Fix-and-flip is a real estate investment strategy where an investor buys a distressed or undervalued property, repairs or renovates it to increase market appeal, and resells it quickly for a profit. The goal is to add value through renovation and marketing, then sell—usually within a few months to a year—to minimize carrying costs and recycle capital into the next deal.
- Buy-and-hold: buy to rent long-term; income and appreciation matter. Fix-and-flip: buy to renovate and sell quickly; one-time profit matters.
- Wholesaling: contract assignment—wholesalers typically never close on the property; flippers close, renovate, and sell.
- Rehab-to-rent (rehab-to-rent): renovate to convert a property into a long-term rental and hold it; flipping sells the asset after improvements.
Common search terms include: flip a house, house flipping, rehab & resale, fixer-upper flip, and fix-and-flip. People also search for specific subtopics like ARV, hard money loan, and rehab budget when researching flips.
Start with market research and comps to determine neighborhood norms. Source properties via MLS, auctions, wholesalers, bank REOs, or off-market sellers. Underwriting means estimating purchase price, expected repairs, after-repair value (ARV), carrying and selling costs, and expected profit. A thorough inspection and a conservative ARV are vital.
Financing options include cash, conventional loans, private lenders, or specialized short-term lenders known as hard-money loans. Choose a funding mix that balances speed, cost, and flexibility. Ensure funds cover purchase, rehab, and reserves for carrying costs or overruns.
Define a clear scope of work, create a line-item budget, and set a realistic timeline. Decide between hiring a general contractor (GC) or managing trades directly. Track milestones, inspect work regularly, and keep change orders tightly controlled to prevent budget creep.
Once rehab is finished, stage the property (virtually or physically), price it based on comps and market conditions, and list it with an agent or sell to an investor. Fast, professional photography and strong marketing reduce days on market and minimize holding costs.
At closing, subtract total costs (purchase, rehab, financing, holding, closing costs, and commissions) from the sale price to calculate net profit. Reconcile budgets and update your underwriting assumptions for future deals.
ARV is the estimated market value of a property after all planned renovations are complete. Accurate ARV calculation—based on comparable sales (comps) and realistic upgrade assumptions—is the backbone of a successful flip. See also: ARV.
Repair estimate is a line-item tally of expected costs; contingency is extra reserve (commonly 5–15%) for unforeseen issues. Use both: a detailed repair estimate plus a contingency reduces the chance of budget-busting surprises.
Flip spread = ARV − (purchase price + rehab costs + total closing & holding costs). Target net profit commonly ranges 15–25% of ARV or a dollar goal per flip (e.g., $30k–$70k depending on market). Set a minimum acceptable spread before bidding.
Hard-money loans are short-term, asset-based loans often used to close quickly on distressed deals. Lenders charge higher interest and origination fees (“points”)—commonly 1–4 points—plus servicing and draw fees. Factor these into carrying cost calculations. See: hard-money-loan.
Holding costs include mortgage payments, insurance, utilities, property taxes, and security. Carrying costs increase with project delays and reduce net profit—so efficient timelines matter.
Find 3–6 comparable sales within the same neighborhood, similar square footage, bedroom/bath count, and lot size. Adjust comps for differences (e.g., add for a garage, subtract for deferred maintenance). Use the resulting per-square-foot range to estimate ARV conservatively.
Create a line-item budget: demo, framing, electrical, plumbing, HVAC, roofing, windows, insulation, drywall, flooring, kitchens, baths, permits, landscaping, and contingencies. Get contractor quotes and price materials to avoid surprises. Consider a separate cosmetic vs structural itemization.
- 70% rule: Purchase price ≤ 70% of ARV − rehab costs. Example: ARV $200k → target buy price ≤ $140k − rehab.
- Alternatives: Build a full spreadsheet with ARV, purchase, rehab, holding, selling, financing, and closing costs to produce a true net profit estimate. Use the 70% rule as a quick filter, not a final decision tool.
Add 1–3% of ARV for selling costs (agent commissions, closing fees), plus months of mortgage/insurance/utilities for carrying. Account for transfer taxes and any local taxes or special assessments.
Run scenarios: best case, base case, and worst case. Vary ARV, rehab overruns, and timeline to measure impact on profit. Maintain contingency capital and an exit plan if comps soften or repairs exceed estimates.
- Cash: fastest, no finance costs, stronger negotiating position, but capital is tied up.
- Conventional: possible but often limited for major rehab projects and slow to close.
- Hard-money: fast, flexible underwriting based on the asset and ARV, but more expensive.
