Fix-and-Flip: From Purchase to Profit
A step-by-step guide to fix-and-flip — from finding distressed properties to selling for profit. Real numbers, the 70% rule, and the discipline that separates winners from the 70% who break even.
- Your profit is made when you buy — the 70% rule (max offer = 70% of ARV minus rehab costs) protects your margin before a single nail is driven
- Four cost buckets determine flip profitability: acquisition, rehab, holding, and selling. Underestimate any one and your profit evaporates
- Rehab estimates need a 10–20% contingency. Hidden issues (knob-and-tube wiring, foundation cracks, mold) routinely add 15%+ to budgets
- Hard money closes in 7–10 days and funds based on ARV — but rates run 9%+ and terms are 12–18 months. Choose lenders who specialize in flips
- Fix-and-flip vs BRRRR is an exit decision, not a personality test. Some deals pencil better as flips; others as rentals. Know your exit before you buy
About This Guide
Seventy percent of first-time flippers break even or lose money. Not because fix-and-flip is broken — because they treat it like a hobby instead of a business. Accurate numbers. Disciplined buying. Controlled execution. That's the difference. The 30% who profit aren't luckier. They're more disciplined. They walk when the numbers don't pencil. They budget for surprises. They run every cost bucket before they go under contract.
This guide traces a flip from finding a distressed property through selling for profit. Five milestones, each with a concept intro and a real-world scenario. The numbers are specific — $88,000 purchase, $38,000 rehab, $148,000 ARV. The cities are real — Phoenix, Memphis, Jacksonville. The complications are the ones you'll actually face: knob-and-tube wiring, burst pipes, scope creep, thin margins. We even include a scenario that ends in a loss. Not to discourage you. To show you what happens when small misses compound. Sound familiar? It should. No theory. Just the decisions and trade-offs that separate the 30% who profit from the 70% who don't.
The Four Cost Buckets
Acquisition, rehab, holding, selling. These four buckets determine whether your flip profits or evaporates. Acquisition: purchase price plus closing (title, inspection, loan fees). Rehab: materials, labor, permits, plus a 10–20% contingency for surprises. Knob-and-tube wiring. Burst pipes. Mold. Foundation cracks. They happen. Holding: loan payments, taxes, insurance, utilities — accrues every month. A 5-month hold at $650/month is $3,250. A 7-month hold is $4,550. That extra $1,300 can turn profit into break-even. And selling? 6% commission, staging, closing costs. Often the most overlooked bucket. Miss one — underestimate rehab costs, forget holding costs, or lowball selling expenses — and the whole deal tilts. The 70% rule protects you at the buy. The four buckets protect you through the hold.
The Typical Flip Timeline
A typical flip runs 3–6 months from contract to closing. Acquisition: 1–4 weeks (finding the deal, negotiating, inspection). Financing and closing: 7–14 days (hard money moves fast — that's the whole point). Renovation: 4–8 weeks — the longest phase, and where most delays happen. Contractor availability. Permit backlogs. Material lead times. Sale: about 2 months (listing, showings, contract, closing). Every extra week adds holding costs. Every delay compounds. Plan for 5 months; hope for 4. A 6-month hold at $650/month costs you an extra $650. Small number — until it's the difference between profit and loss. The flip in Milestone 5 held 6 months instead of 4. That extra $1,300 was one of three misses that turned profit into a $4,800 loss. Timeline discipline matters as much as purchase discipline. Every week you hold is another week you pay. No exceptions. That $1,300? It's real money when you're running thin margins.
Learning Journey
Finding the Deal
How to source distressed properties and identify flip-worthy opportunities
Distressed properties come from three places: financial distress (foreclosure, tax liens), life events (divorce, inheritance), or deferred maintenance. The seller wants out — and that's where your margin lives. They're motivated. You're not. Use that.
