Glossary
ARV cushion
ARV cushion is how far the sale price can fall before a flip stops making money, shown as a percent of ARV. It is ARV minus break-even ARV, divided by ARV.
Every ARV is an estimate. The cushion answers the question that matters: how wrong can I be and still not lose money?
How to calculate it
ARV cushion = (ARV - break-even ARV) / ARV
Find the break-even ARV first: the sale price where net profit is zero.
- ARV
- $320,000
- Break-even ARV
- $282,374
- Room to fall ($320,000 - $282,374)
- $37,626
How much is enough?
Run The Deal's flip scoring treats a 12% cushion as good and 7% as marginal. It also stress tests a 10% ARV drop on every flip, because that is a realistic miss on a stretched comp set.
Size your cushion to your ARV confidence. Five tight, recent comps can support a thinner cushion. Two distant comps call for a fat one.
Cushion vs margin
They look similar but are not the same. Margin is profit over ARV. Cushion is profit plus the selling costs that shrink with a lower price, over ARV. That is why cushion usually runs a little higher than margin, as in the example (11.8% vs 11.0%).
What to watch
- Cushion protects against price, not against rehab overruns or delays. Check those separately.
- A long timeline erodes cushion as carry costs build.
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