The 70% Rule in House Flipping

Formula: Maximum total investment = 70% × ARV. Example: property ARV is $350k post-renovation. 70% × $350k = $245k. Your maximum combined purchase + rehab budget: $245k. If you acquire property for $200k and plan $40k rehab, total $240k (under $245k limit), deal passes the 70% rule. This $5k cushion ($245k - $240k) is safety margin for holding costs or unexpected overruns. The 70% rule doesn't account for: acquisition costs (title, appraisal, 2-3% of purchase). Holding costs ($1-3k/month). Selling commission (6% of sale price = $21k on $350k sale). After these costs, that $5k cushion evaporates. So the 70% rule is conservative—it suggests stronger deals have 15-30% profit margin after all expenses. Weak deals (under 70% rule but just barely) might only have 5-10% margin, leaving little buffer for surprises.

Some lenders or regions use different percentages (75%, 80%). Why 70%? Historical data: flippers who follow 70% rule have better success rates and profit margins. The 30% remainder (100% - 70%) covers: acquisition costs 3%, holding costs 8%, realtor commission 6%, lender fees 1-2%, contingency/surprise buffer 5-10%, net profit 5-8%. This breakdown assumes 6-12 month timeline and normal market conditions. In slow markets, 70% is too loose; you should target 60-65%. In hot markets, you might stretch to 75%. LYNK Mortgage evaluates each deal individually; 70% is a starting heuristic, not a hard rule. We consider: deal quality, your experience, market conditions, timeline.

Step 1: Estimate ARV using comparable sales (3-5 recent comps of similar properties, renovated, in same area). Step 2: Calculate 70% of ARV. Step 3: Subtract expected rehab cost; remainder is maximum purchase price. Example: ARV $300k, 70% = $210k, planned rehab $45k, max purchase $165k. If property is listed at $170k, it doesn't pass the filter (unless you negotiate down). Step 4: LYNK Mortgage appraisal may confirm or adjust ARV; if appraised at $280k instead of $300k, your deal no longer pencils. The 70% rule is useful during deal hunting: quickly filter 50 MLS listings down to 5 candidates that pass the rule. Then deep-dive on those 5: verify comps, get contractor estimates, apply for LYNK Mortgage financing.

Strong market conditions: hot market, properties selling fast, ARV rising. You might stretch to 75% because market appreciation helps you. Proven operator: you've done 20+ flips, you have established contractor relationships, faster execution. You might stretch to 75% because you have execution edge. Value-add expertise: you identify opportunities to add value beyond standard rehab (variance/zoning opportunities, ADU addition, unique positioning). You might stretch to 75-80% if you have special insight. Distressed deals: you find true steals (property at 50% of market due to condition/market dysfunction). You can operate at higher leverage and still hit 20% IRR. Never ignore 70% rule if: you're inexperienced (stick to conservative deals), market is declining (be very conservative), your contractor is untested, ARV estimates are speculative. LYNK Mortgage uses deal-based underwriting; if you can articulate why a deal above 70% still works (strong market, proven experience, special edge), we evaluate on merits.