Private lenders or joint-venture partners can provide capital at negotiated terms. Business lines of credit or home equity lines of credit (HELOCs) can finance smaller projects. Each option affects cash flow, control, and profit-sharing.
Use bridge loans for short-term financing between purchase and sale. Use construction loans for larger structural projects that require draws tied to project milestones. Match loan type to project scope and duration.
Hard-money lenders typically require 10–25% down; interest rates often range from ~8–15% depending on market and borrower profile. Lenders will review ARV, experience, exit strategy, and the property as collateral.
Higher finance costs reduce net ROI but can enable deals you couldn’t buy with cash. Choose financing that balances cost with speed and exit certainty. Always calculate ROI both with and without leverage.
- Cosmetic flip: 2–4 months (minor updates, paint, floors).
- Moderate rehab: 3–6 months (kitchen/bath updates, systems work).
- Major rehab/structural: 6–12+ months (room additions, permits, structural repairs).
Delays stem from permitting, weather, material lead times, contractor availability, and unforeseen structural issues. Each delay adds holding costs and can erode profit—build schedule cushions and contingencies into budgets.
Create a master schedule with critical-path items, order long-lead items early, lock in contractors with clear scopes, and perform weekly checks. Pre-permit design and early inspections speed approval processes.
Essential skills: accurate cost estimation, project and time management, contractor negotiation, market analysis (comps), and basic construction understanding to spot issues early.
Hire a GC if you prefer one point of contact, consistent scheduling, and someone to manage trades—costs are higher but oversight is simplified. Managing trades directly can reduce costs if you have project management experience and time.
Assemble an investor-friendly agent, a reliable lender, a thorough inspector, a real estate attorney for contracts, and an accountant experienced in short-term real estate transactions.
Check licenses, insurance, past project photos, and client references. Verify timely completion, quality, and communication. Start with smaller paid tasks to vet a new trade before giving larger scopes.
Permits are typically required for structural, electrical, plumbing, HVAC, and major remodels. Check your local building department, submit plans if needed, and schedule inspections at required milestones. Unpermitted work can obstruct resale and lead to fines.
Common findings: outdated wiring, plumbing leaks, roof damage, foundation issues, and code violations. Address issues with licensed trades, get corrective permits if needed, and document repairs for buyers and appraisers.
Confirm HOA rules before altering exteriors or rental restrictions that could affect exit options. Zoning may limit additions or conversions—verify before planning expensive changes.
Maintain builder’s risk or course-of-construction insurance, general liability, and homeowner’s insurance once closed. Verify contractor insurance and require indemnification clauses in contracts.
Flip profits are often taxed as ordinary business income rather than long-term capital gains because flips are treated as inventory for a business. Consult a CPA for specifics and to structure activity appropriately.
Deductible expenses can include repair costs, materials, financing interest, closing costs, marketing, and certain taxes. Keep organized records: invoices, bank statements, contracts, permits, and receipts for every expense.
Sales tax on materials, local transfer taxes, and state business taxes vary—account for them in your pro forma. Some states require sales tax collection or impose additional transfer taxes on resale.
Hire a CPA before your first flip to set up the right entity structure, accounting method, tax withholding, and bookkeeping practices tailored to flipping activity.
Solution: detailed line-item budgets, multiple contractor bids, and realistic schedules with contingencies.
Solution: conservative ARV, strict purchase caps based on your spread target, and walk-away discipline if numbers don’t work.
Solution: vet references, require written contracts with milestones and penalties, and inspect work frequently.
Solution: maintain reserve capital, pre-identify investor buyers, and plan for rental conversion if resale fails.
Solution: track neighborhood sales velocity, price per square foot trends, and buyer demand; never over-improve beyond comps.
MLS resale typically yields higher prices but takes longer; selling to investors or wholesalers can be faster with a lower sale price. Keep both options in mind when timing the market.
If a quick resale isn’t feasible, convert to a rental: ensure systems meet landlord standards, address code/HOA rules, estimate rental income vs carrying costs, and handle tenant screening and property management.
Decide by comparing added carrying costs against the marginal price reduction needed to sell. If holding costs are low and appreciation potential is reasonable, waiting may preserve profit; if not, reduce price or negotiate buyer incentives to expedite sale.
Walk away from price-choked deals, projects with structural surprises that exceed contingency, or when market shifts render ARV unattainable. Preserve capital for better opportunities.
Off-market channels often yield discounted deals: build relationships with wholesalers, monitor auctions and probate lists, and run targeted direct-mail or door-knock campaigns.
