The 70% rule is the first screen most flippers learn: pay no more than 70% of the after-repair value (ARV), minus the cost of repairs. It’s a good screen. It isn’t a business plan. Here’s a hypothetical Triangle flip, run through the rule and then stress-tested the way I’d test a real one.
Every number below is hypothetical, chosen for teaching. It is not a real property or a projection for any specific home.
Step 1: The 70% rule
- After-repair value (ARV): $425,000, based on sold comps of updated homes nearby
- 70% of ARV: $297,500
- Estimated repairs: $45,000
- Maximum offer: $297,500 minus $45,000 = $252,500
Step 2: Add the real costs
| Item | Base case |
|---|---|
| Sale price (ARV) | $425,000 |
| Purchase price | $252,500 |
| Repairs | $45,000 |
| Selling costs (assumed 6% of sale price) | $25,500 |
| Buyer closing costs (assumed) | $4,000 |
| Holding costs: taxes, insurance, utilities, loan interest (assumed $3,000 a month for 5 months) | $15,000 |
| Profit before income taxes | $83,000 |
On paper, that’s a strong deal. Now let’s see how fragile it is.
Step 3: Stress-test the 70% rule
Three things go wrong at once, none of them unusual:
- The ARV comes in 5% lower: $403,750. Selling costs at 6% become $24,225.
- Repairs run 20% over: $54,000.
- The project takes 7 months instead of 5: holding costs become $21,000.
Profit drops to about $48,000, down more than 40% from the base case. Still a deal, but a thinner one, and one more surprise (a foundation issue, a second price cut) could erase most of what’s left.
Also remember that this profit is before income taxes, and short-term flip profits are often taxed differently from long-term investments. Ask your CPA before you count the money.
Where the 70% rule falls short this fall
Holding costs grow with every month, and the market is slower than it was in spring. In September, the median Raleigh-Cary listing took 59 days to sell, up from 44 in April, and 44% of active listings had cut their price (Realtor.com via FRED). Financing costs are higher too: the average 30-year fixed rate was 7.40% on October 8, per Freddie Mac. Investor loans usually cost more than that, so check your own lender’s terms.
What I’d check before making an offer
- ARV from sold comps only, ideally from the last few months and the same neighborhood.
- A repair budget with a contingency, built from a contractor’s walk-through, not a guess.
- A realistic timeline: permits, contractor availability, and current days on market.
- Your exit if it doesn’t sell: could it work as a rental? My guide to buying a rental property in Cary covers that math.
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Hypothetical example for education only; not investment, tax or lending advice. Mike Hall, The Triangle Real Estate Professor, is a broker with First Flight Realty in Cary, NC, and an NCREC-approved real estate instructor.
