The 70% Rule in Real Estate: How It Works and When to Break It
Quick Answer
The 70% rule states that you should pay no more than 70% of a property's after-repair value (ARV) minus renovation costs. It is a quick-screen tool, not a comprehensive underwriting model. Adjust to 65% in slow markets or 72–75% only in competitive markets with extremely tight renovation scope.
The 70% rule exists because real estate transactions are expensive, slow, and illiquid. Unlike stock trades that cost pennies, buying and selling a property costs 7–12% of value in combined transaction costs. This is the baseline your margin must cover before you see a single pound or dollar of profit.
The 30% buffer covers four things: transaction costs (7–12%), holding costs during renovation and marketing (3–6%), your target net profit (10–15%), and a contingency for overruns and delays (3–5%). When you understand what the 30% is protecting, you understand why disciplined investors rarely deviate from it.
When to tighten below 70%: in a slow market where days-on-market exceed 60 days, in areas with falling comps, or when the renovation scope is complex and carries high execution risk.
When 70% can be stretched: in highly competitive off-market deal environments where prices are bid up, when the renovation scope is minimal (cosmetic only, under £10,000), or when you have locked-in end buyers before purchase.
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