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Fix-and-Flip

Also known asFlipFix and FlipRehab and Resale
Published Oct 28, 2024Updated Mar 18, 2026

What Is Fix-and-Flip?

Fix-and-flip means you buy a distressed property, renovate it, and sell it. You're not holding for rent — you're turning a quick profit. The math: ARV (after-repair value) minus rehab costs, minus purchase price, minus holding and selling costs = your profit. The 70% Rule says max all-in cost = ARV × 0.70 − rehab. You'll use a hard money loan for speed, and scope creep is the #1 profit killer. Target 15–25% of ARV as net profit — on a $200K flip, that's $30K–$50K if you execute.

Fix-and-flip is buying a distressed property, rehabilitating it to increase value, then selling it for a profit — typically within 3–12 months.

At a Glance

  • What it is: Buy distressed, renovate, sell — short hold (3–12 months), no rental phase
  • Why it matters: Forced appreciation from rehab; profit = ARV − all-in costs
  • How to use it: 70% Rule: max all-in = (ARV × 0.70) − rehab costs; hard money for financing
  • Common threshold: Target 15–25% of ARV as net profit; scope creep adds 15–25% to rehab if unchecked

How It Works

You buy a property that needs work. You renovate it. You sell it. The spread between what you paid (purchase + rehab costs + holding costs) and what it sells for (ARV) is your profit.

The 70% Rule. Max all-in cost = ARV × 0.70 − rehab. That leaves 30% for profit, holding costs, and selling costs (6–8% typically). Example: ARV $180,000, rehab $35,000. Max all-in = $126,000 − $35,000 = $91,000. So your max purchase is $56,000 ($91K − $35K rehab). Buy at $60,000 and you're already behind.

Financing. Hard money loans fund flips — 10–12% rate, 2–5 points, 6–12 month terms. No income verification. They lend on the asset. You need to close fast, renovate fast, sell fast. Every extra month costs you 1% of the loan in interest. A $100K loan at 12% = $1,000/month in interest alone.

The scope creep trap. "While we're in here, let's also replace the countertops." Five of those and you're $8,000 over budget. Your $35,000 profit just became $27,000. Lock the scope before you close. Written change orders for every addition. If it doesn't move the ARV, say no.

Real-World Example

Memphis 3-bed ranch, 2024.

Purchase: $72,000. Rehab costs: $38,000 (kitchen, baths, flooring, paint, HVAC service). ARV from comps: $158,000. All-in: $110,000. 70% Rule check: $158,000 × 0.70 = $110,600. You're under. Good.

Hard money: $88,000 at 11%, 4 points. You bring $22,000 (purchase) + $4,000 points = $26,000. Rehab funded in draws. Hold: 5 months. Interest: ~$4,000. Selling costs (6%): $9,480. Net: $158,000 − $110,000 − $4,000 − $9,480 = $34,520 profit. On $26,000 invested, that's 133% ROI — but it's a one-time hit. Scope creep of $7,000 would've dropped that to $27,520.

Pros & Cons

Advantages
  • Forced appreciation — you create value through rehab, not market timing
  • Short hold — capital back in 3–12 months, deploy to next deal
  • Hard money = speed, no income verification
  • Clear exit — you sell, you're done (vs BRRRR refinance risk)
Drawbacks
  • Short-term capital gains — ordinary income rates (22–37% federal) if hold <1 year
  • Scope creep and rehab costs overruns eat margin fast
  • Hard money is expensive — 10–12% + points
  • Market risk — if you can't sell at ARV, you're stuck or discounting

Watch Out

  • Modeling risk: Don't model on best-case ARV. Use conservative comps. A $5K appraisal miss on a $150K flip is 3.3% of your profit.
  • Execution risk: A bad contractor = delays, cost overruns, poor finishes. Vet references. Lock scope. Written change orders.
  • Scope creep risk: Every "while we're at it" addition needs one question: "Will this increase the appraisal?" No = no.
  • Exit risk: If the market softens or you over-improved, you're holding longer or cutting price. Have a Plan B — BRRRR and rent it if you can't sell.

Ask an Investor

The Takeaway

Fix-and-flip is buy, rehab, sell. The 70% Rule keeps you honest. ARV and rehab costs are the variables you control — get them right. Scope creep is the variable that controls you if you let it. Lock scope, use hard money for speed, and target 15–25% of ARV as net profit. When the numbers don't work, walk. There's always another deal. The fix-and-flip guide walks through the full playbook.

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