Fix and Flip Analysis: How to Calculate Flip Profits Like a Pro

Quick Summary: Successful house flipping requires precise deal analysis using proven formulas—the 70% rule helps you calculate maximum purchase price, while comprehensive cost estimation (rehab, holding, selling) ensures you don't overpay and kill your profit margins. This guide teaches you the exact framework professional flippers use to analyze deals, estimate costs, and determine if a property will generate the 15-25% returns needed for a successful flip.

House flipping looks easy on TV. Buy a distressed property, renovate it in 6 weeks, sell it for a huge profit. Simple, right?

Wrong. Most failed flips fail at the analysis stage—buying for too much, underestimating costs, or misjudging the after-repair value. The difference between a $40,000 profit and a $10,000 loss often comes down to analyzing the deal correctly before you buy.

This guide shows you the exact framework professional flippers use to analyze deals.

The Fix and Flip Formula

The core formula is simple:

Maximum Purchase Price = (ARV × 70%) - Rehab Costs

Or more comprehensively:

Profit = ARV - Purchase Price - Rehab - Holding Costs - Selling Costs

Let's break down each component.

Understanding After-Repair Value (ARV)

ARV is the estimated market value of the property AFTER renovations are complete. This is the foundation of your entire analysis—get ARV wrong and everything falls apart.

How to Calculate ARV

Step 1: Find Comparable Sales (Comps)

Look for recently sold properties (last 3-6 months) that match your subject property:

Matching criteria:

• Same neighborhood (within 0.5 miles preferred)
• Similar size (±200 square feet)
• Same bed/bath count
• Similar age and condition
• Comparable lot size

Example comps for 3bed/2bath, 1,500 sq ft property:

Step 2: Adjust for Differences

Make adjustments for features your property has or lacks:

Common adjustments:

• Garage: +$10,000-$20,000
• Pool: +$15,000-$30,000
• Finished basement: +$20-$40/sq ft
• Extra bathroom: +$10,000-$15,000
• Large lot premium: +$5,000-$15,000
• Busy street penalty: -$5,000-$10,000

Step 3: Calculate Your ARV

ARV = Average Comp Price ± Adjustments

Example:
Average comp: $248,333
Your property has garage (comps don't): +$15,000
Your property on busy street: -$8,000
ARV = $248,333 + $15,000 - $8,000 = $255,333

Conservative ARV: $255,000

ARV Mistakes to Avoid

1. Using Active Listings Instead of Sold Comps

• Listings show what sellers WANT, not what buyers PAY
• Always use actually closed sales

2. Using Old Comps

• Markets change quickly
• Stick to 3-6 months max (3 months in fast markets)

3. Cherry-Picking the Highest Comps

• Use median or average of 3-5 comps
• Don't use the single highest outlier

4. Ignoring Condition

• Your comps should be move-in ready
• If using fixer comps, adjust down

5. Going Outside the Neighborhood

• 0.5 miles can mean $50K difference
• Stay hyper-local

Estimating Rehab Costs

Rehab cost estimation is where most beginners fail. They see "cosmetic updates" and budget $20K—reality is $45K.

The Scope of Work

List every item that needs work:

Exterior:

• Roof
• Siding/paint
• Windows
• Doors
• Landscaping
• Driveway
• Fence

Interior:

• Kitchen (cabinets, counters, appliances, flooring)
• Bathrooms (vanity, toilet, tub/shower, flooring)
• Flooring (throughout)
• Paint (all walls)
• Doors and trim
• Lighting fixtures
• HVAC
• Plumbing
• Electrical

Structural:

• Foundation issues
• Framing repairs
• Roof structure
• Load-bearing walls

Cost Estimation Methods

Method 1: Price Per Square Foot

Quick estimation based on rehab level:

Example: 1,500 sq ft house needing moderate rehab

1,500 sq ft × $50/sq ft = $75,000 estimated rehab

Method 2: Line-Item Budget

More accurate—price each item individually:

Example detailed budget:

Getting Accurate Estimates

1. Walk the Property with a Contractor

• Bring 2-3 contractors for bids
• Get detailed line-item quotes
• Ask about hidden issues they see

2. Document Everything

• Photos of each area
• Measurements
• Note all issues found

3. Add Contingency

• 10-15% minimum for expected issues
• 20-25% for older homes (pre-1970)
• Something ALWAYS goes wrong

4. Account for Permits

• Electrical: $500-$1,500
• Plumbing: $500-$1,500
• Structural: $1,000-$3,000
• Permit delays can add weeks

Holding Costs

Many flippers forget to account for the money it costs to own the property during renovations.