Sources matter. Driving for dollars turns up overgrown yards, peeling paint, tarps on roofs. Public records surface pre-foreclosures, notices of default, probate. Wholesalers bring deals that are already vetted — you pay for that convenience in the assignment fee. The MLS hides gems under keywords like "fixer," "handyman special," "as-is." Data platforms automate the pipeline. No single source wins — the best flippers run multiple channels and let deals come to them. The Phoenix investor in Milestone 1 found his first deal driving. His second came from a wholesaler. Same neighborhood. Different source. Same discipline: walk when the numbers don't pencil.
The rule: buy the worst house in a great neighborhood, not the nicest in a bad one. Location drives resale. A renovated ranch in a strong school district sells. The same ranch in a declining area sits. ARV — after-repair value — is what the renovated property will sell for. Your profit is made when you buy. If the numbers don't pencil at your max offer, walk. Discipline here is what separates the 30% who profit from the 70% who don't. Sound familiar? It should. The same principle drives BRRRR — you're just exiting at sale instead of refinance.
A Phoenix investor targets a 3BR/2BA ranch in an established suburb. The property shows an overgrown yard, peeling paint, and a tarp on the roof — classic driving-for-dollars find. He pulls over, knocks on the door. The owner inherited from an estate and wants out. No emotional attachment. Just wants it gone. The executor is handling three properties in two states. This one is the lowest priority.
The investor runs a quick ARV check. Four sold comps within half a mile, closed in the last 90 days, average $285,000 for renovated homes. The property needs $45,000 in rehab — cosmetic plus roof. At the 70% rule: max offer = ($285,000 × 0.70) − $45,000 = $154,500. That leaves room for holding costs (figure $800/month for 5 months = $4,000) and selling costs (6% of $285K = $17,100). At $152,000 purchase, his all-in would push $218,000. Profit: $67,000. Tight but workable.
He offers $148,000. The seller counters at $152,000. He walks. Why? Because $152K eats into the margin. One extra month of hold, one $3,000 surprise in rehab, and he's at break-even. The numbers don't leave enough cushion. He could have stretched — some investors do. They hope nothing goes wrong. But hope isn't a strategy.
Two weeks later, a wholesaler brings a similar property at $135,000. Same ARV, same rehab. Same neighborhood. Different seller, different motivation. Now the math works — $19,000 more margin before a single nail is driven. He goes under contract the next day.
Lesson: discipline to walk when the numbers don't pencil. The first deal wasn't bad — it just wasn't good enough. The second one was. Patience and pipeline beat desperation every time.
Running the Numbers
The 70% rule, ARV calculation, and the four cost buckets that determine profit
ARV is what the property will sell for when renovated. Use sold comps — not listings. Listings are wish prices. Pull 3–5 within 3–6 months, similar beds/baths/sqft. Adjust for condition. Toss outliers that had extras yours doesn't (finished basement, pool). The conservative number is your friend.
The 70% rule: Max Allowable Offer = (ARV × 0.70) − Rehab Costs. That formula protects your margin before you drive a single nail. It's not negotiable. If the seller won't meet it, the deal doesn't work. The 70% leaves 30% for profit, holding costs, selling costs, and buffer. Different investors use 65% or 75% depending on market and risk tolerance. But 70% is the baseline. Start there.
Four cost buckets determine profit. Acquisition: purchase price plus closing (title, inspection, loan fees). Rehab: materials, labor, permits, and a 10–20% contingency — you'll use it. Hidden electrical, plumbing surprises, mold. They happen. Holding: loan payments, taxes, insurance, utilities. Accrues every month. Selling: agent commission around 6%, staging, closing. Often overlooked. Profit = ARV − (Acquisition + Rehab + Holding + Selling). Miss one bucket and the whole deal tilts. Forced appreciation is what you're creating — the gap between purchase and ARV. But the buckets eat that gap. Run them all. The cost-breakdown infographic below shows typical ranges for each bucket. Use it as a checklist before you go under contract.
