What Is the 70% Rule in House Flipping?

You need a fast home sale. Perhaps you’ve inherited an out-of-state property, or you’re facing a life change that demands quick relocation. You may be wondering how much a house flipper or “We Buy Houses” company will pay. One method investors use is the 70% rule — but what is the 70% rule in house flipping? Does it always apply?

In this brief post, we explain this investor offer-price guideline and provide helpful insights before you commit to a flipper or house-buying company.

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What is the 70% rule in house flipping?

The 70% rule is a formula that many house flippers use to determine the maximum price they should pay for a property. The calculation is:

(After-repair value × 70%) – Estimated repair costs = Maximum offer price

• After-repair value (ARV): The price the home could sell for after renovations.
• 70% factor: This accounts for the investor’s profit margin and other expenses.
• Estimated repair costs: The cost to fix up the property before reselling it.

70% rule example:

Let’s say a house flipper estimates that your home will be worth $300,000 after repairs. They also calculate that it will take $50,000 to renovate the home.

($300,000 × 70%) – $50,000 = $160,000

In this scenario, the flipper or We Buy Houses company would likely offer no more than $160,000 to ensure they make a profit while covering their costs.

Seeing the dramatic difference between an after-repair value of $300,000 and a cash offer price of only $160,000 may be hard to swallow. You might think, “If I could come up with the $50,000 and time to repair the home, I could sell it for $140,000 more.” But there’s the rub when you need to sell quickly.

After investing $50,000 and putting your plans on hold, you may only receive $90,000 more, and then you must weigh that amount against all other expenses related to your situation:

• Time and money to travel to and from the location of an inherited house
• The costs of not being where you need to be (e.g., job, family, care facility)
• Maintaining mortgage payments and other home-related expenses
• The risk of foreclosure and possibly losing the home

For some, the convenience of a fast, all-cash sale outweighs the difference in final proceeds.

»Learn more: Read This Before You Sell Your House for Cash

Do all house-buying companies use the 70% rule?

When asking the question, What is the 70% Rule in house flipping? it’s important to note that not every house-buying company strictly follows this as a “rule.” While it’s a common guideline, there are some key factors that can influence a cash buyer’s offer:

• Market conditions: In a competitive market, investors may be willing to pay more than 70% of a home’s after-repair value (ARV) to secure a deal.
• Investor strategy: Some investors focus on long-term rentals or selling to institutional buyers, which may lead them to adjust their pricing models.
• Holding costs: Expenses such as property taxes, utilities, and insurance can impact how much a buyer is willing to pay.
• Buyer competition: If multiple investors are interested in a property in a coveted location, you might receive offers that exceed the 70% guideline.
• The house-buying company: Because offers can vary between investors, it’s wise to get quotes from multiple house-buying companies before making a decision.

»Learn more: How Much Do House-Buying Companies Pay