Common Holding Costs

1. Financing Costs

• Hard money interest: 10-14% annually
• Private money interest: 8-12% annually
• Hard money points: 2-5% upfront

Example:

Loan: $150,000 at 12% interest
Monthly interest: $1,500
6-month flip: $9,000 in interest
Points (3%): $4,500
Total financing: $13,500

2. Property Taxes

• Calculate monthly amount
• Multiply by hold period

Example:

Annual taxes: $3,600
Monthly: $300
6-month flip: $1,800

3. Insurance

• Vacant property insurance: $1,000-$2,500/year
• Builder's risk during rehab: $500-$1,500

4. Utilities

• Electric, gas, water, sewer
• $150-$400/month during rehab

5. HOA Fees

• If applicable
• Can't skip these

Total Holding Costs Example (6-month flip):

Hard money interest: $9,000
Hard money points: $4,500
Property taxes: $1,800
Insurance: $1,200
Utilities: $1,200
Total: $17,700

Selling Costs

When you sell, factor in these expenses:

1. Real Estate Commission

• Typically 5-6% of sale price
• Negotiable, but budget full amount

Example:

Sale price: $255,000
Commission (6%): $15,300

2. Closing Costs (Seller-Paid)

• Title insurance
• Transfer taxes
• Attorney fees
• Recording fees
• Total: 1-2% of sale price

Example:

Sale price: $255,000
Closing costs (1.5%): $3,825

3. Concessions

• Buyer may ask for closing cost assistance
• Budget 1-2% of sale price

4. Staging and Photography

• Professional staging: $2,000-$4,000
• Photography: $200-$500
• Total: ~$2,500

Total Selling Costs:

Commission (6%): $15,300
Closing costs (1.5%): $3,825
Staging/photos: $2,500
Total: $21,625 (8.5% of ARV)

The 70% Rule Explained

The 70% rule is the quick formula flippers use to calculate maximum purchase price:

Max Purchase Price = (ARV × 70%) - Rehab Costs

Where Does 70% Come From?

The 70% accounts for:

• Holding costs (5-10%)
• Selling costs (8-10%)
• Profit margin (10-20%)

Total: 30% cushion

Example Using 70% Rule

Property details:

• ARV: $255,000
• Estimated rehab: $50,000

Calculation:

Max Purchase Price = ($255,000 × 70%) - $50,000
Max Purchase Price = $178,500 - $50,000
Max Purchase Price = $128,500

If you can buy for $128,500 or less, the deal might work.

When to Use 65% or 75%

Use 65% rule if:

• Hot market (fast appreciation)
• Lower rehab risk
• Experienced flipper
• Strong buyer demand

Use 75% rule if:

• Slower market
• Higher risk property
• First flip (build in more margin)
• Uncertain costs

Adjusting our example to 75%:

Max Price = ($255,000 × 75%) - $50,000 = $141,250

More conservative, smaller profit, but safer.

Complete Fix and Flip Analysis Example

Let's analyze a real flip deal from start to finish.

Property Details

• Purchase Price: $130,000
• ARV (based on comps): $260,000
• Estimated Rehab: $52,000
• Timeline: 5 months

Does It Pass the 70% Rule?

Max Purchase Price = ($260,000 × 70%) - $52,000
Max Purchase Price = $182,000 - $52,000
Max Purchase Price = $130,000

We're buying at exactly the max—borderline deal, need detailed analysis.

Detailed Profit Calculation

Purchase and Acquisition:

• Purchase price: $130,000
• Closing costs (3%): $3,900
• Inspection/due diligence: $600
• Total acquisition: $134,500

Rehab Costs:

• Detailed contractor bids: $48,000
• Permits: $1,200
• Contingency (15%): $7,380
• Total rehab: $56,580

Holding Costs (5 months):

• Hard money interest (12% annual on $130K): $6,500
• Hard money points (3%): $3,900
• Property taxes: $1,500
• Insurance: $800
• Utilities: $750
• Total holding: $13,450

Selling Costs:

• Real estate commission (6%): $15,600
• Seller closing costs (1.5%): $3,900
• Staging and photos: $2,200
• Total selling: $21,700

Total Costs:

Acquisition: $134,500
Rehab: $56,580
Holding: $13,450
Selling: $21,700
Total: $226,230

Profit Calculation:

ARV: $260,000
Total Costs: $226,230
Profit: $33,770

Return on Investment: $33,770 / $134,500 = 25.1%

Verdict: This is a solid flip deal with a 25% return and $33,770 profit.

