Fix & Flip: The 70% Rule and the Costs That Kill Profits

Flips die twice: once at purchase (overpaid) and once at sale (forgot half the costs). Both deaths are preventable with arithmetic.

The 70% rule — your bid ceiling

Maximum Allowable Offer = 70% of After-Repair Value − rehab budget. On a $350K ARV with $60K of work: MAO = $245K − $60K = $185K. The missing 30% isn't profit — it's where your holding costs, selling costs, financing, and margin all live. Pay 80% of ARV and you've donated your profit to the seller at closing.

The rule's honest weakness: it's only as good as your ARV. Comp it against renovated sales of similar size on similar streets in the last 6 months — not the neighborhood's dream listing.

The four cost buckets that vaporize "profit"

1. Financing — hard money at 10-12% plus 2-3 points; six months of interest on $200K is real money
2. Holding — taxes, insurance, utilities, lawn care, every month you own it
3. Selling — agent commissions + closing credits: budget 7-8% of sale price
4. The overrun — renovations run over on schedule and budget so reliably it should be a line item: add 10-15% contingency

Net profit = ARV − purchase − rehab − all four buckets. If that number isn't worth six months of risk and work, PASS.

The discipline that separates pros

Pros bid from the math and walk when the auction passes their MAO. Amateurs fall in love and "make it work." The fix & flip calculator computes MAO and true net profit; the analyzer does it from just an address — and tells you if the same house is better as a rental or a BRRRR, which is sometimes the trade that saves you.