What is the 70% rule in real estate wholesaling?

The 70 percent rule is the standard first-pass formula in wholesaling and flipping. It exists because renovating and reselling a house is expensive in ways beginners underestimate, and it compresses all of those costs into one number you can apply to any lead in seconds.

The formula

For a flipper, the rule says: pay no more than 70 percent of ARV, minus repair costs. For a wholesaler, add one more line. Max allowable offer (MAO) equals ARV times 0.70, minus the rehab estimate, minus your assignment fee.

The output is a ceiling, not a target. It is the most you can offer the seller while leaving room for the end buyer's profit and your fee. Every dollar you negotiate below MAO is extra margin.

A worked example

Say a house has an after repair value of $200,000 and needs $30,000 of work. ARV times 0.70 is $140,000. Subtract the $30,000 rehab and the end buyer's maximum all-in offer is $110,000. Subtract a $10,000 assignment fee and your MAO is $100,000.

If the seller will take $95,000, you have $5,000 of extra cushion. If they will not go below $120,000, there is no deal at 70 percent, and no amount of trimming your fee to zero fixes it.

Where the 30 percent actually goes

The 30 percent discount is not pure profit for the buyer. On the $200,000 example, a typical flip budget looks like: a buyer profit target of roughly $24,000 to $30,000 (12 to 15 percent of ARV), financing and holding costs of $10,000 to $16,000 (hard money interest and points, taxes, insurance, and utilities over four to six months), and selling costs of $12,000 to $16,000 (agent commissions and closing costs at 6 to 8 percent).

Add those up and the 30 percent is spoken for. That is why a buyer who only pays 70 percent of ARV is not lowballing. They are pricing the actual cost of the exit.

When to adjust the factor

70 percent is a rule of thumb, not physics. In competitive markets with strong buyer demand and higher price points, buyers often accept 75 percent. For heavy rehabs, slower markets, or uncertain ARVs, 65 percent is safer.

The factor should also fall as price falls. On a $60,000 house, 30 percent of ARV is only $18,000, which does not come close to covering commissions, closing costs, holding, and a profit worth the buyer's time. Low-priced properties need a deeper discount or a fixed minimum dollar spread instead of a percentage.

The best calibration is your buyer list. Ask your active cash buyers what percentage of ARV they are actually paying all-in. Their answer, not the rule, is your market.

Where the rule breaks down

The rule prices exactly one exit: the flip. A landlord buyer holding the property does not care about the 70 percent line; they care whether it cash flows and whether the DSCR clears their lender's minimum. A BRRRR buyer cares whether the refinance appraisal lets them pull their capital back out. If your buyer list is mostly landlords, underwrite the rental exit too, or you will pass on deals they would have bought.

MAO in practice

You can run the MAO formula by hand, or use Realastat's free wholesale calculator, which takes ARV, your ARV factor, rehab, and assignment fee, and grades the resulting spread as Strong, Viable, Thin, or No Deal.

Either way, write the number down before you talk to the seller. The rule only protects you if you commit to it before the negotiation starts.