Memphis flip. Purchase $95,000. Rehab $38,000 with a 15% contingency built in — that's $5,700 for surprises. Five-month hold. Holding costs: $650/month × 5 = $3,250 (loan interest, taxes, insurance, utilities). Selling: 6% of $140,000 ARV = $8,400, plus $2,100 closing = $10,500. Total cost: $95,000 + $38,000 + $3,250 + $10,500 = $146,750.
Here's where the math gets interesting. At $140,000 ARV: loss. At $155,000 ARV: $8,250 profit. The spread between those two numbers is $15,000 — and it's the difference between a failed flip and a successful one. The investor's comp analysis showed a $148,000–$155,000 range. He used $148,000 as conservative ARV — the deal barely pencils. Better to be pleasantly surprised than painfully wrong. One comp had a finished basement his property doesn't; he tossed it. Another sold 8% below list after 90 days — he weighted it. Conservative means you're right more often than you're wrong.
He negotiates the purchase down to $88,000. Points out the 22-year-old roof, the dated kitchen, the fact that he's paying cash-equivalent (hard money, but closes fast). New total: $139,750. Profit at $148,000 ARV: $8,250. That's a 5.9% margin — thin, but workable if nothing goes wrong.
Lesson: conservative ARV and aggressive purchase negotiation are the twin levers. Deal Analysis walks through the full metrics in depth.
Financing Your Flip
Hard money, private money, and bridge loans — what flippers use and why
Traditional mortgages don't work for flips. Too slow. Too many contingencies. Appraisals, income verification, 30–45 day closings. Sellers of distressed properties don't wait. They want a buyer who can close. Hard money and private money lenders fund based on ARV and exit strategy, not borrower income. They're betting on the deal, not your W-2. Typical terms: 7–10 day closings, 12–18 month terms, 8.99%+ rates, up to 90% loan-to-cost, 100% rehab funding. No income verification. Qualification: 660+ FICO, liquidity for down payment and reserves. They want to know you can cover the gap if something goes wrong.
Draw schedule: the lender disburses rehab funds in stages as work completes. You don't get the full rehab budget upfront — you draw against it as milestones hit. 25% at start, 25% at rough-in, 25% at finish, 25% at punch list. Keeps the contractor accountable. Compare: all-cash (fastest close, no interest) but ties up capital. Hard money (borrowed capital, higher cost) frees you to run multiple deals. Most flippers use hard money because they don't have unlimited cash. The interest eats margin — shorter hold = better. Financing covers the full range of loan types.
Same Memphis deal. The investor has $50,000 liquid. All-cash isn't an option — he's running two deals in parallel and needs to preserve capital. He applies to a hard money lender that specializes in flips: 75% LTV on purchase ($95,000 × 0.75 = $71,250 loan), 100% of rehab ($38,000) in draws. He needs $95,000 − $71,250 = $23,750 at closing plus roughly $5,000 in fees (origination, processing, appraisal). Total out of pocket: about $29,000. The rest is borrowed. That leaves him $21,000 for the other deal — or for reserves if this one hits a snag.
Closing happens in 9 days. The draw schedule: 30% of rehab ($11,400) at start, 30% at rough-in (electrical and plumbing complete), 30% at finish (cabinets, flooring, paint), 10% at punch list. The contractor knows he doesn't get paid until work is done. No upfront advances.
Loan balance at sale: $71,250 + $38,000 = $109,250. Interest over 5 months at 10%: about $4,550. Selling price $148,000 − $10,500 selling costs = $137,500 net. Payoff $109,250 + $4,550 = $113,800. Profit: $137,500 − $113,800 − $29,000 (his cash back) = $23,700. He gets his $29,000 back plus $23,700 profit.
Lesson: hard money enables the deal but interest eats margin. Shorter hold = better. A 6-month hold at 10% adds another $950 in interest — small number, but it compounds when you're running thin margins.
