How Much Profit Can You Make Flipping Houses with the 70 Percent Rule?

What the 70 percent rule means

The 70 percent rule is a fast way to set your maximum purchase price.

Formula:

Maximum purchase price = (ARV x 0.70) minus rehab cost

Where:

• ARV means after repair value, what the property should sell for after renovation.
• 0.70 leaves room for financing costs, closing costs, holding costs, sales costs, and profit.
• Rehab cost is the full construction scope needed to deliver a market ready home.

For example:

• ARV: 400000
• Rehab: 80000
• Max purchase: (400000 x 0.70) minus 80000 = 200000

If you can buy around 200000 or lower, the deal may work. If the seller needs 240000, you are likely squeezing profit unless you have a very strong reason for a higher ARV or lower rehab.

Before locking a number, compare this with How to Underwrite a Philadelphia Duplex and The BRRRR Method Applied to Philadelphia's Rowhome Market.

How much profit is realistic in Philadelphia

Most first pass spreadsheets overstate profit because they understate friction costs. In Philadelphia, your net outcome usually sits in one of these ranges when the project is executed well:

• 20000 to 35000 net profit on smaller cosmetic projects with tight margins.
• 35000 to 65000 net profit on clean full interior updates with controlled timelines.
• 65000 to 90000 net profit on stronger value add projects where buy price discipline is excellent.
• 100000 plus is possible, but less common and usually tied to an exceptional buy, an unusual value gap, or very strong market momentum.

This is why I treat the rule as a guardrail, not a guarantee.

The full profit formula you should use

The real underwriting equation is:

Net profit = resale price minus total project cost

Total project cost includes:

• purchase price
• rehab cost
• closing costs on acquisition
• financing costs
• insurance, utilities, taxes during hold
• staging and listing prep
• agent commission and seller transfer taxes
• closing costs on resale

If you skip any one of these, your projected profit can be wrong by 10000 to 30000 dollars.

Philadelphia costs that most investors miss

Here are the misses I see repeatedly in Philadelphia flip underwriting:

1. Transfer tax on resale. This is not small and needs to be in your disposition line item from day one.
2. Permit timeline drag. Delays can add one to three extra months of carrying cost.
3. Unexpected systems work. Rowhomes often hide plumbing, electrical, or structural issues behind clean walls.
4. Basement moisture remediation. Common and expensive when discovered late.
5. Buyer credit at settlement. In softer weeks, buyers push for credits even on renovated homes.

If you want a process view of execution risk, read Flipping Houses in Philadelphia, My Process as an Agent and Contractor.

Example deal, stronger buy discipline

Assume this project:

• Target ARV: 390000
• Rehab: 85000
• Purchase: 185000
• Acquisition closing costs: 6500
• Financing plus points and interest: 14500
• Carry costs for 6 months: 9000
• Sale commission and closing costs: 29000

Total project cost:

185000 + 85000 + 6500 + 14500 + 9000 + 29000 = 329000

If resale closes at 390000:

390000 minus 329000 = 61000 net profit before income taxes.

Now compare to the 70 percent rule max buy:

(390000 x 0.70) minus 85000 = 188000

You bought at 185000, so you were inside the rule, and the result is healthy.

Example deal, overpay risk

Same project, but purchase at 220000:

• Total project cost becomes 364000
• Resale still 390000
• Net profit: 26000 before income taxes

At this point, one delay, one credit request, or one low appraisal can wipe out most of the gain. This is exactly what the 70 percent rule is trying to protect you from.

Why the 70 percent rule breaks sometimes

The rule is useful, but it is not universal. It can be too aggressive or too conservative depending on context.

It can be too aggressive when:

• financing is expensive and rates are high
• project timeline is long
• resale market is flat
• scope has major systems replacement

It can be too conservative when:

• buy price is deeply discounted off market
• construction team is in house and cost efficient
• neighborhood demand is accelerating
• project is a light cosmetic turn with short hold time

In practice, many experienced operators in Philadelphia run a range, often between 65 and 75 percent, based on deal type and market phase.

Flip vs BRRRR, where profit shows up

For a flip, profit is realized at resale.

For BRRRR, value is realized through refinance proceeds and long term cash flow. That means your win condition is different. Instead of asking only, "How much do I make on sale," you ask, "How much capital can I recycle while keeping a stable rental at a sustainable debt load?"

That is why the same property can fail as a flip and work as a BRRRR, or the opposite.

Use this quick decision test:

• If resale demand is strong and renovation scope is market friendly, flip can be the cleaner path.
• If rent support is strong and refinance terms are workable, BRRRR may outperform over time.

For refinance specific planning, review How to Qualify for a DSCR Loan, A Step by Step Guide and DSCR Loans for Philadelphia Investors.

My underwriting checklist before I submit an offer

1. Validate ARV from truly comparable sales. Same style, similar condition, similar block quality, recent close dates.
2. Build a line item rehab budget. No lump sum guessing. Every trade gets a number.
3. Stress test timeline. If the project slips 60 days, does the deal still work.
4. Model two exit prices. Base case and downside case.
5. Set a hard max offer. If seller needs more, pass and move on.
6. Pre plan exit strategy. Decide flip or BRRRR before you buy, then underwrite to that strategy.

This is how you avoid emotional bidding and protect your margin.

Frequently asked questions

Is 70 percent still valid in 2026?

Yes, as a first filter. It still helps investors avoid bad buys quickly. But you should adjust based on financing cost, neighborhood velocity, and rehab risk.

What is a good net profit target for a first flip?

Many new investors should target at least 35000 net before taxes to leave room for surprises. Lower margins can work for experienced operators with tight systems.

Should I use 70 percent for every neighborhood in Philadelphia?

No. Stronger neighborhoods with very liquid resale can tolerate different thresholds than slower pockets. The better approach is to calibrate by neighborhood and project type.

Does this rule work for luxury flips?

Less reliably. Higher price points can have thinner buyer pools and bigger variability in finish quality expectations. Underwrite those with extra caution.

Can I use this rule for BRRRR purchases too?

Yes, as a rough acquisition screen. Then switch to refinance and rental math to confirm the long term viability.

Internal Links

Related Guides

• The BRRRR Method Applied to Philadelphia's Rowhome Market
• Flipping Houses in Philadelphia, My Process as an Agent and Contractor
• How to Underwrite a Philadelphia Duplex
• How to Qualify for a DSCR Loan, A Step by Step Guide

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