Real Estate Deal Analysis & Advice

Blindly Following the 70% ARV Formula is For Fools: Here’s Why

Expertise: Personal Development, Business Management, Real Estate Marketing, Real Estate Deal Analysis & Advice, Real Estate Investing Basics
70 Articles Written

One thing that I see continually — not just in Forum discussions, but from my colleagues and fellow investors at meet ups — is the need to stick to some arbitrary number for a given property to be branded as a deal.Chris Feltus

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I don’t know if it’s out of ignorance, a strong desire to stick within their comfort zone or maybe it’s a combination of both. Whatever the case, this is something that needs to be addressed to clear the confusion. Let me say this: If you blindly follow the 70% ARV formula, it is foolish and you will let deals fall through your fingertips. In fact, sticking to any arbitrary percentage is foolish. If you keep trying to fit a square peg into a triangle slot, it will never fit. Let me explain before you guys dig out the pitchforks and torches.

Exit Strategy

Why is trying to strictly adhere to a guideline like this foolish? Part of it boils down to your exit strategy. We will be using 70% again since it’s what’s quoted on the Forums most commonly. Back before the market became tighter, I also saw other investors pass on anything they didn’t feel met the 70% guideline.

Related: The 70% Rule: One Critical Formula Investors Need to Know

Let’s repeat that word again: These numbers are nothing more than a guideline. They are not hard and fast rules. They are meant to help steer you in the right direction; they are not some sort of binary litmus test that is either pass or fail. Let’s look at a few common exit strategies and how the 70% rule holds up:


This is where the 70% guideline is most commonly “enforced.” For flips, 70% is a good guideline, but even here you can flip in some neighborhoods on thin margins and still turn a huge profit. This is why it’s important to be an expert in your target neighborhoods, as I touch on a little bit later.


Sometimes people don’t best understand the type of exit strategy a given property qualifies for. Many times when other investors forward their deals to my inbox, I just shake my head. From experience I can see that a lot of these homes have an estimated repair cost that is more in line with a complete overhaul retail flip.

The cost discrepancy can easily be $8 to 12k and make the difference of whether the house is worth the time and money or not. As a result, other investors sometimes pass on the deals – even though they have huge potential, but not as a flip but a rental.

Owner Finance

I have seen investors buy in rough areas and make a huge profit time and time again. Read about some of the rougher houses that I have visited to get an idea. These are the sort of houses I have no interest in personally, but if you have the right network, you can easily wholesale it to another investor who regularly buys this type of housing.

For instance, one of my last wholesale deals was in a neighborhood in Dallas that was still in a transitional state. The neighborhood was bisected by a road, and everything north of the road was fine, but going south, things started to get rough. This particular house was located in the rough side of the neighborhood. But guess what? It didn’t matter.

If we were to look at the "napkin math" of this, it would be over 85% ARV. But since the investor knows the type of buyer pool for this type of house like the back of his hand, he knows that the buyers themselves are going to put in the majority of the repairs since they are unable to qualify for a traditional loan. He just does the bare minimum in the meantime. And now he has a note for 30 years that will continue to generate him income.

Your Pool of Buyers

It also depends on not just the property, its best exit strategy and the neighborhood — but also your pool of buyers. I know hedge funds in the area that will buy at 95-98% ARV, no questions asked, every time, as long as the repairs are not too substantial and the houses aren’t older than 1980. How many of these leads do you get every month and throw away into the trash can? Start converting these; find the major players in your market. I can take one of these “garbage leads,” convert it and use the profit to fund a few months of marketing.

Related: Why I Pay More for Fix and Flips than the 70% Rule States I Should

Knowing Your Neighborhoods

Beyond picking the right exit strategy, it’s about being an expert in the neighborhoods you market to. I know several subdivisions in my backyard where flippers can make a huge return on razor thin margins. On paper these sort of deals would never pass any of these ARV guidelines. But if you were an expert in the area, you would know otherwise.

Marketing Dollars

Let’s face it, deals are coming harder to come by these days, and we need to stretch our marketing dollars as far as possible. You can spend the same amount, but bring in more deals simply by evaluating each property to see what the best possible exit strategy is – instead of trying to force arbitrary numbers like the 70% rule.