Managing the Rehab
Contractor selection, scope of work, contingency, and avoiding scope creep
Contractor management is a skill. Scope of Work (SOW) in writing before work starts — itemized tasks, timelines, payment schedule. Milestone-based payments: pay after work completes, not before. The 30/30/30/10 split is standard — 30% at start, 30% at rough-in, 30% at finish, 10% holdback for punch list. That last 10% keeps them coming back to fix the small stuff.
10–20% contingency for surprises. Scope creep: adding work mid-project without adjusting budget. Common culprits: hidden electrical (knob-and-tube), plumbing, foundation, mold. Every opened wall is a risk. Budget for it.
Builders risk insurance during rehab — not a rental policy. If a pipe bursts or a tree falls during construction, a standard landlord policy denies the claim. Builder's risk covers the structure while it's under renovation. Switch to a landlord policy only after the certificate of occupancy. One wrong policy type can cost you five figures.
Vet contractors: experience, licenses, insurance, references. Call the references. Visit a completed job. Ask: "Would you use them again?" Red flags: too-low bids (they'll cut corners or hit you with change orders), vague pricing ("we'll figure it out as we go"), resistance to written contracts. If they won't put it in writing, they won't stand behind it. And when something goes wrong — and something will — you want a SOW to point at. The contractor who pushes back on a written scope? That's the one you don't want on your project.
Memphis rehab starts. The contractor's $38,000 scope: kitchen (new cabinets, counters, appliances), bath reglaze (tub and tile), LVP flooring throughout, exterior paint, landscaping. SOW is three pages — every task itemized, every material specified. Cabinet brand and model. Flooring type and square footage. Paint colors. Payment: 30/30/30/10. No advances. The contractor asked for 50% upfront. The investor said no. That's the moment when you find out who you're dealing with. The contractor agreed. They're still working together.
Week 3: the electrician finds knob-and-tube in the back bedroom — $4,200 to rewire. Not the whole house. Just that bedroom and the adjacent hallway. But it has to go. The contingency ($5,700) absorbs it. The investor doesn't panic. He expected something. That's what contingency is for. He'd seen knob-and-tube in the inspection report. The estimate was $2,800. The actual was higher. Contingency covers the gap.
Week 6: burst pipe during a freeze — $2,800 in water damage. The builder's risk policy covers it. Contrast: an investor in Jacksonville had a rental policy during rehab; his insurer denied a $16,000 claim. One checkbox on an insurance form. The Memphis investor had builder's risk from day one. His agent asked: "Are you going to rent it or flip it?" He said flip. She wrote builder's risk. Claim paid in 12 days. The Jacksonville investor said "investment property" and got a landlord policy. Same question, different answer, $16,000 difference.
Week 10: the contractor suggests adding a half-bath for "better resale." The investor says no — scope creep. That's $8,000 and two weeks. The comps don't support it. The neighborhood doesn't expect it. A 3BR/2BA ranch in that zip code sells for the same with or without a half-bath. The contractor pushes once more. The investor holds the line. The SOW is the SOW.
Rehab finishes in 14 weeks, $2,100 under contingency. The investor does a final walkthrough. Punch list: three touch-up items. The 10% holdback gets released when those are done. Two days later, keys in hand. Lesson: contingency and discipline on scope protect the margin. And a written SOW gives you something to point at when someone suggests "just one more thing."
Selling for Profit
Listing strategy, pricing, and the flip vs BRRRR decision
Selling costs: 6% commission, staging, closing. Professional photos, virtual staging, drone shots, 3D tours — buyers shop online first. Ninety percent of buyers start their search on Zillow or Realtor.com. Your listing photos are your first impression. Price at or slightly below comps to move fast; holding costs add up every week. A property that sits 60 days costs you another $1,300 in holding. Price to sell in 30.
