The 70% Rule in House Flipping and How 100% Financing Changes It

The 70 rule in house flipping is the single most used screening formula in real estate investing, and for good reason. It tells you the absolute maximum you should pay for a distressed property so that you still have room for repairs, expenses, and profit. But the math shifts when you layer hard money loans with gap funding to achieve 100% financing. This guide breaks down the formula, walks through real numbers, and explains what to consider when you're stacking capital instead of writing big checks.

Quick Answer: What Is the 70% Rule in House Flipping?

The 70 rule in real estate says your maximum purchase price should be no more than 70% of a property's after repair value (ARV) minus the amount you estimate for repairs. It exists for one reason: to help you avoid overpaying for distressed properties.

Here's the formula:

Maximum Allowable Offer (MAO) = ARV × 0.70 minus Estimated Repair Costs

If the ARV is $300,000 and repairs are $50,000, your MAO is $160,000. Anything above that starts compressing the 30% margin that covers closing costs, holding costs, financing costs, selling costs, and your target profit. The 30% margin includes all additional costs, not just profit.

The rule serves as a screening tool rather than a final budgetary measure. You still need a full deal budget before committing capital. And when you're using 100% financing by coupling hard money with a gap funding capital stack, that 30% buffer becomes even more critical because every dollar of your project carries a debt cost.

How the 70% Rule Actually Works: Formula, Numbers, and a Realistic Example

Let's walk through the 70 rule in house flipping step by step using numbers that active house flippers saw in 2024 and 2025 in mid-priced US markets like Indianapolis or Tampa.

Estimating after repair value is essential for applying the 70% rule. ARV is the estimated resale price after all renovations are complete, based on recent comparable sales rather than the seller's asking price.

Here's a realistic example. You find a distressed property in a neighborhood where renovated homes sell around $340,000. Your contractor walks the property and estimates $55,000 in needed repairs (kitchen, baths, flooring, exterior siding).

ARV: $340,000
70% of ARV: $340,000 × 0.70 = $238,000
Minus $55,000 rehab budget = $183,000 MAO

Anything above $183,000 as a purchase price compresses your safety margin. The 70% rule limits offers to 70% of ARV minus repairs, and that remaining 30% ($102,000 on this deal) needs to cover a lot of ground:

Agent commissions and selling costs: 6% to 8% of ARV (about $20,000 to $27,000)
Closing costs (purchase and sale): 2% to 3% of ARV (about $7,000 to $10,000)
Holding costs (taxes, insurance, utilities): 5% to 7% of ARV (about $15,000 to $25,000)
Financing costs (hard money, gap funding): variable
Contingency for unexpected costs: about $10,000 to $15,000
Your profit: 10% to 15% of ARV (about $34,000 to $51,000)

The 70% rule is a fast screening tool. It tells you whether a deal is worth pursuing before you spend hours building a full budget. But it is not a complete underwriting model. Every deal that passes the initial test still requires line item analysis.

Key Inputs: ARV, Repair Costs, and the Hidden "Other 30%" Expenses

The 70% rule is only as good as your ARV and repair estimate. Bad inputs produce bad investment decisions.

How to Estimate ARV

Use 3 to 6 recent comparable sales from the past 3 to 6 months within about half a mile of the subject property. Match square footage, bed and bath count, and quality of finishes. Always use sold prices, never the asking price. Adjust for differences in garage, lot size, year built, and property uniqueness. In fast-changing market conditions like the interest rate swings of 2024 and 2025, lean conservative. Your local real estate market may be shifting underneath you.

How to Accurately Estimate Repair Costs

Walk the property with a licensed contractor and build a line item rehab budget: roof, HVAC, kitchen, baths, flooring, exterior, permits. Estimates for repair costs must include materials, labor, permits, and unexpected overruns. Avoid relying on "per square foot" guesses until you have more investor experience. Add a 10% to 15% contingency on top of the original repair estimate to protect against surprises. Unexpected repairs can significantly increase total project costs, and in real estate investing, accurate repair estimates are crucial to avoid profit loss.

