ARV & Flip Profit.

The 70% rule says an investor should pay no more than 70% of a property’s after-repair value (ARV) minus the cost of repairs. For example, on a home with a $400,000 ARV needing $50,000 in rehab, the maximum offer is ($400,000 × 0.70) − $50,000 = $230,000. The 30% cushion is meant to cover holding costs, selling costs, and profit.

ARV is the estimated market value of a property after all renovations are complete. It is the single most important input in a flip, because the entire deal is built backward from it. ARV is usually set by looking at recent sales of similar, fully renovated homes in the same neighborhood, not by what comparable fixer-uppers are worth.

Many flippers target a net profit of at least 10%–15% of the ARV, or a fixed dollar minimum that justifies the risk and effort. The right target depends on deal size, market speed, and your cost of capital. The key is that the profit is what remains after rehab, holding, and selling costs — not the gap between purchase and resale price.

Divide net profit by the cash you actually invested (down payment or all-cash purchase, rehab, and carrying costs). For example, $60,000 of net profit on $200,000 invested is a 30% ROI. To compare deals of different lengths, annualize it: a 30% return earned in six months is roughly a 60% annualized ROI.

The most commonly overlooked costs are holding costs (loan interest, property taxes, insurance, and utilities every month you own it) and selling costs (agent commission and seller-paid closing). Buy-side closing costs and a rehab contingency for surprises are also frequently underestimated, which is why a flip that looks profitable on price alone can break even or lose money.