House Flipping: How to Calculate If a Deal Is Worth It

Published: January 2025 | Category: Real Estate | Reading Time: 11 minutes

House flipping looks glamorous on TV: buy a rundown property, renovate it with style, and sell for a huge profit. The reality is far more nuanced. Successful flippers are not just skilled renovators; they are meticulous analysts who know exactly what a deal is worth before making an offer. The profit or loss is determined at purchase, not at sale.

This guide will teach you the formulas and frameworks professional flippers use to analyze deals. By the end, you will know how to quickly evaluate any potential flip and determine your maximum offer price.

The Foundation: Understanding ARV

Every flip calculation starts with the After Repair Value (ARV). This is what the property will be worth after you complete renovations.

After Repair Value (ARV)

ARV = Comparable Sales Price for Renovated Homes

ARV is determined by analyzing recent sales of similar, renovated properties in the same neighborhood. This is not what you hope to sell for; it is what the market will actually pay.

How to Calculate ARV:

Find 3-5 comparable sales within 0.5 miles
Look for homes with similar square footage (within 10%)
Compare bedroom and bathroom counts
Focus on sales within the last 3-6 months
Adjust for differences in features, lot size, condition

Pro Tip: Be conservative with ARV estimates. Overestimating ARV is the number one mistake new flippers make. If in doubt, use the lower end of your comparable range.

Analyze Your Next Flip

Run the numbers on any potential property flip with our comprehensive calculator.

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The 70% Rule

The 70% rule is the most widely used quick-analysis formula in house flipping. It provides a maximum purchase price to ensure profitability.

The 70% Rule

Maximum Purchase Price = (ARV x 0.70) - Repair Costs

This formula assumes 30% of ARV goes to holding costs, selling costs, and profit. Paying more than this amount puts your profit at risk.

70% Rule Example:

ARV: $350,000

Estimated repairs: $60,000

Maximum purchase: ($350,000 x 0.70) - $60,000 = $185,000

Any purchase price above $185,000 starts cutting into profit margin.

Why 70%?

The 30% buffer covers:

Selling costs (8-10%): Real estate commissions, closing costs, staging
Holding costs (5-10%): Loan payments, insurance, utilities, taxes during renovation
Profit margin (10-15%): Your compensation for risk and effort

Market Matters: In competitive markets, some flippers work with 75% or even 80% rules, accepting slimmer margins. In risky or slow markets, 65% may be more appropriate. Adjust based on your market conditions and risk tolerance.

Complete Flip Cost Breakdown

For accurate analysis, you need to account for every cost in the flip:

Cost Category	Typical Percentage	Notes
Purchase Price	Variable	Your acquisition cost
Closing Costs (Purchase)	2-3% of purchase	Title, escrow, recording fees
Rehab/Renovation	Variable	The actual repair work
Holding Costs	5-10% of ARV	Monthly carrying costs x timeline
Selling Costs	8-10% of ARV	Agent commissions, closing costs
Contingency	10-20% of rehab	Buffer for unexpected costs

Holding Costs in Detail:

Hard money loan payments: 10-15% annual interest is common
Property taxes: Prorated for holding period
Insurance: Builder's risk or vacant property policy
Utilities: Electric, water, gas during renovation
HOA fees: If applicable
Lawn care/property maintenance: Keep it presentable

Estimating Rehab Costs

Accurate rehab estimation separates successful flippers from those who lose money. Here are typical cost ranges:

Renovation Item	Low-End Cost	Mid-Range Cost
Kitchen (full remodel)	$15,000	$35,000+
Bathroom (full remodel)	$8,000	$20,000+
Flooring (per sq ft)	$3	$8+
Interior paint (per sq ft)	$1.50	$3+
Roof (per sq ft)	$4	$8+
HVAC system	$5,000	$12,000+
Electrical panel upgrade	$1,500	$4,000+
Plumbing (repipe)	$4,000	$10,000+

Get Contractor Quotes: Before making an offer, get at least two contractor estimates for major work. Your rehab estimate is only as good as your knowledge of actual local costs.

Step-by-Step Deal Analysis

Here is the complete process for analyzing a flip:

Step 1: Determine ARV

Research comparable sales and establish what the renovated property will sell for.

Step 2: Estimate Rehab Costs

Walk the property and create a detailed scope of work with cost estimates.

Step 3: Calculate Maximum Offer

Apply the 70% rule or your preferred formula.

Step 4: Detailed Profit Analysis

Run the full numbers:

Complete Flip Analysis Example:

ARV: $400,000

Purchase price: $220,000

Closing costs (purchase): $6,600 (3%)

Rehab costs: $70,000

Rehab contingency (15%): $10,500

Holding costs (5 months): $15,000

Selling costs (9%): $36,000

Total investment: $358,100

Gross profit: $400,000 - $358,100 = $41,900

ROI: $41,900 / $358,100 = 11.7%

Cash-on-cash (if using financing): Depends on down payment

Common Flip Killers

These issues can turn a profitable flip into a disaster:

Foundation problems: Can cost $20,000-50,000+ to repair
Structural issues: Load-bearing walls, roof trusses, floor joists
Environmental hazards: Asbestos, lead paint, mold remediation
Permit issues: Unpermitted additions may need to be removed
Market timing: Buying at market peak, selling in downturn
Over-improving: Renovating beyond what the neighborhood supports
Timeline overruns: Every extra month eats into profit

Always Get Inspections: A $500 inspection can save you from a $50,000 mistake. Never skip inspections to win a deal.

Financing Flip Deals

Most flippers do not use all cash. Understanding financing costs is crucial:

Hard Money Loans:

Typical terms: 10-15% interest, 2-4 points origination
LTV: 65-75% of ARV or purchase price
Term: 6-12 months
Speed: Can close in 7-14 days

Private Money:

Individual investors lending at 8-12%
More flexible terms but relationship-dependent

DSCR Loans:

Longer term, lower rates
Better for BRRRR strategy than pure flips

Exit Strategy Considerations

Smart flippers always have backup plans:

Plan A: Flip for profit at target price
Plan B: Reduce price if market softens
Plan C: Rent the property if it will not sell (BRRRR)
Plan D: Sell to investor at wholesale price

The BRRRR Safety Net: If you buy right and renovate well, a property that does not flip profitably might still work as a rental. Always analyze the rental potential as a backup.

When to Walk Away

Not every deal is worth doing. Walk away when:

Numbers only work with aggressive (unrealistic) assumptions
Profit margin is under 10% with significant risk
Major unknowns cannot be resolved before closing
Competition is bidding up price beyond reasonable levels
You feel pressured to move faster than comfortable

Conclusion

Successful house flipping is not about luck or TV-worthy reveals. It is about disciplined analysis, conservative assumptions, and knowing your numbers cold before making an offer. The 70% rule provides a quick screening tool, but thorough due diligence separates the professionals from the amateurs.

Use our Property Flip Calculator to analyze your next potential deal. Input realistic numbers, account for contingencies, and make sure the profit margin justifies the risk and effort involved.

Remember: you make your money when you buy, not when you sell. A great renovation cannot fix a bad purchase. Do the math, trust the numbers, and only move forward on deals that make financial sense.