The 70% Rule: Math, Adjustments, and When Experienced Investors Break It

The Basic Formula

The 70% rule is designed to ensure you buy at a price that leaves room for:

• Acquisition costs (closing, title, legal): ~2–3%
• Carrying costs (insurance, taxes, utilities during rehab): ~2–4%
• Selling costs (agent commissions, closing): ~6–7%
• Profit/equity cushion: ~15–20%

Add those up: 25–34% of ARV covers costs and profit, leaving you at 66–75% of ARV for your acquisition + rehab. The 70% rule hits the middle of that range.

Worked Example

• ARV: $480,000
• Rehab: $55,000

When to Tighten Below 70%

High Carrying Cost Properties

If a rehab will take 9–12 months (major structural work, permitting delays), your carrying costs could hit 5–8% of ARV. Tighten to 65% to compensate.

Uncertain ARV (Limited Comps)

In low-transaction neighborhoods where your ARV estimate has wide uncertainty bands (±10%), tighten to 65% to account for ARV risk.

Occupied Properties (Eviction Required)

Add estimated eviction cost (typically $3,000–$8,000 in South Florida, plus 30–90 days of delay) to your rehab cost line before applying the 70% formula.

Condo Buildings with Issues

If the building has pending special assessments, ongoing litigation, or insurance issues, tighten to 60–65% or skip entirely until the situation clears.

When Experienced Investors Go Above 70%

Minimal Rehab / Cosmetic-Only

On a near-move-in-ready property needing only paint, flooring, and minor cosmetics ($15,000–$25,000 in rehab), carrying costs are short and the rehab risk is low. Some investors use 75–78% on these deals.

Strong Rental Hold Strategy

If your exit is a rental hold rather than flip, your profit isn't realized at sale — it accrues over time through cash flow and appreciation. Rental hold buyers often use 75–80% because they don't pay 6–7% in selling costs at exit.

Very High-Value Markets With Limited Comps

In South Florida luxury markets (Miami Beach, Coconut Grove, Coral Gables), where properties are selling at $1M+, the 70% rule can be too conservative — each point of ARV is $7,000–$10,000 in extra bid room. Experienced luxury-distressed investors may bid to 73–75% with tight rehab control.

The Real Test: It's About Expected Return, Not a Ratio

The 70% rule is a shortcut. The rigorous version is a full pro-forma: actual acquisition cost, full carry model by month, rehab cost with contingency, marketing time, and projected sale price. When the full model produces your target return on invested capital (typically 15–25% annualized for South Florida flips), the deal works regardless of whether the ratio is 68% or 73%.

Use the 70% rule for fast preliminary screening — if a deal fails the 70% test badly, don't spend three hours building a pro-forma. If it passes or is close, build the full model to confirm.

Get a Max Bid Calculation

Marcus's BPO & Valuation Report computes the full maximum allowable offer for any South Florida target property — with ARV from comps, rehab estimate by category, and the 70% rule calculation with adjustments for property-specific factors.