What's Inside the Other 30%

Closing costs typically range from 2% to 3% of ARV and include title insurance, escrow fees, transfer taxes, recording, and lender fees. Holding costs can account for 5% to 7% of ARV, covering property taxes, insurance, utilities, lawn care, and carrying costs during rehab and listing. Financing costs include hard money interest (often 9% to 13%), points, and any expenses from gap funding or business credit cards. Selling costs usually range from 6% to 8% of ARV and include real estate commissions, seller concessions, staging, and minor touch-ups.

For most flips, 10% to 15% of ARV goes to these other costs and buying costs, and 10% to 15% of ARV becomes the actual profit. Those profit margins only hold if the deal stays on budget and on schedule.

Using the 70% Rule with Different Investment Strategies (Flip vs. BRRRR)

While the 70% rule was popularized for house flipping, it also appears in BRRRR deal analysis and other investment strategy approaches.

In a classic fix and flip, house flippers sell quickly. They must cover rehab costs, closing costs, holding costs, and profit inside that 30% buffer, making the percentage based screening essential. Wholesalers often run the same math and subtract their assignment fee from the maximum offer.

For a BRRRR deal, the ARV is still based on after repair comps, but the exit strategy is refinance instead of sale. Many real estate investors still want to be all in at around 70% to 75% of ARV so that a 75% LTV refinance can pay back most of their capital. For example, with an ARV of $260,000, the 70% rule puts the total project cost target at roughly $182,000. A 75% LTV refi (about $195,000) can then retire the hard money loan and most gap funding, leaving you with a cash flow positive rental.

Different exit strategies justify adjusting the rule percentage. Experienced investors working light cosmetic "wholetails" in hot zip codes may stretch to 75% to 80% of ARV because rehab is minimal and days on market are short. Conversely, heavy rehab on low-end houses in a soft local market might call for 65% or lower.

When and Why Investors Adjust the 70% Rule

The 70 rule in real estate is a guideline, not a law. Experienced operators routinely adjust it based on risk, local data, and deal specifics.

Market type and price point matter. In low-priced markets ($80,000 to $130,000 ARV houses in parts of the Midwest or South), some investors use 60% to 65% because fixed closing and holding expenses eat a larger share of profit potential. Higher-priced properties may allow for 80% ARV adjustments because the absolute dollar margin is larger. In competitive markets, investors may stretch to 75% to 80% of ARV to secure properties when inventory is tight. Adjust the 70% rule based on market conditions in your area.

Investor experience and team quality change the equation. Seasoned investors who can tightly manage contractors and accurately estimate rehab costs may accept thinner margins. Experienced investors can exceed the 70% rule by 1% to 2% on deals they know well. Newer investors should stay more conservative, sometimes targeting 65%, until they have documented flips under their belt. You don't need a real estate license to flip houses, but you do need field-tested judgment.

Exit strategy shifts the math. Pure house flipping with agent commissions requires deeper discounts than a landlord buying for long-term cash flow. Landlords can sometimes purchase properties at 76% to 80% of ARV because their return comes from rents and appreciation. Unique properties may justify breaking the 70% rule when comps support premium pricing after rehab.

In very hot markets with multiple offers and low inventory, many offers using a strict rule in house flipping will get rejected. You must decide whether to walk away or accept a smaller profit for deal velocity.

100% Financing and the 70% Rule: Coupling Hard Money with a Gap Funding Capital Stack

Many flippers today use "100% financing" by combining a hard money lender with a gap funding partner to cover down payments, closing costs, and rehab draws.

How hard money works. Most hard money lenders fund 80% to 90% of the purchase price and 100% of the rehab budget, but cap total financing at about 70% to 75% of ARV. Notice how closely that mirrors the 70% rule. Lenders are protecting their own exposure based on after repair value, just like you should be.

What gap funding does. Gap funding uses unsecured term loans, stacked 0% intro APR business credit cards, HELOCs, and business lines of credit to bridge the gap between what hard money covers and the full project cost. This capital funds down payments, closing costs, holding costs, reserves, and sometimes part of the rehab. Everything stays non-dilutive: no equity splits, no lien on the flip property.

Numeric example combining both. Using the earlier deal (ARV $340,000, MAO $183,000, rehab $55,000), total project budget including soft costs runs around $230,000. A hard money lender funds 85% of purchase ($155,550) plus 100% of rehab ($55,000) for $210,550 total. Gap funding covers the remaining ~$19,450 plus closing costs and reserves via 0% intro APR business credit cards or term loans, bringing cash to close near $0 for a qualified borrower.

