I’ve written about the 70% rule before on this blog — it’s one of those concepts that comes up constantly in house flipping, and for good reason. But I keep seeing it explained from only one angle: the investor’s side. How do you use it to find a good deal.
What doesn’t get talked about enough is the other side of that equation — how a hard money lender looks at the exact same number when you walk in asking for financing. Because understanding what’s going on in that lender’s head is what separates investors who get funded from investors who keep getting turned down.
Quick Recap: What the 70% Rule Actually Is
If you’re new to this, here’s the short version.
ARV — After Repair Value — is what a property will be worth once it’s fully renovated and ready to sell. The 70% rule says your total cost to acquire and renovate the property should not exceed 70% of that ARV.
So if a property has an ARV of $200,000:
$200,000 × 0.70 = $140,000 maximum total spend (purchase price + renovation costs combined)
That remaining 30% — $60,000 in this example — is where your profit, holding costs, selling costs, and buffer live.
Simple enough on paper. But here’s where it gets interesting.
Why Hard Money Lenders Care About This Number
Hard money lenders aren’t banks. They’re not evaluating your credit score the way a conventional lender would. What they’re evaluating is the deal itself — specifically, whether the numbers make enough sense that they’ll get their money back if everything goes sideways.
When you come to a hard money lender with a flip deal, they’re running their own version of the 70% calculation before they say yes or no. Here’s their logic:
They’re typically lending 70-75% of ARV — sometimes structured as a percentage of purchase price plus rehab costs, sometimes as a straight ARV-based figure depending on the lender. That buffer between what they lend and what the property will be worth after repair is their protection. If you default, they foreclose, sell the property, and get their money back.
If your deal doesn’t fit inside that math, they’re exposed. And exposed lenders say no.
This is why the 70% rule isn’t just a guideline for your own profit — it’s essentially the framework lenders use to decide if your deal is fundable in the first place.
The Numbers They’re Actually Looking At
When you bring a deal to a hard money lender, here’s what they want to see:
Solid ARV backed by real comps. Not Zestimate. Not your optimistic projection. Actual recent sales of comparable properties within a tight radius — similar square footage, similar condition post-renovation, same neighborhood. Your realtor pulls these. The lender will verify them independently.
A realistic rehab estimate. Lenders have seen enough deals to know when a rehab budget is fantasy. If you’re saying you can renovate a gutted rowhouse for $30,000, they’re going to push back. Come in with contractor bids or at minimum a detailed scope of work with line-item estimates.
A purchase price that makes the math work. If you’re paying too much for the property and your rehab budget is already tight, the deal doesn’t pencil out at 70%. The lender sees that immediately.
Your exit strategy. Are you selling or refinancing into a BRRRR? Lenders want to know how they’re getting paid back and on what timeline.
A Real Example
Let’s say you find a property you think can sell for $200,000 after renovation. You’re buying it for $90,000 and your rehab estimate is $45,000.
Total cost: $90,000 + $45,000 = $135,000 70% of ARV: $200,000 × 0.70 = $140,000
You’re at $135,000 against a $140,000 ceiling. That deal works — barely, but it works. A lender looking at this sees a $65,000 cushion between your total cost and the ARV, which gives them room to recover their loan if something goes wrong.
Now flip it. Same ARV, but you’re paying $110,000 for the property and your rehab is $50,000.
Total cost: $160,000 70% of ARV: $140,000
You’re $20,000 over. That deal doesn’t work, and no experienced hard money lender is going to fund it at those numbers — because if you default at $160,000 in and the property sells for $200,000, there’s not enough margin left after selling costs, carrying costs, and their fees to make them whole.
Where Beginners Get This Wrong
The most common mistake I see people make — and one I’ve had to think through carefully myself — is letting optimism drive the ARV.
You fall in love with a property. You start imagining what it could be after renovation. You convince yourself it’ll sell at the top of the market. And suddenly your ARV is inflated just enough to make the math work on paper.
Lenders don’t care about your vision. They care about what comparable properties in that exact neighborhood have actually sold for in the last 90 days. If your ARV isn’t supported by real comps, the deal falls apart in underwriting — and you’ve wasted everyone’s time including your own.
The discipline is running conservative numbers before you ever make an offer. If the deal only works with an optimistic ARV, it’s not a deal.
The Philadelphia Angle
In Philadelphia specifically, ARV accuracy is everything — because this city’s neighborhoods are hyper-local. A property two blocks in the wrong direction can have a completely different comp picture than what you were expecting. Germantown, Mt. Airy, Fishtown, Kensington — these aren’t interchangeable. Lenders who work in this market know that, and they’ll scrutinize your comps accordingly.
This is also why having a realtor who knows Philadelphia’s micro-neighborhoods is non-negotiable when you’re pulling comps for a flip. A generic market analysis isn’t going to cut it with a hard money lender who’s done deals in this city.
What This Means If You’re Getting Ready to Approach Lenders
Before you walk into any hard money lender conversation, run your own numbers honestly:
What is the ARV — backed by real, recent, tight comps? What is your all-in cost — purchase plus full rehab estimate, not the optimistic one? Does that all-in cost sit comfortably below 70% of ARV? What’s your exit and your timeline?
If you can answer all four of those questions clearly and the math holds up, you’re in a position to have a real conversation. If any of those answers are fuzzy, tighten them up before you make the call.
The 70% rule exists for a reason. Lenders didn’t invent it to make your life harder — they use it because it works as a filter for deals that are actually fundable versus deals that just look good on a dream board.
Know the number. Run it honestly. And bring lenders deals they can actually say yes to.
Not financial advice — just someone doing a lot of research and asking a lot of questions.