Fix and Flip Profit: How to Run the Numbers First
The house looks like a steal. Peeling paint, outdated kitchen, a bathroom untouched since 1987. But here's what separates investors who make money flipping from those who break even — or worse: the ones who make money run the numbers before they fall in love with the property.
- The Fix and Flip Profit Formula
- Step 1: Establish the After Repair Value (ARV)
- Step 2: Calculate Rehab Costs Honestly
- Step 3: Add Holding Costs
- Step 4: Calculate Financing Costs
- Step 5: Estimate Selling Costs
- Full Profit Calculation
- The 70% Rule: A Fast First Filter
- Fix & Flip Calculator — Free Tool
- Where Flippers Lose Money
- FAQ
The Fix and Flip Profit Formula
At its core, flipping profit is straightforward. The challenge is filling every variable with a real number — not a hopeful estimate, not a round figure, not whatever the wholesaler told you.
Step 1: Establish the After Repair Value (ARV)
ARV is what the property will sell for once renovation is complete. It's the foundation of every other number in your analysis — if ARV is wrong, everything downstream is wrong.
ARV is not what you hope the property sells for. It's not the Zestimate. It's what comparable renovated properties in the same neighborhood have actually sold for in the last 90–180 days.
How to Find a Reliable ARV
Pull sold comps — not active listings — within a half-mile radius. Match on square footage (within 15–20%), bedroom/bath count, construction type, finish level, and school district. You're comparing to renovated properties, not distressed ones.
⚠️ Always use the low end of your comp range for ARV. A 5% ARV error on a $300,000 deal is $15,000 — enough to erase your entire profit margin. Work with a local agent or appraiser for a defensible number before committing to a hard money loan.
Step 2: Calculate Rehab Costs Honestly
Rehab cost estimation is where most new flippers bleed money — and where experienced flippers build their edge. Accurate scoping is a skill that saves tens of thousands of dollars per deal.
Walk the property with a detailed checklist. Break renovation into systems and rooms before you estimate anything.
- Foundation issues (most expensive surprises)
- Roof condition and remaining life
- Electrical panel age and capacity
- Plumbing type (galvanized = budget replacement)
- HVAC age and condition
- Kitchen — cosmetic refresh vs. full gut
- Bathrooms — fixture swap vs. full tile-out
- Flooring — refinish hardwood vs. full replacement
- Paint throughout
- Doors, trim, hardware
- Siding condition
- Windows (single-pane often appraises poorly)
- Landscaping and curb appeal
- Driveway, fence, garage
- Add 10–15% on top of your total estimate
- Opening walls in a 1960s house is an archaeological expedition
- Mold, knob-and-tube wiring, cracked slabs
- The unknown always shows up
| Rehab Item | Typical US Range |
|---|---|
| Full kitchen renovation | $15,000 – $45,000 |
| Bathroom renovation | $8,000 – $20,000 |
| New roof (1,500 sq ft) | $8,000 – $18,000 |
| HVAC replacement | $6,000 – $12,000 |
| New flooring (per sq ft) | $4 – $12 / sq ft |
| Interior paint (full house) | $3,000 – $7,000 |
| Electrical panel upgrade | $2,500 – $6,000 |
✅ Example rehab budget for this deal: Kitchen $22k · 2 bathrooms $18k · Flooring $9.5k · Roof $11k · Paint $5k · Exterior/landscaping $4.5k · Contingency 12% ($8.4k) = Total: $78,400
Step 3: Add Holding Costs
Every day you own the property costs money. Holding costs are the silent profit killer on flips that run long — and renovations almost always run longer than planned. A light cosmetic flip might close in 90 days total. A full gut with structural work could take 6–9 months.
The 5-month total above ($17,900) includes financing costs at 11% on a $160,000 loan. The non-financing portion — taxes, insurance, utilities — adds $675/month. It's the loan interest that dominates, which is why every extra month of hold time is so expensive.
Step 4: Calculate Financing Costs
Unless you're paying cash, your capital has a real cost. Hard money loans — the most common flip financing tool — typically carry 9–13% interest annually plus 1–3 upfront points.
On a $160,000 loan at 11% for 5 months:
- Monthly interest: $160,000 × (11% ÷ 12) = $1,467/month
- 5-month interest: $7,333
- Origination (2 points on $160k): $3,200
- Total financing cost: $10,533
Cash buyers skip this line — but their opportunity cost of capital still exists, even if it doesn't show up as a payment. Running the numbers honestly means acknowledging the cost of your capital regardless of source.
Step 5: Estimate Selling Costs
Selling costs are non-negotiable and frequently underestimated. On a $300,000 sale at 6% commission + 1.5% seller closing costs:
- Agent commissions (5–6%): $18,000
- Seller closing costs (transfer taxes, title, attorney): $4,500
- Staging: $2,500
- Total selling costs: $25,000
Staging consistently boosts sale price and cuts days on market. Budget for it — the $2,500 typically pays back multiples.
Putting It All Together: The Full Profit Calculation
Now you have every number. Here's whether this deal works — laid out from ARV down to net profit.
⚠️ $27,692 is close but thin. Most experienced flippers target a minimum of 10–15% of ARV as net profit — that's $30,000–$45,000 on a $300,000 deal. At this purchase price, the deal is marginal. One bad subcontractor invoice or a 30-day market delay erodes the margin further. The smart move: negotiate the purchase price down by $10,000–$15,000 before proceeding.
The 70% Rule: A Fast Filter Before You Run Full Numbers
Before investing time in a detailed analysis, the 70% rule gives you a quick sanity check on any potential flip.
($300,000 × 0.70) − $78,400 = $131,600 maximum offer
The deal above was purchased at $155,000 — $23,400 above the 70% rule maximum. That's precisely why the margin is thin at 9.2% of ARV instead of the target 10–15%.
Where Flippers Lose Money: The Most Expensive Mistakes
These four mistakes account for the majority of flips that underperform or generate outright losses. Every experienced flipper has been hit by at least one of them.
FAQ: Fix and Flip Profit Questions
The Renovation Is Where the Work Happens. The Profit Is Where the Math Happens.
Do the math first. Input ARV, purchase price, rehab estimate, loan terms, and hold period — and know your net profit, ROI, annualized return, and maximum allowable offer before you sit across from any seller.