Glossary
Fix and flip
A fix and flip is a short-term investment where you buy a house below its potential value, renovate it, and sell it for a profit, usually within 4 to 12 months.
The idea is simple. The math is where flips are won or lost. Profit is what is left of the sale price after the purchase, the rehab, the loan, the holding period and the selling costs.
How the math works
Net profit = ARV minus purchase, buy closing costs, rehab, loan costs, interest and holding costs, and selling costs.
- ARV (sale price)
- $320,000
- Purchase
- -$190,000
- Buy closing costs
- -$4,000
- Rehab with contingency
- -$50,000
- Points and lender fees (2 points on $221,000, plus $1,500)
- -$5,920
- Interest at 11% on drawn funds, about 6 months
- -$10,500
- Taxes, insurance, utilities, 6 months
- -$3,600
- Commission 5.5% plus concessions 1%
- -$20,800
Loan: 90% of the price ($171,000) plus 100% of the rehab ($50,000). Defaults are planning assumptions, not quotes.
On this deal the margin on ARV is 11.0% and the ROI on $43,020 of your cash is 81.8%. The ARV cushion is 11.8%, so the sale price can fall about $37,600 before you lose money.
Common mistakes
- Forgetting selling costs. At 6.5% of the sale, they are often the biggest cost after the purchase and rehab.
- Assuming a fast timeline. Each extra month adds interest and holding costs.
- Buying on a stretched ARV. Check comps before the offer, not after.
- Ignoring peak cash. A profitable flip can still run you out of money mid-project.
Run your own numbers in the flip calculator.
Keep going
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