Will This Flip Actually Make Money?

ARV stands for After Repair Value - it's what your property will be worth after you fix it up. To calculate it, look at comparable sales (comps) of similar renovated homes in the same neighborhood that sold in the last 3-6 months. Focus on properties with similar square footage, bedroom/bathroom count, and lot size. Most investors use 3-5 comps and take the average.

The 70% rule is a quick formula used by real estate investors to determine the maximum price they should pay for a flip property. The formula is: Maximum Allowable Offer (MAO) = (ARV x 70%) - Repair Costs. The 30% buffer accounts for holding costs, agent commissions, closing costs, and your profit margin. Some investors use 65% in hot markets or 75% in slower markets.

Start by walking the property with a contractor and creating a detailed scope of work. Break costs into categories: kitchen ($15K-50K), bathrooms ($5K-20K each), flooring ($3-12/sqft), paint ($2-4/sqft), roof ($5K-15K), HVAC ($5K-12K), and landscaping ($2K-10K). Always add a 10-15% contingency buffer for unexpected issues - there are ALWAYS surprises once you start opening walls. Get at least 3 contractor bids before finalizing your numbers.

Holding costs are the ongoing expenses while you own the property. They typically include: property taxes (~1-2% annually), insurance ($100-300/month), utilities ($150-300/month), lawn care/maintenance ($100-200/month), and loan interest payments. For a $200K property with hard money financing at 12%, expect $1,500-2,500/month in total holding costs. The average flip takes 4-6 months, so budget $6K-15K for holding costs.

Most experienced flippers target a minimum ROI of 10-20% on their total investment. However, if you're using hard money or private financing, focus on cash-on-cash return, which measures profit against your actual cash invested. With leverage, experienced flippers often achieve 30-50% cash-on-cash returns. As a rule of thumb, most investors won't touch a deal unless it shows at least $20,000-30,000 in potential profit.

Common financing options include: Hard money loans (12-18% interest, 1-3 points, quick funding), Private money (loans from individuals, often 8-12%), DSCR loans (based on property cash flow), HELOCs (borrow against your home equity), and Cash (no interest but ties up capital). Most new flippers start with hard money or partner with someone who has capital. The financing costs should be factored into your deal analysis.

House flipping involves buying a property, renovating it yourself, and selling for profit - you take on construction risk but earn more. Wholesaling means putting a property under contract and then assigning that contract to another investor (often a flipper) for a fee, typically $5K-20K. Wholesaling requires less capital and no renovation work, but profits are smaller. Many investors use both strategies depending on the deal.