Use investor-friendly agents who can spot motivated sellers, price declines, and properties that have been on market long enough to drop. Set instant alerts for target criteria.
Prioritize areas with steady demand, short days-on-market, improving comps, and similar renovated homes selling at higher prices. Avoid over-saturated or declining neighborhoods.
Red flags: severe foundation issues, complex title problems, restrictive HOA rules, or overpriced comps. Due diligence: inspection, title search, permit history, and an accurate cost-to-complete estimate.
- Small cosmetic flip: $20k–$50k total capital (including purchase via leverage).
- Medium rehab: $50k–$150k total capital or more.
- Large structural rehab: $150k+ in available capital and access to construction financing.
Maintain minimum reserves equal to 10–20% of total project costs plus three months of additional carrying costs. Contingency of 5–15% on top of repair estimates is recommended.
Options: private money partners, JV investors, hard-money lenders, crowdfunding, or partnering with experienced flippers. Consider sweat equity—managing the project yourself—to reduce costs.
Attend local REIA meetings, read targeted books, take an online course, and shadow experienced flippers to learn practical lessons before spending capital.
Secure a lender or capital partner, find a reliable GC or trades, and identify an investor-friendly agent and inspector before bidding on properties.
Practice underwriting multiple deals to sharpen your ARV and rehab estimating skills. Only commit when a deal hits your required spread.
Prepare purchase contract templates, contractor agreements, permit checklists, and insurance policies so you can move quickly after winning a bid.
Anna buys a 3-bed single-family house for $150,000 in a growing suburb. The plan: cosmetic update—kitchen refresh, 2 baths rehab, new floors, paint, landscaping.
Comps show similar renovated homes selling at $240,000–$255,000 → Anna uses a conservative ARV of $245,000. Repair estimate: $35,000; contingency 10% → $38,500. She chooses a hard-money loan to close fast, with 12% interest and 2 points.
Timeline: 2 weeks for closing, 8 weeks construction, 1 week staging/listing, expected 4 weeks on market → total 15 weeks.
Sale price $245,000; purchase $150,000; rehab $38,500; hard-money fees (2 points = $3,000), interest and carrying ~$7,000; selling costs (6% agent + $2k closing) ~$16,700. Net profit ≈ $29,800.
Right: conservative ARV, fast contractor, quick sale. Wrong: a water leak discovered mid-project added $4,000 to costs—covered by contingency. Lesson: always include contingency and an inspector before close when possible.
Fix-and-flip is buying a distressed/underpriced property, renovating it, and selling it quickly for profit.
Typical net profits vary widely; many flippers aim for $30k–$70k per flip or a 15–25% net margin, but results depend on market, rehab scope, and financing costs.
Cosmetic flips: 2–4 months. Moderate rehabs: 3–6 months. Major rehabs: 6–12+ months.
You don’t need a contractor’s license to be a flipper, but licensed contractors are required for permitable trades in most jurisdictions. Rules vary by state—verify local licensing laws.
Permits are required for structural changes, electrical, plumbing, HVAC, and significant remodels. Check local building department for specifics.
Flip profits are often treated as ordinary business income, not long-term capital gains, because flips are considered inventory. Consult a CPA for your situation.
Each strategy has different risks: flipping exposes you to construction and market-timing risk but less tenant management; buy-and-hold exposes you to longer-term market cycles and landlord responsibilities. Safety depends on skills, capital, and market knowledge.
Use detailed line-item budgets, multiple contractor bids, local unit-cost guides, and include a contingency of 5–15% for unknowns.
Use ARV calculators, rehab budget templates, and profit estimator spreadsheets to vet deals. Suggested internal pages to link from your site: beginner investing guides, financing pages, and local market research tools.
Look for practical books on house flipping, construction management, and real estate underwriting; podcasts with experienced flippers; and local accredited online courses on contracting and rehab budgeting.
Join REIA groups, local investor meetups, and online forums. Find mentors or experienced partners to accelerate learning and reduce mistakes.
Have templates ready: inspection checklist, contractor RFPs, line-item rehab budgets, and permit tracking spreadsheets to streamline processes and comparisons.
Ask: Do you have construction or project-management skills (or a trusted GC)? Enough capital plus contingency? A market with reliable comps and demand? Tolerance for short-term, higher-risk projects? If yes to most, flipping may fit your goals.
Suggested next step: run ARV and a full underwriting on one local property, or attend a local REIA meeting to meet lenders, contractors, and experienced flippers.
Internal link suggestions for this article: ARV, hard-money-loan, rehab-budget.