Sensitivity Analysis

What if ARV comes in lower or rehab goes over?

Scenario 1: ARV $10K Lower ($250,000)

Profit: $250,000 - $226,230 = $23,770 (17.7% return)
Still acceptable

Scenario 2: Rehab 20% Over Budget ($67,896)

Total costs: $237,546
Profit: $260,000 - $237,546 = $22,454 (16.7% return)
Still works, but tight

Scenario 3: Both ARV Lower + Rehab Over

ARV: $250,000
Costs: $237,546
Profit: $12,454 (9.3% return)
Marginal deal—too risky

Decision: Original deal is solid, but has limited margin for error.

Financing Your Flip

Hard Money Loans

What they are:

• Short-term loans (6-24 months)
• Based on ARV, not purchase price
• Quick closing (1-2 weeks)

Typical terms:

• Interest: 10-14% annual
• Points: 2-5% of loan amount
• LTV: 65-75% of ARV
• Loan includes purchase + some/all rehab

Example:

ARV: $260,000
Hard money at 70% LTV: $182,000
Interest rate: 12%
Points: 3% ($5,460)

Loan covers:
- Purchase: $130,000
- Rehab funds: $52,000
Total: $182,000

When to use:

• Don't have cash
• Need to close quickly
• Property has good margins

Private Money

What it is:

• Loans from individuals (friends, family, investors)
• Negotiable terms
• Personal relationships

Typical terms:

• Interest: 8-12%
• Points: 0-2%
• Flexible LTV
• May include profit share

When to use:

• Want better terms than hard money
• Have investor network
• Prefer relationship-based lending

Cash

Benefits:

• No interest costs
• No points
• Maximum flexibility
• Stronger offers

When to use:

• You have available capital
• Competitive bidding situation
• Want maximum profit
• Experienced flipper

Example profit difference:

With Hard Money:

• Profit: $33,770
• Minus interest & points: -$10,400
• Net profit: $23,370

With Cash:

• Profit: $33,770
• No financing costs
• Net profit: $33,770

$10,400 difference, but requires $130K+ in cash.

Timeline and Exit Strategies

Typical Flip Timeline

Week 1-2: Acquisition

• Make offer
• Inspection
• Secure financing
• Close

Week 3-4: Planning

• Finalize scope of work
• Get final contractor bids
• Pull permits
• Order materials

Week 5-12: Renovation (8 weeks)

• Demo (1 week)
• Rough work - plumbing, electrical, HVAC (2 weeks)
• Drywall, flooring, cabinets (2 weeks)
• Paint, trim, finishing (2 weeks)
• Final touches, cleaning (1 week)

Week 13-14: Marketing Prep

• Staging
• Professional photos
• List on MLS

Week 15-18: Sale Process (4 weeks)

• Showings
• Offers
• Inspection
• Closing

Total: 18-20 weeks (4.5-5 months)

What Can Go Wrong

Common delays:

• Permit approval: +1-2 weeks
• Inspection issues: +1-3 weeks
• Contractor delays: +2-4 weeks
• Weather: +1-2 weeks
• Material delays: +1-2 weeks
• Buyer financing falls through: +3-4 weeks

Budget 20-30% longer than "best case" timeline.

Exit Strategy B: Rental Conversion

What if the market softens and you can't sell?

Plan B: Convert to rental

Using our example:

• Can't sell at $260K (market drops)
• Rent for $1,800/month instead

Numbers as rental:

All-in basis: $226,230
Rent: $1,800/month
Expenses (40%): -$720
NOI: $12,960/year

If you refinance at 75% LTV of new appraisal ($240K):
New loan: $180,000
Pay back hard money: -$130,000
Net cash out: $50,000

Mortgage on $180K: $1,198/month
Cash flow: $1,800 - $720 - $1,198 = -$118/month

Negative cash flow, but you've recovered $50K and have an asset that can appreciate. Not ideal, but better than a distressed sale.

Fix and Flip vs. BRRRR

Let's compare strategies using the same property:

As a Flip

• Purchase: $130,000
• Rehab: $56,580
• Hold/sell: $35,150
• Total costs: $226,230
• Sell for: $260,000
• Profit: $33,770 (one-time)

As BRRRR

• Purchase: $130,000
• Rehab: $56,580
• Refinance at 75% ARV: $195,000
• Payback acquisition: -$130,000
• Cash recovered: $65,000
• Money left in deal: $21,580

Plus you own a rental:

• Rent: $1,800/month
• Cash flow: ~$250/month
• Equity: $65,000 ($260K value - $195K loan)
• Appreciation potential
• Depreciation tax benefits

BRRRR provides:

• $65K to deploy on next deal
• Ongoing cash flow
• Long-term wealth building

Flip provides:

• $33.7K one-time profit
• Faster liquidity
• Simpler exit

Choose based on your goals.

