costs. Under-estimating selling time — time to sell at full ARV is 30-90 days; stale listings lose value. Underestimating selling costs — 8% is often closer to 10% once all fees are added. Running the calculator is step one; stress-testing each input against pessimistic scenarios is step two.

Flipping vs Rental Property

Flipping is short-term active income — you trade time and risk for one large profit per project. Rental property is long-term passive income — you build wealth over years through cash flow plus appreciation. Same property can serve either strategy. The ARV calculator answers flip viability; the rental-yield calculator answers rental viability. Smart investors run both before committing to a strategy on a specific property — sometimes a property that fails as a flip works as a rental, and vice versa.