ARV and the 70% Rule: How Lenders and Flippers Size a Deal
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Key takeaways
- ARV is estimated from recent sold comps adjusted for size, condition and location — not from active listings.
- Lenders cap loans at 70–75% of ARV to preserve a margin for selling costs and value error.
- Maximum allowable offer = ARV × 0.70 − rehab cost.
- In high-price or low-margin markets the rule flexes to 75–80%; in slow markets it tightens to 65%.
Estimating ARV properly
After-repair value is what the finished property will sell for. Appraisers and lenders estimate it the same way you should: three to six sold comparables, ideally within 0.5 miles, closed within 6 months, similar in size (±20%), age, bed/bath count and — critically — renovated to the standard you plan. Adjust for differences ($/sq ft for size, line-item adjustments for garages, lots, pools, condition). Discard active listings and pending sales; they show hope, not value. If your comps come from across a major road, school boundary or price tier, your ARV is probably wrong.
Why lenders stop at 70–75% of ARV
If a borrower defaults mid-project, the lender must finish or sell as-is, pay 7–9% selling costs, carry the property and absorb any valuation error. A 25–30% cushion covers those costs and still returns capital in most cases. The same math protects you: the gap between 70% and 100% of ARV is where your selling costs, financing costs and profit live.
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Applying the 70% rule
Maximum allowable offer (MAO) = ARV × 0.70 − rehab budget. Example: ARV $350,000, rehab $55,000. MAO = $245,000 − $55,000 = $190,000. Pay that or less and a typical flip returns a 10–15% net margin after financing and selling costs. The ARV calculator shows MAO alongside the lender's maximum loan so you can see both the deal and the financing at once.
Where the rule breaks
- High-price markets: at a $900,000 ARV, 30% is $270,000 — far more margin than needed. Experienced flippers use 75–80% there.
- Low-price markets: at a $120,000 ARV, 30% is $36,000, which barely covers fixed costs. Use a dollar-margin test instead (e.g., minimum $25,000 net profit).
- Slow or declining markets: tighten to 65%; your exit may take six months longer.
- Long holds: the rule assumes a 4–6 month project; add 1% of ARV per extra month.
How the lender's cap interacts with your offer
Your loan is the lesser of LTC and LTARV. If you buy at MAO with a 90% LTC loan, the LTC figure ($220,500 on the example) is usually below the 75% ARV cap ($262,500), so LTC governs and you bring about $24,500 plus costs. If you overpay, the ARV cap takes over and your required cash rises dollar for dollar — the lender's math is quietly telling you the deal is thin.