The 70% rule in Australia: why the US formula breaks here

The 70% rule is the first number most people learn when they get into flipping, and it comes straight from American house-flipping shows and forums. It is a fast filter for whether a deal is worth chasing: never pay more than 70% of a property's after-repair value, minus what the renovation will cost. The trouble is that the rule was built around American houses, American selling costs and American tax. In Australia all three of those are different, so the real question is not what the 70% rule says but whether the 70% rule works in Australia at all, and if not, what to use instead.

This is general information rather than financial advice, but it will show you where the US formula leaks money here, walk through a worked Australian example, and give you a more honest way to set your maximum offer.

What the 70% rule actually says

The rule is a single line of maths:

Maximum purchase price = (after-repair value × 70%) − renovation cost.

Say a place will be worth $900,000 once it is done up (its after-repair value), and the reno will cost $100,000. The rule says pay no more than (900,000 × 0.70) − 100,000 = $530,000. The idea is that the 30% you are holding back, $270,000 here, is your cushion for everything else: the costs of buying, holding and selling, plus your profit. It is a rule of thumb, not a feasibility, and it was designed so a US flipper could triage a dozen listings in an afternoon without a spreadsheet. You can run the same sum in seconds with the 70% rule calculator.

The problem is hiding in that 30%. In the American context the buffer works because US transaction costs are low and a lot of the profit lands as a capital gain. Here, none of that holds.

Does the 70% rule work in Australia?

Not as a straight import, because three of the costs the 30% is meant to absorb are far bigger in Australia than in the US.

Stamp duty. This is the big one, and the US formula has no equivalent for it. On a mid-priced investment purchase you are looking at real money: roughly $25,900 in NSW on a $700,000 buy (the current Revenue NSW schedule is $11,152 plus $4.50 per $100 over $372,000 — the numbers behind our stamp duty calculator), about $24,500 in Queensland and around $37,000 in Victoria at investor rates. US "closing costs" for a buyer are usually a couple of percent all in. Australian stamp duty on its own can be three to five percent of the purchase price, and you pay it up front.

Agent commission. When you sell, an Australian agent typically takes around 2% to 2.5% of the sale price, rising past that in regional markets, plus a marketing spend. On a $900,000 resale that is roughly $20,000 before you have paid the conveyancer. It is a predictable bite out of the top that the rule quietly assumes away.

Tax. This is the one that catches beginners hardest. In the US a lot of flip profit is treated as a capital gain. In Australia a genuine flip is almost always taxed as ordinary income on revenue account, at your marginal rate, with no 50% CGT discount no matter how long you hold. The 30% cushion in the rule is a pre-tax figure, and the ATO takes its share of whatever is left.

Holding costs. Australian projects carry interest, council rates, insurance and utilities the whole time you own the place, and our approval and trades timelines are rarely quick. Six months of holding costs on a mid-sized flip runs well into five figures, and every week of slippage adds to it.

Put those together and the 30% buffer is not spare margin. It is spare margin plus stamp duty plus holding plus selling costs plus tax, all fighting over the same slice.

A worked Australian example

Take the deal from above: buy at the rule's $530,000, spend $100,000 on the reno, sell for $900,000. Here is what the 30% cushion actually has to cover.

So the all-in spend is $530,000 + $100,000 reno + $68,800 costs = about $698,800. Sell at $900,000 and the pre-tax profit is roughly $201,200. That looks healthy, and it is close to the 30% the rule seemed to promise — until the ATO. Because the profit is ordinary income, at a 37% marginal rate that is about $74,000 in tax, leaving you roughly $127,000 in the pocket.

That $127,000 is real, but notice what happened. A rule that looked like a 30% margin delivered closer to 14% of the resale value after Australian costs and tax. Every figure above is illustrative; your stamp duty, timeline, finance rate and tax position will move them, but the shape is the point, and it is the shape our flip ROI calculator and a full sample analysis make concrete on a real listing. If you want each of those cost blocks priced out in detail, I have broken down how much it costs to flip a house in Australia bucket by bucket.

And this assumed the best case: that you could actually buy at 70%. In a lot of Australian markets you can't, because sellers are pricing in years of capital growth. So people quietly stretch the rule to 80% or 85% to make a deal "work" — and at that point the buffer that was already thin has vanished entirely.

What margin to target instead

The fix is not a better single percentage. It is to stop trusting one number to do a feasibility's job.

Model the four Australian cost blocks the rule hides (stamp duty, holding, selling and tax) as their own line items, then back your maximum offer out of a target net margin you actually want to keep, not a headline gross one. If you like a rule of thumb to sanity-check against, a more honest one in the higher-stamp-duty states is closer to 60% to 65% of after-repair value minus the reno, not 70%. But treat that as a triage filter and nothing more.

The number that should decide the offer is the after-tax profit on a properly costed deal, and whether it clears your margin with room for the reno to run over. If you are not sure what that target margin should be, I have set out how much profit you should actually make flipping a house in Australia and how to back your maximum offer out of it. That is exactly what a proper feasibility works out: it pulls the purchase costs, the holding, the selling costs and the resale together so you are comparing what you keep, not what the top line says.

Run your own numbers

The 70% rule is a fine first glance and a terrible last word in Australia. Use it to bin the obvious no-hopers in a few seconds, then never sign anything on the strength of it. The moment a deal looks interesting, cost it properly: run the 70% rule calculator for the quick read, then push the real figures through the flip ROI calculator with stamp duty, holding and selling costs and the tax line all in. If you are new to the whole process, the complete guide to flipping a house in Australia puts the maximum-offer decision in the context of the entire deal.

Margin comes from the price you buy at, and the price you can safely buy at is a lot lower once you count what the American formula leaves out. Count it first.

This is general information only and not financial, tax or investment advice. Stamp duty rates, agent commissions, holding costs and tax treatment change and vary by state, property and personal circumstances. The figures here are indicative and current at the time of writing; the worked example is illustrative, not a quote. Confirm the current rules and get advice for your specific deal from a licensed conveyancer, a registered tax agent and Revenue office in your state before you buy or sell.

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