How to Analyze a Fix-and-Flip Deal: The Complete Profit Formula
Analyzing a flip deal correctly is the difference between a $40K profit and a $20K loss. Every flip investor has a horror story about the deal they should have analyzed more carefully. This guide gives you the complete flip analysis framework so you can evaluate any deal with confidence.
The flip profit formula
Profit = ARV - Purchase Price - Repair Costs - Holding Costs - Selling Costs
Step 1: Calculate ARV
The after-repair value is the most important number in your analysis. It determines your ceiling. Use 3-5 comparable sales of renovated properties within 0.5 miles, sold in the last 6 months, with similar square footage (+/- 20%), same property type, and similar bedroom/bathroom count.
Adjust comps for differences: $3-5K per bedroom, $2-3K per bathroom, $15-30 per square foot, pool ($10-20K), garage ($5-10K). The adjusted average of your best comps is your ARV.
Step 2: Estimate repairs
Walk the property (or review photos) and estimate repairs by category. Use our repair estimation guide for detailed cost ranges. Common categories: exterior (roof, siding, paint), interior (flooring, paint, kitchen, bathrooms), mechanical (HVAC, plumbing, electrical), and structural.
Rule of thumb: light cosmetic rehab is $15-25/sqft, moderate rehab is $25-45/sqft, full gut renovation is $50-80/sqft. These vary significantly by market.
Step 3: Calculate holding costs
Holding costs are what you pay while you own the property during renovation and until it sells. For a detailed breakdown, see our holding costs guide. Typical items:
- Hard money loan interest (10-14% annually on the loan amount)
- Property taxes (prorated for your holding period)
- Insurance (builder's risk policy)
- Utilities (electric, water, gas during renovation)
- HOA fees (if applicable)
Estimate 4-6 months total hold time: 2-3 months for renovation plus 1-3 months on market. Budget $2,000-$5,000/month in holding costs for a typical flip.
Step 4: Calculate selling costs
When you sell the finished flip, you pay: agent commissions (5-6% of sale price), title insurance and closing costs (1-2%), transfer taxes (varies by state), and staging/photography ($500-$2,000). Total selling costs typically run 7-9% of the ARV.
Step 5: Calculate profit
Example analysis:
| Item | Amount |
|---|---|
| ARV (estimated sale price) | $300,000 |
| Purchase price | $180,000 |
| Repair costs | $45,000 |
| Holding costs (5 months) | $15,000 |
| Selling costs (8%) | $24,000 |
| Net profit | $36,000 |
| ROI on cash invested | 16% |
The 70% rule
The quick-screen formula for flips: MAO = ARV x 70% - Repairs. At $300K ARV and $45K repairs, MAO = $210K - $45K = $165K. This leaves roughly 30% of ARV for holding costs, selling costs, and profit. It is a guideline, not a rule — adjust based on your market.
Red flags in flip deals
- Tight ARV comps: If you can only find 1-2 comps and they are 6+ months old, your ARV confidence is low.
- Foundation or structural issues: Costs are unpredictable and can blow up your budget.
- Declining market indicators: Rising days-on-market, increasing price reductions, and falling sale prices signal a cooling market.
- Slim margins: If your projected profit is less than 10% of ARV, one surprise (over-budget rehab, longer hold time) turns it into a loss.
Related guides
- How to Calculate ARV
- Estimating Repair Costs
- Estimating Holding Costs
- Maximum Allowable Offer
- Fix and Flip Analysis