Common Flip Mistakes

1. Over-Improving for the Neighborhood

The mistake: Putting $80K into a house in a $200K neighborhood

Example:

• Granite countertops when laminate is standard
• High-end appliances when builder-grade is the norm
• Adding features neighbors don't have

Result: Can't recoup costs in sale price

Solution: Match the neighborhood standard, don't exceed it significantly

2. Emotional Decisions

The mistake: Choosing finishes you like vs. what buyers want

Your taste ≠ average buyer taste

Solution:

• Neutral colors (gray, white, beige)
• Mass-appeal finishes
• Current but not trendy

3. Doing the Work Yourself to Save Money

The mistake: Thinking you'll save 30% by DIYing

Reality:

• Takes 3-4x longer than pros
• Quality often lower
• Holding costs eat up "savings"
• Opportunity cost (could be finding next deal)

When DIY makes sense:

• You're legitimately skilled in that trade
• Simple tasks (painting, landscaping)
• You have abundant time

When to hire pros:

• Electrical, plumbing, HVAC
• Structural work
• Anything requiring permits
• When time matters

4. Underestimating Holding Costs

Every extra month costs you:

Example property:
Hard money interest: $1,300/month
Taxes, insurance, utilities: $500/month
Total: $1,800/month

8-month flip instead of 5-month:
Extra 3 months = $5,400 in holding costs

That's $5,400 straight from your profit.

5. No Contingency Budget

Something ALWAYS goes wrong:

• Hidden mold
• Bad subfloor under old carpet
• Plumbing issues once walls are open
• Outdated electrical panel
• Structural issues

Always budget 15-20% contingency.

6. Ignoring Market Conditions

Flipping in a buyer's market:

• Houses sit longer
• Lower offers
• More contingencies
• Longer to close

Flipping in a seller's market:

• Quick sales
• Multiple offers
• Higher prices
• Above asking

Adjust your projections based on current market.

Finding Flip Properties

Where to Look

1. MLS

• Work with investor-friendly agent
• Set up automated searches
• Filter for distressed properties
• Look for:
  • "Fixer upper"
  • "Sold as-is"
  • "Needs TLC"
  • "Handyman special"

2. Foreclosures and Auctions

• Bank-owned (REO) properties
• Trustee sales
• Sheriff sales
• Requires cash or hard money (quick close)
• Higher risk (limited inspection)

3. Wholesalers

• Investors who find deals and assign contracts
• Pay assignment fee ($5K-$15K)
• Pre-vetted deals
• Move fast (24-48 hour decision window)

4. Direct Marketing

• Send mailers to absentee owners
• Target probate leads
• Divorced owners
• Properties with code violations
• Pre-foreclosure

5. Driving for Dollars

• Drive neighborhoods
• Look for distressed properties
• Note address
• Send letter or knock on door

Evaluating Multiple Deals

Create a simple comparison spreadsheet:

Focus on properties that offer:

• 20%+ ROI
• $25K+ profit
• Purchase below your max offer
• Conservative ARV and rehab estimates

The Bottom Line

Fix and flip investing can generate significant profits—but only if you analyze deals correctly from the start.

Key Success Factors:

1. Accurate ARV estimation - Use proper comps, adjust conservatively
2. Detailed rehab budgets - Get contractor bids, add 15-20% contingency
3. Account for ALL costs - Holding, selling, financing
4. Follow the 70% rule - Or 65-75% based on market and experience
5. Have exit strategy B - What if market shifts?
6. Know your market - Buyer preferences, price points, days on market
7. Build the right team - Agent, contractor, lender, attorney

Target Profit Metrics:

• Minimum profit: $20,000-$25,000
• Target ROI: 20-30%
• If profit drops below $15K after analysis, pass on the deal

Remember: Your profit is determined when you BUY, not when you sell. Overpay by $20K and your profit disappears.

Next Steps:

1. Study your local market and comparable sales
2. Connect with contractors for rough budgets
3. Find a hard money or private lender
4. Analyze 20-30 deals before making an offer
5. Start conservative with your first flip

The Rental Property Calculator can help you analyze whether a flip property would work better as a BRRRR or long-term rental if your exit strategy needs flexibility.

Successful flipping is math, not emotion. Master the analysis, buy right, execute efficiently, and the profits will follow.