Investor guide
How to analyze a fix-and-flip deal
A flip makes money when you buy it right. Here’s how to work out what a property is worth after repairs and the most you should pay for it.
1. Find the after-repair value (ARV)
The ARV is what the house should sell for once it’s fixed up. Find three to five comparable sales (comps): renovated houses that sold in the last three to six months, close by (ideally within half a mile in a city), with similar size, beds, baths, age and lot.
Adjust for differences. A comp with an extra bathroom or a garage was worth more; a comp on a busy road was worth less. Price per square foot is a useful check, not the whole answer.
2. Estimate the repairs
Walk the house and list everything it needs: roof, HVAC, plumbing, electrical, foundation, windows, kitchen, baths, flooring, paint, landscaping. Price it with your contractor or a per-square-foot rule of thumb for your area, then add a contingency of 10–15% for surprises.
3. Apply the 70% rule
A common starting point: maximum purchase price = ARV × 70% − repairs. The 30% left over covers your buying, holding and selling costs and your profit.
In expensive markets or on very clean houses some investors go above 70%; on heavy rehabs or slow markets they go lower. Treat it as a quick filter, then run the full numbers.
4. Count every cost
- Buying: closing costs and any loan points.
- Holding: interest, property taxes, insurance and utilities for the months you own it.
- Selling: agent commissions, seller closing costs and any concessions.
- Your profit target.
Worked example
Comps say a renovated house sells for about $250,000 (ARV). Repairs are estimated at $40,000. The 70% rule gives $250,000 × 0.70 − $40,000 = $135,000 as a maximum price.
Full numbers at $130,000: repairs $40,000, buying costs about $3,000, six months of holding about $9,000, selling costs about $20,000. Total cost about $202,000, leaving roughly $48,000 before taxes if it sells at $250,000.
Questions
What is ARV in real estate?
After-repair value: the estimated price a property will sell for once it’s renovated, based on recent sales of comparable fixed-up homes nearby.
What is the 70% rule for flipping houses?
A rule of thumb that you should pay no more than 70% of the after-repair value minus the cost of repairs. It leaves room for costs and profit.
How do I find comps?
Look at recently sold homes on Zillow, Redfin or Realtor.com, or ask an agent for MLS sold data. Use sales from the last three to six months, close by and similar in size and features.
General information, not legal, tax or financial advice. Check the numbers on every deal yourself.