InvestorsMay 14, 20262 min read

The 70% Rule Explained: How I Help Investors Calculate Deals in Philly

Short Answer

The 70% rule means you should pay no more than 70% of the after-repair value minus your total repair costs. It's a starting point, not a gospel, and context matters more than the formula.

The 70% rule is a filter, not a guarantee

In Philadelphia's investment market, I see deals come across my desk constantly. The 70% rule is how I quickly separate "worth investigating" from "pass immediately."

The formula is simple: your maximum offer price should be 70% of the after-repair value (ARV), minus your total repair costs. If that math works, the deal deserves deeper analysis. If it doesn't, you move on.

But here's what separates successful Philadelphia investors from those who get stuck: understanding when the 70% rule is too strict, and when it's not strict enough.

How I apply the rule to Philadelphia deals

Let's say you find a duplex in Kensington that you think will be worth $350,000 after rehab. Your estimated repair costs are $50,000.

70% rule calculation:

ARV: $350,000
70% of ARV: $245,000
Minus repairs: $245,000 − $50,000 = $195,000 maximum offer

That $195,000 is your starting offer, not your target price. It leaves room for holding costs, carrying costs, and profit.

When the 70% rule works best

The 70% rule works in Philadelphia's buy-and-hold market, where rents support the property after rehab and you can refinance into a DSCR loan. It works when you can actually execute the repair budget and achieve the ARV through rent or quick resale.

When I tighten or loosen the rule

I loosen the rule for neighborhood appreciation plays — areas like Point Breeze where the ARV will likely grow 5–10% annually over a 10-year hold. A 75% rule sometimes makes sense there because the future value will carry the deal.

I tighten the rule for commoditized neighborhoods where appreciation is slower and rehab quality is critical. Heavily competitive areas require tighter margins.

The mistake most investors make

Investors often use the 70% rule backwards. They fall in love with a property, then work backward to justify the price using an inflated ARV. As I guide new investors through their first deals, I hammer on this: the rule exists to protect you from that emotional math.