What is Fix and Flip Real Estate?
Fix and flip is a real estate investment strategy where an investor purchases a property below market value, renovates it, and sells it for a profit. The profit comes from the difference between the total investment (purchase price + renovation costs + holding costs + selling costs) and the final sale price. It's the most visible form of real estate investing thanks to television shows, but in reality it's a capital-intensive, time-sensitive business that requires accurate deal analysis and strong project management skills.
Flippers are among the most active buyers in the wholesale market. They need a steady pipeline of below-market properties, and wholesalers provide exactly that. Understanding how flippers analyze deals helps wholesalers price their assignments correctly and market to the right buyers.
The flip profit formula
Profit = Sale Price - Purchase Price - Renovation - Holding Costs - Selling Costs
Or more commonly expressed as the 70% rule:
Maximum Purchase = ARV x 70% - Repairs
The 70% rule is the industry standard for quick MAO calculations. It assumes 30% of ARV covers holding costs, selling costs (including agent commissions), and the investor's profit margin. For a property with a $300,000 ARV and $50,000 in repairs, the maximum purchase price is $300,000 x 0.70 - $50,000 = $160,000.
Typical flip timeline
| Phase | Duration | Key Activities |
|---|---|---|
| Acquisition | 1-4 weeks | Find deal, negotiate, close |
| Renovation | 4-16 weeks | Permits, demo, structural, cosmetic |
| Marketing & sale | 2-12 weeks | List, showings, offer, closing |
| Total | 3-8 months |
Time is the enemy of flip profits. Every month the project takes adds holding costs: loan interest (12-15% on hard money), property taxes, insurance, utilities, and lawn care. A flip that takes 8 months instead of 4 months might lose $10,000-$20,000 in additional holding costs.
What flippers look for in deals
When marketing wholesale deals to flippers, include the data they need to make a fast decision:
- Comps: Recent sales of renovated properties in the same neighborhood. This establishes the ARV.
- Repair scope: What work is needed? Photos, a room-by-room breakdown, and cost estimates help flippers evaluate the project quickly.
- Location quality: Flippers want neighborhoods where renovated homes sell quickly. Days on market, absorption rate, and buyer demand matter.
- Margin: The spread between your asking price and ARV minus repairs needs to leave room for the flipper's profit. Experienced flippers target 15-20% minimum ROI.
Fix and flip risks
Flipping carries more risk than most investors initially realize. Renovation budgets frequently go over (by 10-30% is common), timelines extend (permits, weather, contractor delays), and markets can shift during the project. The biggest risk is holding a renovated property that won't sell at the expected price, forcing a price reduction that eats into or eliminates the profit margin.