The flip vs BRRRR decision: some deals pencil better as flips (tight cash flow, strong resale); others as rentals (refinance to recycle capital). Know your exit before you buy. If the numbers work both ways, you have optionality. If they only work one way, commit. Short-term capital gains if held under one year — ordinary income rates. Consider 1031 only if transitioning to another investment property; flip proceeds don't qualify for 1031 into another flip.
The sale is the payoff — if you've run the numbers right. Small misses compound. An extra month of holding, a plumbing surprise that eats contingency, a sale price 2% below ARV — any one can turn profit into break-even. Build cushion at the buy. The Memphis flip in Milestone 5 had three small misses. Individually, each was absorbable. Together, they turned an $8,250 projected profit into a $4,800 loss.
Memphis flip lists at $149,900 — just under the $150,000 psychological barrier, above conservative ARV of $148,000. The agent argued for $154,900. The investor said no. Price to sell in 30 days, not 60. Professional photos, staged living room, 3D tour. Listed on a Thursday; 12 showings over the weekend. Two offers: $147,000 and $149,000. The investor accepts $149,000. Closing in 21 days. Net after 6% commission and closing: $139,500. The sale went well. The numbers didn't. That's the flip — execution can be perfect and you still lose if the margin was too thin at the buy.
Recount total cost: purchase $88,000 (negotiated down), rehab $38,000, holding $3,250, selling $10,500, hard money interest $4,550. Total: $144,300. Profit: $139,500 − $144,300 = −$4,800. Loss.
The misses: holding 6 months instead of 4 (extra $1,300 — contractor delay on the kitchen cabinets, permit holdup for the electrical work). A $3,500 plumbing surprise in week 8 that came out of contingency. Old galvanized pipe in the wall. The plumber found it when he opened things up. The contingency was built for one surprise. They got two. And the sale price — $149,000 — was $1,000 below the optimistic ARV he'd used in early projections. Not a miss, exactly. Just the high end of the range. But when you're running thin, the high end of the range isn't enough. One of those three things could have been absorbed. All three together? That's the flip.
Small misses compound. The investor considers whether this deal should have been a BRRRR — rent it, refinance, hold. In this market, the flip margin was too thin. Cash flow would have been $200/month. Not great. But $200/month plus eventual refinance beats a $4,800 loss. Next deal: he'll build a 20% profit cushion before going under contract. And he'll run the BRRRR numbers too, before he commits to the flip exit. Know your exit before you buy. That's the takeaway.
The estimated market value of a property after all planned renovations are complete, based on comparable sales of similar properties in similar condition.
Read definition →The total expense of renovating an investment property, including materials, labor, permits, and contingency reserves — typically the second-largest cost in a BRRRR deal after the purchase price.
Read definition →The gradual expansion of a renovation project beyond its original plan, adding unbudgeted work that increases costs, extends timelines, and erodes investment returns.
Read definition →A short-term, asset-based loan from a private lender, typically used to finance property acquisitions and renovations at higher interest rates than conventional mortgages, with the property itself as collateral.
Read definition →An increase in property value created directly by the investor through renovations, operational improvements, or rent increases — as opposed to passive market appreciation that happens over time without intervention.
Read definition →A specialized insurance policy that covers a property during renovation or construction, protecting against damage, theft, and liability — distinct from a standard rental or homeowner's policy.
Read definition →The ratio of a loan amount to a property's appraised value, expressed as a percentage — a 75% LTV on a $200,000 property means a $150,000 loan and $50,000 in equity.
Read definition →Further Reading
- 1How to Find and Vet Contractors for Fix-and-Flip Projects7 min read·Jun 19, 2025
- 2Fix-and-Flip Holding Costs: The Complete Breakdown8 min read·May 8, 2025
- 3The Realistic Fix-and-Flip Timeline: From Purchase to Sale8 min read·Mar 22, 2025
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Martin Maxwell
Founder & Head of Research, REI PRIME
Specializing in rental properties, I excel in uncovering investments that promise high returns. Sailing the seas is my escape, steering through challenges just like in the world of real estate.
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