The 70% Rule Is Quietly Costing You Deals

If you've spent any time in real estate investing forums, you know the 70% rule by heart:

**Max Offer = (ARV × 0.70) − Rehab**

It's clean. It fits on a napkin. And it's the first thing almost every new flipper learns. The problem is that the 70% rule is a *rule of thumb* — and rules of thumb break down at exactly the moments when the money is biggest. If you're still running every deal through it, you're overpaying on your cheap houses and getting outbid on your expensive ones, often without realizing either one is happening.

Here's why, and what to use instead.

## The hidden flaw: a percentage isn't a paycheck

The 70% rule bakes your profit *and* your costs into a single percentage. That's the whole appeal — and the whole problem.

When you buy at 70% of ARV minus rehab, the dollar amount of profit you walk away with isn't fixed. It floats with the price of the house. On a cheap house, 30% of ARV is a small number. On an expensive house, it's a huge one. So the same rule that protects you on a $500k flip quietly starves you on a $120k flip — and prices you out of the $500k flip entirely.

Let's put real numbers on it.

## Example 1: The cheap house, where you overpay

Say you're looking at a Norfolk bungalow.

- **ARV:** $120,000 - **Rehab:** $25,000

70% rule: ($120,000 × 0.70) − $25,000 = $59,000 max offer

Buy it at $59k, put $25k into it, and you're all-in at $84k. Sell at $120k, pay roughly 7% (~$8,400) in commissions, closing, and holding, and you net about **$27,600**.

That's a full rehab, a holding period, contractor headaches, and real downside risk — for under $28k. On a house that size, that margin can evaporate with one surprise foundation issue. The 70% rule told you that was a fine price. It wasn't.

## Example 2: The expensive house, where you lose

Now flip the scenario. A Virginia Beach house near the water.

- **ARV:** $500,000 - **Rehab:** $60,000

70% rule: ($500,000 × 0.70) − $60,000 = $290,000 max offer

Buy at $290k, all-in at $350k, sell at $500k, pay ~7% (~$35,000), and you'd net about **$115,000**.

Sounds amazing — except you will *never win this deal*. A $115k profit target on a $500k house means you're bidding so far below market that any competitor with a realistic margin will beat you by $50k–$70k and still make great money. The 70% rule didn't protect you here. It just made sure your offer went straight in the trash.

## A better formula: separate your costs from your profit

The fix is to stop hiding your profit inside a percentage and start treating it like what it actually is — **a dollar figure you can live on.**

That's the math Deal Sherpa runs on every listing:

**Max Buy = (ARV × 0.93) − Rehab − Profit Floor**

Three honest components instead of one blunt one:

**1. ARV × 0.93** reserves ~7% of the sale price for the costs of actually getting paid — agent commissions, closing costs, and carrying costs (taxes, insurance, utilities) while you hold and sell. These are real and roughly proportional to the sale price, so a percentage is the right tool *for this part*.

**2. Minus rehab** — your renovation budget, in dollars.

**3. Minus your profit floor** — the minimum profit, *in dollars*, that makes the deal worth your time, capital, and risk. Deal Sherpa defaults to a **$40,000** floor, but the point is that *you* set the number you need, and it doesn't slide around with the price of the house.

## Run the same two deals again

Cheap house ($120k ARV, $25k rehab, $40k floor): ($120,000 × 0.93) − $25,000 − $40,000 = $46,600 max offer

That's $12,400 *less* than the 70% rule told you to offer — because at $59k you weren't clearing your $40k target. The formula just protected you from a deal that looked fine and wasn't.

Expensive house ($500k ARV, $60k rehab, $40k floor): ($500,000 × 0.93) − $60,000 − $40,000 = $365,000 max offer

That's $75,000 *more aggressive* than the 70% rule — and you still clear at least $40k. That $75k is the difference between winning the bid and watching someone else flip the house.

Same formula. It tightened you up where you were overpaying and freed you up where you were losing. That's what a real underwriting model does, and a flat percentage can't.

## "But 7% and $40k aren't my numbers"

Good — they shouldn't be blindly. The 0.93 assumes a blended ~7% in transaction and holding costs; if you list flat-fee or hold for nine months, tune it. The $40k floor is a starting point; a wholesaler assigning contracts and a flipper carrying a construction loan have very different minimums. The power of the formula isn't the specific numbers — it's that **every variable is something you can see, defend, and adjust**, instead of one magic percentage doing four jobs at once.

## The real bottleneck isn't the math — it's the volume

Here's the catch. Once you switch to dollar-based underwriting, you've made each deal *more accurate* but also *more work* — you need a real ARV, a real rehab estimate, and current costs for every single property. Do that by hand and you'll analyze maybe ten houses a week. Meanwhile your market lists hundreds.

That's exactly what Deal Sherpa was built to solve. It pulls Hampton Roads MLS listings, builds an ARV from real nearby comps, applies the Max Buy formula automatically, and scores every property by how far the list price sits below your max offer — so you spend your time on the five deals worth a call instead of the five hundred that aren't.

The 70% rule got you started. A real model gets you paid.

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*Deal Sherpa scores fix-and-flip deals across Hampton Roads using live MLS data and an ARV comp engine built for the 757. [Start a free trial](https://dealsherpa.app) and see your market scored in minutes.*