What Is Fix and Flip Investing?
Fix and flip is the strategy of buying a distressed property below market value, renovating it, and selling it at or above market value for a profit. It is a capital-intensive strategy — and an unforgiving one when the numbers are wrong.
In fix and flip, profit depends less on finding a great deal than on running accurate numbers before you buy. That means a realistic rehab budget, honest holding costs, and a resale value supported by comparable sales.
The Fix and Flip Formula
Net Profit = ARV minus Purchase Price minus Rehab Costs minus Holding Costs minus Financing Costs minus Closing Costs (buy and sell)
Every term in that formula is a variable you need to calculate accurately before you make an offer. Underestimate any one of them and your projected profit evaporates.
The Six Numbers You Must Calculate
1. ARV — After Repair Value
ARV is what the property will sell for after renovations are complete. It is the most important number in the entire analysis because every other calculation depends on it.
Pull recent comparable sales close to the subject, of the same property type, with similar square footage and bed and bath count. Adjust for condition, upgrades, and lot size. Use the most conservative defensible number — not the highest comp you can find.
A $15,000 ARV overestimate on a fix and flip does not just cost you $15,000. It can cost you the entire deal, because your MAO was based on a number that was never real.
2. Purchase Price
Your Maximum Allowable Offer for a fix and flip is: MAO = ARV minus Rehab minus Holding Costs minus Closing Costs minus Financing Costs minus Desired Profit.
Work backward from your target profit. If you want $30,000 net on a deal, build that into your MAO before you negotiate. Never negotiate up to a number that requires your profit to shrink.
3. Rehab Costs
Rehab is the easiest place to lose money on a fix and flip. The mistakes are predictable: underestimating scope, missing hidden damage, not accounting for permit costs, and failing to add a contingency buffer.
A proper rehab estimate requires a line-item walkthrough of every system and surface in the property — roof, foundation, HVAC, plumbing, electrical, windows, kitchen, bathrooms, flooring, paint, exterior, and landscaping. Add a contingency on top of your line-item total; many investors use 10 to 15%, so set the figure your own experience supports. Rehab often reveals surprises once walls open up.
4. Holding Costs
Holding costs are every expense you pay from acquisition to sale — and they are an easy number to underestimate.
- Property taxes (prorated for your hold period)
- Insurance (landlord or vacant property policy)
- Utilities (if you are maintaining them during rehab)
- HOA fees if applicable
- Property management if you are not managing the rehab yourself
Model your hold period conservatively. A 4-month rehab plus 2 months on market is 6 months of holding costs. If the property sits longer or the rehab runs over, those costs compound.
5. Financing Costs
If you are using hard money or a private loan to fund the flip, financing costs are significant and must be modeled accurately.
- Origination points: a percentage of the loan amount, set by the lender, paid at closing
- Interest rate: hard money rates vary by lender, borrower, and deal, so use a quote
- Monthly interest: calculate for your full projected hold period plus a 30-day buffer
Example: A $150,000 hard money loan at 12% annually costs $1,500 per month in interest. Over a 6-month hold that is $9,000 in financing costs before origination points.
6. Closing Costs — Buy and Sell
You pay closing costs twice on a fix and flip — once when you buy and once when you sell.
- Buy-side closing costs: title insurance, escrow fees, recording fees — vary by location and price, so get a written estimate
- Sell-side closing costs: agent commissions (set by your listing agreement), title, escrow, transfer taxes — best estimated line by line rather than as a flat percentage of ARV
Sell-side closing costs are one of the easiest line items to underestimate. On a hypothetical $200,000 ARV property, $16,000 of sell-side costs would take a large bite out of the profit, which is why each line deserves its own estimate. Model it accurately.
Complete Fix and Flip Example
- ARV: $225,000
- Purchase price: $105,000
- Rehab costs: $42,000
- Holding costs (6 months): $7,200
- Financing costs (hypothetical hard money loan of $157,500 at 12%, 6 months): $9,450
- Buy-side closing costs: $3,000
- Sell-side closing costs (hypothetical, estimated line by line): $18,000
- Total costs: $184,650
- Net profit: $225,000 minus $184,650 = $40,350
- Return on investment: $40,350 / $184,650 = 21.9%
What Is a Good Profit Margin on a Fix and Flip?
Minimum acceptable profit margins vary by investor and market. As an illustration, here are targets some investors use; replace them with your own:
- Minimum viable deal: $20,000 net profit or 15% ROI — whichever is higher
- Good deal: $30,000 to $50,000 net profit, 20-25% ROI
- Home run: $50,000+ net profit, 30%+ ROI
Never chase a deal below your minimum threshold. Thin margins leave little room for the unexpected, and rehab rarely goes exactly to plan.
Common Fix and Flip Mistakes
- Falling in love with the property: Emotional attachment to a deal makes it easy to rationalize bad numbers. The math either works or it does not.
- Underestimating rehab scope: A classic way to lose money on a flip. Get a real contractor estimate, not a drive-by guess.
- Ignoring days on market: A property that sits for 90 days instead of 30 adds two months of holding and financing costs. Model a realistic sale timeline for your specific market.
- Over-improving for the neighborhood: Granite countertops and custom finishes in a C-class neighborhood do not produce a higher ARV. Match your rehab to the neighborhood standard.
- Not having a contingency budget: Something often goes wrong. Budget for it before the deal, not after.
How Appraize Models Fix and Flip Deals
Appraize models your complete fix and flip analysis automatically — ARV from real MLS comps, line-item repair estimates calibrated to your local market, holding costs, financing costs, and net profit projection. You see your fix and flip numbers alongside all 7 other exit strategies simultaneously, so you always know if a different exit produces a better return on the same property.
Analyze your next fix and flip deal at Appraize. Get your complete profit projection in under 30 seconds.
The Bottom Line
Fix and flip investing rewards precision. Consistent profit from flipping comes less from luck than from discipline about running accurate numbers before you buy. ARV from real comps. Rehab from real estimates. Holding costs modeled for a realistic timeline. Financing costs calculated to the dollar. Closing costs on both ends.
Run all six numbers accurately before every offer and fix and flip becomes what it should be — a repeatable, profitable business rather than an expensive gamble.
