The 70% rule, explained with a worked example.

What the 70% rule says

MAO = 70% × ARV − rehab

MAO is your maximum allowable offer: the ceiling, not the opening number. ARV is the after-repair value, what the house sells for once it’s renovated, judged against renovated comps. Rehab is everything it costs to get it there. Keep 70% of the ARV, subtract the repairs, and what’s left is the most you can pay.

The 30% you didn’t keep is not profit. It’s the budget for every cost between buying and selling, with your margin somewhere inside it. Investors who treat it as profit are the ones who buy at MAO and break even.

Worked example: a 1946 house in 78201

This is the public example we use across OffMarket: an unlisted single-family house in San Antonio’s 78201 ZIP. Built 1946, 3 bed / 1 bath, about 1,200 sq ft, held by an absentee owner since 1971. It isn’t listed, so there’s no asking price to anchor to. You start from the math.

0.70 × $219,000 = $153,300. Minus $84,500 of rehab leaves $68,800. That’s the ceiling. Between your price and the ARV, after rehab, sits $65,700: the spread that has to pay for closing on both ends, holding, selling and your profit.

Now the sanity check. The house’s automated as-is value is $162,000. Run the rule on that instead of the ARV and you get $28,900, the offer that still works if the renovated house sells for no more than it’s worth today. The gap between $28,900 and $68,800 is how much of this deal rides on the ARV being right.

What the 30% has to cover

On a $219,000 ARV, 30% is $65,700. Before you trust it, work it backwards against your real costs:

• Buying: title, escrow and your side of closing.
• Holding: taxes, insurance, utilities and loan payments for every month of rehab and resale. A four-month plan that runs to seven eats margin fast.
• Selling: agent commission, concessions and closing on the exit.
• Financing: points and interest if you’re on hard money.
• Profit: whatever survives the four lines above.

If those costs eat most of the 30% in your market, the rule isn’t conservative for you. It’s your break-even line. Change the percentage, not your hopes.

Get the ARV right first

ARV moves MAO more than any other input. Every $10,000 you overstate ARV adds $7,000 to your MAO: money you hand the seller and never see again on the resale. Build it from closed sales of renovated homes that match the subject on size, age, beds and baths, close by and recent. Asking prices are what sellers hope for. Automated values are a starting point.

In the 78201 example the comps are active listings, which is exactly why we show a value range and run the as-is case. Stress it: at a $199,000 ARV the MAO drops to $54,800. If the deal only works at the top of the range, it doesn’t work.

Rehab before the walkthrough

Before you’ve walked it, price rehab per square foot by scope. OffMarket starts every lead from three tiers keyed to the year built:

• Light, $20/sq ft (built 2000+): paint, flooring, fixtures.
• Medium, $40/sq ft (1970–1999): plus a kitchen and bath refresh and some systems.
• Heavy, $70/sq ft (before 1970): plus roof, HVAC, electrical and plumbing risk. The 1946 house lands here.

Rehab hits MAO dollar for dollar. If the 78201 house needs $94,500 instead of $84,500, MAO falls to $58,800. A tier is a planning number, not a bid: walk the house, then get contractor numbers before you commit.

When to move off 70%

Seventy is a convention, not a law. Investors working light cosmetic rehabs, fast resale markets or higher price points often run 75–80%, because fixed costs take a smaller bite of a bigger ARV. Heavy rehabs, slow markets, low price points and thin buyer pools argue for 60–65%.

On this deal, 65% gives $57,850 and 75% gives $79,750. Five points of rule is about $11,000 of offer. Pick the rule from your cost stack, never from the seller’s number.

Wholesaling: MAO isn’t your offer

If you’re assigning the contract, the 70% math gives your end buyer’s ceiling, and your fee comes out of it. With a $7,500 assignment fee, the most you can put in front of the seller is $61,300. Contract above that and either your buyer walks or your fee does.

Where the rule doesn’t fit

The 70% rule is flip math. It assumes you buy, renovate and resell, and that the spread pays for the trip. Use it outside that lane and it misleads in both directions:

• Buy-and-hold. A rental lives or dies on rent, expenses, financing and what a refinance appraises at, not on resale. Run the 70% number as a floor check, then underwrite the cash flow separately.
• Very low price points. Closing, carry and selling costs don’t shrink in proportion to the house. On a cheap ARV, 30% may not cover them, let alone a profit.
• Tiny rehabs. A paint-and-carpet job on a house that barely needs it can justify a higher rule, because less time and less risk sit between buying and selling.
• Shaky ARVs. Rural parcels, unusual houses and thin sales history make the ARV a guess. The rule can’t fix a bad input; a lower rule only cushions it.

From MAO to opening offer

MAO is where you stop, not where you start. Open below it so there’s room to move when the seller counters, and decide your walk-away before the call, not during it. On the 78201 house, the as-is case ($28,900) and the full-ARV case ($68,800) bracket the conversation: one is the number that works if nothing goes right, the other is the ceiling if everything does.

Show your work when it helps. A seller who sees the ARV, the rehab line and the rule is arguing with arithmetic, not with you. That’s the point of having the number before you dial.

Checklist before you call

• ARV from renovated, closed comps, with a low case you’d still buy at.
• Rehab by tier, then by walkthrough and bids.
• A rule picked from your real costs, not habit.
• MAO, minus your fee if you’re wholesaling.
• An opening offer below MAO, so you have room to move.

Know your number before the seller says theirs. Need sellers to run it on? Start with absentee owners from public records and long-term owners.

Estimates, not financial or legal advice. Examples use OffMarket’s public San Antonio 78201 deal, generalized to ZIP level.