The 70% rule sounds simple enough. Take 70% of the after repair value, subtract your renovation costs, and that’s your maximum purchase price. But after being involved in thousands of Maryland fix and flip loans since 2007, I can tell you that most investors who walk through my door are applying this formula incorrectly. They either inflate their ARV to make the deal work on paper, underestimate renovation costs by 20% or more, or completely ignore the financing and holding costs that eat into that supposed 30% profit margin. The result? Deals that looked profitable on a napkin turn into break even projects or worse.

This is what I actually look for when a borrower presents me with a deal structured around the 70% rule. And more importantly, this is what EXPERIENCED flippers in Maryland have figured out that the newcomers keep missing.

What This Article Covers

The 70% Rule Formula and Where It Came From

The basic math is straightforward. Take the after repair value of the property, multiply by 0.70, then subtract your estimated renovation costs. What remains is your maximum allowable offer. For a property with a $300,000 ARV and $50,000 in renovation costs, the calculation looks like this: ($300,000 x 0.70) minus $50,000 equals $160,000 maximum purchase price.

The rule emerged from decades of collective flipping experience as a way to build in enough cushion for the unknowns. That remaining 30% margin is supposed to cover several things. Renovation overruns because contractors almost always find something unexpected behind the walls. Holding costs like property taxes, insurance, and utilities. Transaction costs when you eventually sell, including agent commissions of 5% to 6% and closing costs of another 2% to 3%. Whatever remains becomes your ACTUAL profit.

The problem? This backward engineered profit structure assumes that everything fits neatly within that 30% buffer. For investors using hard money financing, which has become the standard for Maryland fix and flip deals, this assumption falls apart quickly.

Why ARV Estimation Breaks Most Deals

The entire legitimacy of the 70% rule rests on one number: the after repair value. Get this wrong and nothing else matters. Your purchase price calculation becomes fiction. Your profit projection becomes wishful thinking. And your lender loses confidence in your ability to execute.

I review deals every week where the borrower has cherry picked the highest comparable sale in the neighborhood and anchored their entire analysis to that outlier transaction. Or they’ve pulled an estimate from Zillow without understanding that automated valuation models lack the block by block context that actually determines value in Maryland markets. In Canton, a property two streets over might be in a completely different micro market. In Prince George’s County, the same house in Bowie versus Hyattsville commands fundamentally different pricing.

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The reliable methodology for ARV involves analyzing five to six comparable sales from the past three to six months. Properties that actually match your subject in square footage, bedroom and bathroom count, construction style, and critically, renovation level. You want to compare your future renovated property to other recently sold renovated properties. Not distressed sales. Not new construction. Convert those comparable sales to price per square foot metrics for consistency, then apply that figure to your subject property.

From my perspective as a lender, exaggerated ARV estimates signal one of two things: overconfidence or insufficient research. Neither inspires confidence. We run our own comp analysis during underwriting and compare it against what the borrower submitted. When those numbers diverge significantly, that’s a red flag that requires explanation.

Download our free Maryland ARV calculation template that walks through each step with built in formulas. Hundreds of successful flippers use this exact tool.

Maryland Market Realities in 2026

Maryland is not one market. It’s several distinct markets compressed into a small geographic area, each with different dynamics that affect how the 70% rule should be applied.

Baltimore and Baltimore County recorded approximately 1,567 flips in Q2 2025 with median gross profits of $165,000 and a 75% gross ROI according to ATTOM’s national data. That makes Maryland the second most profitable state for fix and flip investors. But these are gross profit figures. They don’t account for your carrying costs, hard money interest, closing costs, or commissions. Real net profit typically runs 30% to 50% lower once everything is calculated.

Canton represents one of the most attractive Baltimore neighborhoods for flippers right now. Median home values around $388,000, distressed properties available between $225,000 and $300,000, and ARVs reaching $380,000 to $525,000 after comprehensive renovation. Days on market run 28 to 32 days compared to the citywide average of 40 to 41 days. This faster absorption reduces carrying costs and market risk.

But Baltimore City also has the highest property tax rate in the state at approximately 1.49% of assessed value. Compare that to surrounding counties at 1.1% to 1.2%. On a $250,000 property, Baltimore City property taxes run about $310 monthly before you add insurance and utilities. That’s $1,860 just in property taxes over a six month project timeline.

