If you are new to the world of flipping houses, then you may feel a bit overwhelmed by all of the tips and tricks out there—and all of the different lingo that is often used in this industry. There are many different terms that you will need to learn and understand if you want to integrate yourself in this business and really find a lot of success in this market.

While there is no end to the list of different terms that you will run across in this market—one of the most common “rules” that you will run across is one known as the 70 Rule. The 70 Rule has been one of the oldest and most trusted rules in the flipping property and before you start securing your financing and looking at homes to flip—you need to understand what the 70 Rule is, and how it works.

The 70 Rule, or the 70% Rule, is an easy guideline to help you when buying fix and flip properties, and while some more experienced investors may be able to be flexible with this rule, for new investors, they should do their best to stick as closely to this guideline as possible.

The 70% Rule applies to the maximum price you should consider paying for a property, with repairs so that you don’t overspend and so you can still turn a profit after all is said in done.

According to the rule; you should not pay more than 70% to the after the repair value (ARV) of the home, minus repair costs.

The ARV is the estimated value of the property after all of the repairs are completed.  So, if the ARV of a home is $200,000 and the home needs $50,000 in repairs, then the 70% Rule means that you should pay no more than $90,000 for the property. That remaining 30% ($60,000) left over will leave room for both your profits and some of the unforeseen expenses that will likely come up in the flipping process (because they will).

If you analyze these numbers correctly, and pull accurate comps, you are going to be in a good position to actually make money on your fix and flip. You can also use this information and work backwards to determine an offer price. Plus, you the 70% Rule is easy to figure out on-the-go, so you can use it as you are looking at different properties to determine whether or not the house in front of you will be a good investment.

Now that you know all about the 70 Rule, make sure that you keep this term in mind when you look for your next fix and flip property so you can make a smart investment for you and your future.