Fix-and-flip 101: the real math of house flipping

Flipping — buying a distressed house, renovating it, and selling it for a profit — is the most televised strategy in real estate and the most misunderstood. The shows compress six stressful months into forty minutes and a tidy profit number that quietly ignores financing, holding costs, and the flips that lost money. Real flipping is a short-term, capital-intensive business with real risk: you make your money when you buy, you lose it when you misjudge the rehab or the market, and there is nothing passive about it.

The three numbers that decide every flip

• After-repair value (ARV): what the finished house will realistically sell for, based on recently sold comparable homes — not asking prices, not your optimism.
• Repair cost: the honest, contractor-verified budget to get from current condition to that ARV, plus a contingency.
• Holding and transaction costs: financing interest, taxes, insurance, utilities during the project, plus the agent commissions and closing costs on both the buy and the sell.

Get the ARV wrong and every other number is built on sand. Pull three to six homes that actually sold in the last few months, within a half-mile, similar in size and style to your finished product. The ARV is where beginners are most optimistic and where the market is most unforgiving — the house sells for what buyers will pay, not what your spreadsheet needs.

The 70% rule

The classic screening formula: your maximum purchase price should be no more than 70% of the ARV, minus repair costs. The 30% haircut isn't your profit — it's the buffer that absorbs holding costs, financing, selling costs, and the near-certainty that the rehab runs over. Whatever is left after all of those is your profit.

Where flips lose money

• Overestimating ARV: the single most expensive mistake. A 5% miss on a $300,000 sale is $15,000 straight off your profit.
• Underestimating repairs: first-timers routinely miss by 20-40%. Structural, electrical, and plumbing surprises hide behind walls you can't see until demolition.
• Blowing the timeline: every extra month is more interest, more taxes, more insurance, with zero income. Slow contractors and permit delays quietly eat the margin.
• Buying in a falling or flat market: you buy at today's prices and sell six months later at whatever the market has become. Flipping is a leveraged bet on near-term prices holding.
• Over-improving: putting $80,000 of finishes into a neighborhood that caps at a $250,000 sale price. The market pays for the neighborhood's ceiling, not your taste.

Financing a flip

Most flippers use hard-money loans — short-term, asset-based financing that funds a large share of the purchase and often the rehab, at high rates (commonly 10-13%) plus points. It's expensive by design, but it's fast and it's built for a six-month project, which conventional mortgages are not. The trade is that the interest meter runs the entire time you own the house, which is exactly why timeline discipline matters so much: on a project financed at 12%, every extra month of delay is real money burned for no return.

The bottom line

Flipping can be genuinely profitable, but it's a business, not an investment — you're trading intense work and real capital risk for a lump-sum payday, taxed at the highest rates, with success decided almost entirely by two numbers you commit to before you buy: a conservative ARV and an honest, padded rehab budget. Use the 70% rule as a screen, model holding and selling costs in full, assume the rehab runs over, and never flip on the assumption that prices will rise while you own it. Do all that and flipping funds down payments for the rentals that actually build wealth over time.