The DC suburban markets in Montgomery and Prince George’s Counties present different challenges. Higher absolute price points mean your 30% margin sounds substantial in dollar terms but compresses quickly when you calculate percentage based transaction costs. A $500,000 ARV property with agent commissions of 6% means $30,000 coming off the top before anything else.

Frederick has emerged as particularly interesting for 2026. Relative affordability compared to the DC suburbs, strong growth catalysts including new development, and viable flip opportunities between $270,000 and $400,000 with ARVs reaching $440,000 to over $600,000. The combination of emerging demand and more abundant inventory suggests slightly more flexibility on purchase price percentage.

Learn more about hard money loans in Maryland. Hard Money Bankers provides fast, flexible, and reliable financing solutions for real estate investors throughout the state.

The Hidden Costs That Destroy Your Margin

The 70% rule’s simplicity becomes a liability when it encourages investors to skip detailed cost accounting. That 30% margin is not pure profit. It’s a holding tank that needs to cover everything beyond purchase and renovation.

Holding costs accumulate monthly regardless of project progress. Property taxes at $310 monthly in Baltimore City, homeowners insurance at $40 to $50 monthly, utilities at $100 to $150 monthly. Over a six month project, these baseline costs total approximately $2,700 to $3,060 in Baltimore City alone. Many investors I work with factor these costs vaguely or not at all into their 70% analysis.

Hard money financing costs add another substantial layer. A typical Maryland fix and flip loan might include interest rates of 10% to 15% annually, origination fees of 1% to 3% of the total loan amount, and various service fees. On a $200,000 loan at 12% interest over six months, interest expense alone reaches approximately $12,000. Add 2 points in origination fees and you’re at $16,000 in financing costs. That’s 8% of your total loan amount consumed by the cost of capital before you’ve made a single profit dollar.

When you aggregate all these costs, a deal with a projected $90,000 gross profit might actually generate $60,000 to $72,000 after financing costs, leaving just $18,000 to $42,000 to cover commissions, closing costs, and actual net profit. The 70% rule didn’t prepare you for this reality because it was designed for a different financing environment.

Understanding how the lending process works helps you model these costs accurately before committing to a deal.

What Hard Money Lenders Actually Evaluate

When a borrower presents me with a 70% rule compliant deal, that’s a good starting point. But it’s only the beginning of the evaluation. Here’s what we actually look at during underwriting.

Loan to value ratios matter more than percentage rules. We calculate both the as is LTV (loan amount divided by current property value) and the ARV LTV (loan amount divided by estimated after repair value). Most lenders cap ARV LTV in the 70% to 85% range depending on borrower experience. This ensures that if something goes wrong, the property can be sold to recover the loan amount with minimal loss.

Loan to cost ratios determine how much skin you have in the game. If your purchase price plus renovation costs equal $210,000 and you’re seeking $190,000 in financing, that’s a 90% LTC structure. You’re bringing $20,000 of your own capital. We want to see meaningful equity from borrowers because it creates aligned incentives. You’re not going to walk away from a troubled project when your own money is at risk.

Borrower experience changes everything. A flipper with ten completed projects and a track record of on time, on budget execution can safely operate at tighter margins than a first time investor. We’ve developed borrower experience tiers where less experienced investors receive stricter loan terms. If you’re new, expect to bring more equity and receive more conservative LTV ratios.

Market liquidity factors into our risk assessment. A deal in Canton where properties move in 30 days presents lower execution risk than the same deal structure in a neighborhood where properties sit for 90 days or longer. Extended holding periods mean more interest expense, more carrying costs, and more opportunity for something to go wrong.

When to Adjust the 70% Rule

Strict adherence to 70% can cause you to miss opportunities in competitive markets. But abandoning the discipline entirely invites disaster. The answer is understanding when and how to adjust while maintaining risk management.

Some scenarios justify paying 75% to 80% of ARV minus repairs. Cosmetic only renovations in hot seller markets where absorption is rapid lower your overall project risk. Strong buyer demand means your holding period assumptions are realistic. An experienced investor with demonstrated cost control can operate at tighter margins because their execution risk is lower.