Why the 70% rule becomes even more critical here. All capital has a cost. The 30% margin must safely cover hard money interest, points, gap funding payments, and standard expenses while still leaving meaningful profit. If you violate the rule in house flipping with high leverage, you risk working only for your lenders. Every dollar you pay above MAO comes directly out of your profit on a fully leveraged deal.

What to Consider Before Using 100% Financing on a 70% Rule Deal

Full leverage magnifies both profits and losses. You need strict discipline around the 70% rule and clear-eyed risk management before making investment decisions with borrowed capital.

Debt Service

Calculate monthly payments on both hard money and gap funding products (term loans, business credit cards, lines of credit) during the rehab and listing period, and consider whether short-term earnest money deposit financing will add to that payment stack. Know your total monthly burn rate before you close.

Timeline

Build conservative estimates for rehab duration, inspection delays, and days on market. Every extra month increases interest and holding costs. Assume rehab takes 5 to 6 months and selling takes 1 to 2 months.

Total Project Cost vs. ARV

Confirm that combined financing keeps you under roughly 70% to 75% of the property's ARV all in. If the numbers only work at 80% or more, the deal carries more risk than most investors should accept.

Risk Buffers

Keep a cash reserve or unused credit line for surprises like change orders, contractor delays, or inspection repairs demanded by buyers. Conservative ARV and repair estimates matter even more when fully leveraged because you have no equity cushion absorbing mistakes.

How Gap Funding Reduces Risk

By providing capital for closing costs, holding costs, and contingencies, investors are less likely to cut corners or halt work due to cash crunches. Soft credit pulls and no liens on the investment property leave flexibility to refinance or sell without encumbrances.

Treat 100% financing as a professional capital stack strategy, not free money. Always run a full deal budget alongside the 70% rule before committing.

Practical Steps: Applying the 70% Rule to Real Deals (With and Without Gap Funding)

Here's a repeatable process for evaluating house flipping deals using the 70% rule and then deciding how to fund them.

Step 1: Source candidates. Pull deals from MLS, wholesalers, auctions, or driving for dollars. Run quick ARV comps.

Step 2: Walk the property. Estimate repair costs with a contractor. Add 10% to 15% contingency for unexpected costs.

Step 3: Calculate MAO. Use the formula: ARV × 0.70 minus repairs. Compare to the seller's asking price and likely negotiation range.

Step 4: Build a full deal budget. Include closing costs, holding costs, selling costs, and financing costs to verify the 70% rule result is realistic.

Step 5: Structure financing. Identify how much a hard money lender will advance and how much gap funding is needed for down payment, rehab draws, and reserves.

If the asking price exceeds your maximum allowable offer, you have options: renegotiate the purchase price, tighten the rehab scope to reduce costs, find cheaper financing, or walk away. Not every deal is worth pursuing, and discipline here protects your profit.

This process also applies to a BRRRR deal. Calculate MAO the same way, then check whether post-rehab rental income supports a refinance and covers the combined financing payments to maintain healthy cash flow.

How Gap Funding Fits into Your 70% Rule Investment Strategy

Gap funding helps real estate investors execute more deals that meet the 70% rule, even when personal cash is limited. Instead of sitting on the sidelines waiting to save up a down payment, you can stack capital intelligently and close now.

Specific tools that interact with house flipping and BRRRR projects:

Unsecured term loans to cover down payments, closing costs, and early rehab expenses before hard money draws kick in.

Business credit card stacking at 0% intro APR to handle materials, labor draws, and holding costs during the first 9 to 18 months of a project.

HELOCs and business lines of credit for repeat investors looking to scale volume across multiple flips or rentals.

By filling the funding gap without diluting equity, investors can stick to their MAO, avoid overbidding just to win deals, and still close quickly. The 70% rule plus an intelligent capital stack isn't two separate ideas. It's one integrated investment strategy.

I work on the funding side at Gap Funded, and this is the math we walk through with investors every week. I'm curious how others are handling it right now: are you sticking to 70% in your market, or have you had to adjust higher or lower to get deals done?