Overview
There are a lot of numbers in a house flip, but only two formulas truly determine whether you make money or lose it.
The two house flipping formulas that matter most are the offer formulas: the 70% Rule and the Maximum Purchase Price. Both exist to answer one question, what is the most you can pay for a property without overpaying. The 70% Rule gives you a fast screen, and the Maximum Purchase Price gives you the precise number. Master these two and you have the skill that protects every deal.
Key Takeaways
- Two formulas keep you from overpaying: the 70% Rule for a fast screen and the Maximum Purchase Price for the exact offer. These are the ones to truly understand.
- Your After Repair Value and your repair costs are the two most critical numbers to get right.
- Everything else (your ARV, repair costs, and the buying, holding, selling, and financing costs) is just an input that goes into your Maximum Purchase Price.
- Overpaying on the buy is the single biggest way flippers lose money, and these two formulas exist specifically to prevent it.
- FlipperForce's Flip Analyzer runs all of these calculations for you automatically, but understanding the two offer formulas is still what makes you a good buyer.
If you learn nothing else about analyzing deals, learn these two. They exist to answer the single most important question in flipping:
What is the most I can pay for this property without overpaying?
Overpaying on the buy is the number one way flippers lose money. You cannot renovate your way out of a bad purchase price, and no amount of hustle on the rehab gets it back. Both of these formulas are built to protect you from exactly that mistake.
They work as a pair. The 70% Rule is your fast screen, a rough number in seconds that tells you whether a deal is even worth a closer look. The Maximum Purchase Price is the precise version you run before you actually make an offer. Screen with the first, offer on the second.
- 70% Rule Formula (quick gut check)
- Maximum Purchase Price Formula (detailed analysis)
Based upon years of experience, flippers developed a quick rule of thumb called the 70% Rule to help them quickly evaluate the offer price for a potential flip property.
The 70% Rule states that you should buy a property at 70% of the After Repair Value minus the repair costs.
70% Rule (MAO) = (ARV x 70%) - Repair Costs
The 30 percent you hold back is not profit. It is the cushion that covers all your other costs (buying, holding, selling, and financing) plus your profit. It is rough on purpose, which is what makes it fast enough to run on every lead that crosses your desk.
Learn More About the 70% Rule FormulaOnce a deal passes the 70% Rule screen, run the Maximum Purchase Price to get your real number. Instead of a flat 30 percent discount, it subtracts every project cost individually, which makes it far more accurate.
Maximum Purchase Price = After Repair Value - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Repair Costs - Profit
This is the number you actually offer on. It is the difference between "this looks like a deal" and "this is a deal, and here is exactly what I can pay."
Learn About the Maximum Purchase Price FormulaOnce you understand the two offer formulas, everything else is just an input, a number you plug into your Maximum Purchase Price. Some of those numbers take a little calculating, but none of them is a formula you need to study on its own.
Here is what goes into your MPP, and where to get each number when you need it:
- After Repair Value. The most important input, because both offer formulas key off it. Your ARV comes from recent sold comps that match your finished product. Get this one right. ARV and comps
- Repair Costs. Your full rehab budget, built from a detailed scope of work. Estimating rehab costs
- Buying Costs. What it costs to acquire the property: title work, attorney fees, and inspections. Buying costs
- Holding Costs. What you pay to own the property during the rehab: taxes, insurance, utilities, and maintenance. Holding costs
- Selling Costs. What it costs to sell: agent commissions, closing costs, and concessions. Selling costs
- Financing Costs. The points and interest on your loan if you use hard money or a private lender. Financing costs
You do not need all of these in your head to start. Learn each one as a deal calls for it.
Two more calculations come up, but neither is a new skill once you have the Maximum Purchase Price down:
- Profit. This is really just the Maximum Purchase Price formula run in reverse. Instead of solving for the most you can pay, you plug in a known purchase price and see what is left over. Same inputs, different unknown. Calculating profit
- Cash-on-Cash Return. Your profit divided by the actual cash you put into the deal. It tells you how hard your money is working, which matters most when you are using financing and only have a fraction of the project cost tied up. Useful to know, not something to sweat on your first few deals.
Let FlipperForce Do the Math for You
Here is the honest truth: once you understand the two offer formulas, you should never have to calculate them by hand again.
FlipperForce's
House Flipping Calculator runs every one of these formulas for you automatically. You plug in the property details, your repair estimate, and your target profit, and it instantly calculates your 70% Rule offer, your Maximum Purchase Price, and every input cost, buying, holding, selling, and financing, without you touching a calculator.
- No math errors. The formulas are built in, so a misplaced decimal never costs you a deal.
- Nothing forgotten. The Analyzer prompts you through every cost, so you never leave one out and overpay.
- A professional report. Generate a polished investment report you can hand to a lender or partner in minutes.
So why learn the formulas at all if the software does it? Because understanding the two offer formulas is what makes you a good buyer. The Flip Analyzer tells you your maximum purchase price, but knowing why that number is what it is, and having the discipline to walk away when a seller wants more, is the skill that actually protects your money. The tool does the math. You bring the judgment.
Try House Flipping Calculator for FreeFrequently Asked Questions
What are the two most important house flipping formulas?
The 70% Rule and the Maximum Purchase Price. Both answer the same question, the most you can pay for a property without overpaying. The 70% Rule is a fast screen, and the Maximum Purchase Price is the precise offer. These two matter more than every other formula combined, because overpaying on the buy is the main way flippers lose money.
What is the 70% Rule formula?
(ARV x 70%) minus Repair Costs. It caps your offer at 70 percent of the After Repair Value minus repairs, holding back a 30 percent cushion for your other costs and your profit.
What is the Maximum Purchase Price formula?
Maximum Purchase Price = After Repair Value minus Repair Costs, Buying Costs, Holding Costs, Selling Costs, Financing Costs, and your Desired Profit. It is the more accurate of the two offer formulas because it prices every cost individually.
How many house flipping formulas do I actually need to know?
Two: the 70% Rule and the Maximum Purchase Price. Everything else is an input that goes into your Maximum Purchase Price, and you can learn each as a deal calls for it. Tools like FlipperForce's Flip Analyzer calculate all of it for you automatically.
If software does the math, why learn the formulas?
Because understanding the two offer formulas is what makes you a disciplined buyer. The software gives you the number, but knowing why it is what it is, and having the resolve to walk away when a seller wants more, is what actually protects your profit.