Investors: What do YOU think? Do you stick to the 70% rule religiously — or do you take it with a grain of salt?

Be sure to weigh in with a comment!

Chris is an active real estate investor who buys and flips houses in the Dallas real estate market. He enjoys helping others along on their journey. In addition, Chris operates as a licensed Realtor in the Dallas-Fort Worth area.

    Thomas Phelan
    Replied over 4 years ago
    I agree with Chris about knowing neighborhoods. Because I knew a neighborhood, actually the city of Cheyenne, like the back of my hand I purchased what we called the “Monster” house for $43,000. It was an old tired Victorian that had been changed to two rentals and added two rear one bed one bath units. The combined cash generated from rentals was $800 monthly, not a bad return. However, this property could have been the Poster for “Slum Landlording which I was not interested in continuing. We purchased the property and began repairs which included a new roof, complete ext. and int. paint, sanded the hardwood floors, installed a new kitchen and totally remodels the baths. We converted the Victorian back into a four bed two bath home and rented it Section 8 for $1,200 monthly. We spruced up the back two units, each 1 bed and 1 bath for $400 each monthly. All in all we invested $80,000 in repairs. Wow, there goes your 70 ARV up in flames. Maybe but the combined investment was around $125,000 and we had the property sold a week before we finished and at $165,000. To me $40,000 in profits for a few months work was well worth the efforts. And the reason we sold it so quickly is because we had a list of serious investors who jumped at the chance to buy a totally remodeled property for $165,000 with rentals of $2,000 monthly .
    Jason Bible rental_property_investor from Houston, TX
    Replied over 4 years ago
    Chris, Someone linked the article to me on FB. There is a good portion of this article that is down right dangerous. One of the arguments I have been making at our REIAs is if you can’t consistently find deals in the 70’s, start a retail business and pick up deals when you find them. Otherwise you could just get better at marketing and negotiating. Professional investors must buy at or below 70% if their plan is to take possession of the real asset.
    Orlando Cestona from Clark, New Jersey
    Replied over 4 years ago
    I agree with you Chris, know your market and plug in your “actual costs”
    Robert Horton from Camden, South Carolina
    Replied over 4 years ago
    When I first started flipping, I tried using these rules of thumb I’d read about and quickly found that every house is different. My last 5 flips I have purchased at 62%, 65%, 66% & 60% of ARV. I made the decision on what the purchase price would be based on rehab costs, carrying costs and re-sale price. It’s really not that hard to run the numbers. The hard part in this new market is finding good deals.
    Andrew Syrios from Kansas City, Missouri
    Replied over 4 years ago
    I would say the 70% rule is a good rule of thumb, but following blindly is, as you say, foolish. There are plenty of exceptions and you definitely need to keep your eye open for them and actually plug in the numbers before following through on anything. That being said, the 70% rule isn’t completely useless like say the 2% rule.
    Bart Johnson investor from Edmonton, AB
    Replied over 4 years ago
    It’s heartening to see that I’m not the only one who thinks the 70% rule is not always workable. I’m new to RE investing, but I can tell you, in the market I’m in, I’m having trouble seeing how it would ever work. A typical investment property here (Edmonton, Alberta) would have an ARV of around $400k. Using the 70% rule, I’d have to snatch that property for $280k — and that’s if it doesn’t need any work. Who is going to sell his house for $120k under market value? And who expects a profit of $120k on a single flip? Or even $100k. I can see the formula working in many US markets where houses sell for $100k or $150k (ARV), but there are no houses like that anywhere in Edmonton. I haven’t even done my first flip, so maybe I’m the last guy who should be commenting, but my approach will be dollar-based, not percentage-based. Set a goal of a profit I want to make and then do the deal according to that. Am I out to lunch here?
    Rashawn Collins from Las Vegas
    Replied over 1 year ago
    I agree. The 70% rule doesn’t work in all areas. I’m looking to wholesale in Vegas and Dallas. The 70% rule doesn’t apply in Dallas. They have homes that have been sitting for close to a year already rehabbed and ready to be sold.