How to Analyze a Flip Deal in 5 Minutes
You found a property. The listing looks promising. The neighborhood is trending up. Your contractor buddy says, "We could flip that." Great. But before you make an offer, it's worth taking five minutes with a calculator.
Here's how to break down a flip deal with real numbers so you know – before you spend a dime – whether it's worth pursuing.
The Property
A 3-bed, 2-bath single-family home listed at $145,000. It needs a new kitchen, updated bathrooms, paint, flooring, and some landscaping. Comparable properties in the neighborhood that have been renovated recently sold for $240,000-$260,000.
We'll use a conservative after-repair value (ARV) of $245,000. Many experienced flippers lean toward the lower end of the comp range. Optimism is expensive in this business.
Step 1: Estimate Your Rehab Costs
Walk the property with your contractor and get a line-item estimate. For this example:
| Item | Cost |
|---|---|
| Kitchen remodel | $15,000 |
| Two bathroom updates | $8,000 |
| Interior paint | $4,500 |
| Flooring (LVP throughout) | $6,500 |
| Landscaping and curb appeal | $3,000 |
| Permits and dumpster | $2,000 |
| Contingency (10%) | $3,900 |
Total rehab: $42,900
That 10% contingency (a commonly recommended buffer among experienced flippers) is worth including. Something will go wrong. A pipe will burst. You'll find termite damage behind a wall. Plan for it.
Step 2: Apply the 70% Rule
The 70% rule is a widely used investor rule of thumb, a standard formula among house flippers. Multiply the ARV by 0.70, then subtract your rehab costs. The result is a rough ceiling for what the property is worth to you.
$245,000 x 0.70 = $171,500 $171,500 – $42,900 = $128,600 maximum purchase price
The property is listed at $145,000. That's above your ceiling. You'd need to negotiate it down, or the deal doesn't work under this rule. Let's say you offer $130,000 and the seller accepts. Now keep going.
Step 3: Calculate Your Total Investment
Your purchase price is only part of the equation. Here's what you're actually spending:
| Item | Cost |
|---|---|
| Purchase price | $130,000 |
| Closing costs (purchase) | $3,900 |
| Rehab | $42,900 |
| Hard money loan costs (3 points, a common origination fee in the 1.5-3% range) | $3,900 |
Total cash needed upfront: approximately $180,700
If you're using a hard money loan at 80% of purchase price (hard money lenders typically offer 70-90% LTV), that's $104,000, and you'd need to bring around $76,700 of your own cash to the table, plus you'll be paying monthly interest on that loan.
Step 4: Add Holding Costs
This is where new flippers get burned. Every month you own the property, it costs you money.
Monthly holding costs for this deal:
- Hard money interest (12% on $104,000, with rates typically ranging from 8-15%): ~$1,040/month
- Property taxes: ~$250/month
- Insurance (builder's risk): ~$150/month
- Utilities: ~$200/month
Total: roughly $1,640/month
If your rehab takes 3 months and the property sells in month 5, that's 5 months of holding at $1,640. That's $8,200 in costs you might not have budgeted.
It helps to be honest about the timeline. If a contractor says 8 weeks, many investors budget for 12. If the property looks like a 30-day sale, budgeting for 60 is a common practice.
Step 5: Account for Selling Costs
When you sell, you'll pay:
- Real estate agent commissions: traditionally 5-6% of sale price (~$13,475 at 5.5%), though post-NAR settlement changes in 2024 are shifting this structure
- Seller closing costs: generally 1-2% (~$3,675 at 1.5%)
- Possible buyer concessions or repairs: commonly $2,000-$5,000
Estimated selling costs: $19,150
The Final Math
Now add it all up:
| Sale price (ARV) | $245,000 |
| Minus purchase price | –$130,000 |
| Minus rehab | –$42,900 |
| Minus purchase closing costs | –$3,900 |
| Minus holding costs (5 months) | –$8,200 |
| Minus selling costs | –$19,150 |
| Minus loan costs | –$3,900 |
| Estimated profit | $36,950 |
On a total investment of around $180,700, that's roughly a 20% return over 5 months. Not bad. But notice how fast that profit shrinks if any single number moves against you: rehab goes $10,000 over budget, the property sits for an extra two months, or you sell for $230,000 instead of $245,000.
The Takeaway
A good flip deal isn't about finding a cheap house. It's about running the numbers honestly, including every cost, and seeing whether the profit margin survives reality.
Five minutes of math now can save you five months of regret.
Want to run your own deal? Plug your numbers into the [flip rehab calculator](/calculators/flip-rehab) and see exactly where you stand.
Sources
- Connected Investors – The 70% Formula for Flipping Houses
- New Silver – What Is the 70% Rule in House Flipping?
- North Coast Financial – Hard Money Loan Interest Rates
- OfferMarket – Hard Money Loan Interest Rates 2025
- Bankrate – Real Estate Commission Changes
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*This article is for informational purposes only and does not constitute financial, legal, or tax advice. Consult a qualified professional for advice specific to your situation.*
FAQ
What is the 70% rule in house flipping?
The 70% rule says you should pay no more than 70% of a property's after-repair value (ARV) minus rehab costs. It is a quick filter, not a guarantee of profit. If the ARV is $245,000, you multiply by 0.70 to get $171,500, then subtract your estimated rehab to find your maximum purchase price.
How much profit should you make on a house flip?
Most experienced flippers target a minimum net profit of $25,000 to $40,000 per deal, or roughly 15-20% return on total investment. Anything below $15,000 in expected profit usually is not worth the risk, because a single budget overrun or slow sale can wipe it out.
What holding costs do most new flippers forget?
Hard money loan interest, property taxes, builder's risk insurance, and utilities are the most commonly missed costs. These run $1,500 to $2,500 per month on a typical flip, and every extra month you hold the property eats directly into your profit.
How do you estimate rehab costs for a flip?
Walk the property with a licensed contractor and get a line-item estimate for every category: kitchen, bathrooms, flooring, paint, landscaping, permits. Then add a 10% contingency buffer for surprises like hidden water damage or outdated wiring. Skipping the contingency is one of the most expensive mistakes in flipping.
How long does a typical house flip take?
Most residential flips take 4 to 6 months from purchase to sale, including rehab and time on the market. If a contractor quotes 8 weeks for the renovation, budgeting for 12 is a safer bet. The longer a flip takes, the more holding costs cut into your margin.