What Is a Fix and Flip?
A fix and flip is a real estate investment strategy where you purchase a property (typically distressed or undervalued), renovate it to increase its market value, and sell it for a profit. Unlike buy-and-hold investing, flipping is a shorter-term strategy focused on capital gains rather than rental income.
How to Calculate Flip Profit
Net Profit = After-Repair Value (ARV) − Purchase Price − Rehab Costs − Holding Costs − Selling Costs. Holding costs include your financing payments, property taxes, insurance, and utilities during the renovation. Selling costs include agent commissions (5–6%), closing costs, transfer taxes, and staging — typically 8–10% of the sale price total.
The 70% Rule for Flipping
The 70% rule is the most common formula flippers use to determine a maximum offer price: Max Offer = ARV × 70% − Rehab Costs. For a house with a $300K ARV and $50K in needed repairs: $300K × 0.70 − $50K = $160K max offer. This builds in a profit margin while accounting for holding and selling costs. Experienced flippers in competitive markets may stretch to 75–80%, while beginners should stick to 65–70%.
Common Flip Mistakes
Underestimating Rehab Costs
Add a 10–20% contingency buffer to every rehab budget. Surprises like hidden water damage, electrical issues, or foundation problems are common in distressed properties. Get detailed contractor bids before closing.
Overestimating ARV
Use conservative comp analysis — look at recently sold properties (not active listings) within a half-mile radius that are similar in size and condition to your post-rehab plan. Don't assume your flip will be the highest sale in the neighborhood.
Ignoring Holding Costs
Every extra month adds hard money interest, taxes, insurance, and utilities. A flip that takes 8 months instead of 4 can easily lose $10K+ in additional holding costs. Factor realistic timelines into your analysis using CapRateKit's Fix & Flip analyzer.