Other scenarios demand stricter adherence or even deeper discounts. Heavy renovations requiring structural work introduce execution risk that demands more conservative positioning. Properties in neighborhoods with declining population or softening demand may require purchase prices well below 70% to compensate for extended holding periods. First time investors should always bias toward stricter adherence because their likelihood of encountering challenges is higher.

The most sophisticated investors have largely abandoned percentage based decision making in favor of absolute dollar profit targeting. Rather than asking whether a deal hits 70% of ARV minus repairs, they ask what their minimum acceptable profit is and whether this deal delivers it. Many experienced Maryland flippers target minimum profits of $35,000 to $50,000 per deal, adjusted for holding and financing costs. Once you define your minimum profit, the maximum allowable offer becomes: ARV minus renovation costs, minus holding costs, minus financing costs, minus soft costs, minus desired profit.

This approach forces you to confront actual deal economics rather than hiding behind percentage rules that may not reflect your true cost structure.

The Mistakes I See Every Week

After reviewing thousands of loan applications, certain patterns emerge. These are the errors that consistently derail deals and erode investor profits.

The double optimism problem kills more deals than anything else. Investors simultaneously overestimate ARV while underestimating renovation costs. They convince themselves the neighborhood is “up and coming” so properties should command premium prices. Meanwhile they base renovation estimates on a surface inspection rather than detailed contractor bids. This reverses the appropriate bias. Conservative investors should be pessimistic on ARV and pessimistic on costs, not optimistic on both.

Ignoring timeline risk costs real money. An investor who projected a 120 day holding period but encounters a property requiring 180 days will see that additional two months add $4,000 to $6,000 in financing costs alone on a $200,000 loan at 12% interest. Days on market in Maryland have increased from historical lows. Inventory remains tight at 1.6 to 2 months of supply statewide. This combination of rising carrying time and limited inventory means even marginally miscalculated deals become problematic.

Mechanical application without adjustment is equally dangerous. The 70% rule embeds assumptions about deal structure, market conditions, and exit strategy. Properties that deviate from these assumptions require modified analysis. A luxury property requiring specialized finishes generates different economics than a bread and butter flip. A rental property intended for BRRRR strategy has fundamentally different requirements than a quick flip. Applying the same 70% threshold across all scenarios introduces systematic bias.

Renovation cost overruns of 15% to 25% are common enough that assuming everything will proceed perfectly represents unrealistic optimism. Hidden structural problems emerge. Code violations surface during permitting. Contractor disputes require hiring replacements at premium pricing. The investors who succeed CONSISTENTLY are the ones who budget 10% to 15% contingency above their contractor’s initial estimate.

Making the 70% Rule Work in Maryland

The 70% rule remains a useful preliminary screening tool. But treating it as gospel rather than a starting point for deeper analysis creates blind spots that experienced investors and lenders recognize immediately.

For Maryland investors deploying capital in 2026, several practical recommendations emerge. First, establish disciplined ARV estimation processes that rely on verifiable comparable sales data, account for neighborhood specific dynamics, and build in conservative bias. If you cannot confidently support your ARV estimate with specific comps, question whether you possess sufficient market knowledge for that deal.

Second, employ comprehensive cost accounting that extends beyond purchase and renovation to encompass all holding costs, financing costs, and transaction costs. Model out month by month carrying costs and financing expenses to understand true project economics.

Third, calibrate your 70% rule application to specific market conditions and your personal execution capability. Hot neighborhoods with rapid absorbtion may justify higher purchase prices. First time investors should bias toward more conservative positioning.

Fourth, explicitly model your financing costs. Interest, origination fees, service fees, and any other charges consume a substantial portion of your margin. Know exactly what your capital costs before committing to a deal.

The investors who succeed in Maryland aren’t the ones rigidly following percentage rules. They’re the ones who understand why those rules exist, when they apply, and when modifications are warranted. That’s what separates profitable flippers from the ones calling me six months later asking about extension options.

Ready to discuss your next Maryland flip? Apply for a loan here. No cost, no obligation. We’ll review your deal and give you honest feedback on whether the numbers work.

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The information provided here is for educational purposes only and does not constitute financial or investment advice. Always perform your own due diligence and consult with qualified professionals before making investment decisions.

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