How to Analyze a Fix and Flip: A Deal Underwriting Guide

How to Analyze a Fix and Flip in 6 Steps

To analyze a fix and flip, you work backward from the after-repair value (ARV): estimate what the finished house sells for, subtract rehab, holding, selling, and financing costs, then subtract your required profit. Whatever is left is the most you can pay for the property. If that number is below the seller's price, you walk. Everything else is detail.

That sequence — ARV first, purchase price last — is what separates disciplined flippers from people who lose money on "pretty" houses. Below is exactly how to run the numbers so your margin survives contact with reality.

Step 1: Nail the ARV (this is the whole ballgame)

Your ARV is the single most important input in the entire analysis. Get it 10% too high and your profit can vanish entirely.

Build ARV from sold comps, not active listings or your optimism:

• Use 3–5 closed sales in the last 3–6 months, within roughly half a mile.
• Match bed/bath count, square footage (within ~15%), and lot type.
• Compare finished condition to finished condition — your renovated house against other renovated houses that actually sold.
• Throw out the highest and lowest outliers, then take the median $/sq ft.

If comps say $180–$195/sq ft and the house will be 1,600 sq ft, a defensible ARV is around $296,000 — not the $310,000 you'd get by cherry-picking the one flip that had a pool. Learning how to choose real estate comps that won't lie to you is non-negotiable here.

Step 2: Scope the rehab honestly

A flip budget is where wishful thinking goes to die. Walk the property with a written scope, room by room, and price it in three buckets:

• Cosmetic (paint, flooring, fixtures, landscaping): often $15–$35/sq ft.
• Full pull-and-replace (kitchen, baths, flooring, some systems): $40–$70/sq ft.
• Heavy/structural (roof, HVAC, electrical, foundation, additions): $75/sq ft and up.

Always add a contingency of 10–20% of the rehab budget. On a $50,000 rehab, that's $5,000–$10,000 you assume you'll spend before you find the surprises behind the walls. If you want a faster framework, see how to estimate rehab costs on a fix and flip.

Step 3: Add the costs beginners forget

Purchase price and rehab are only about two-thirds of your real spend. The rest kills margins quietly:

Holding costs

Every month you own the house you pay for it. Budget for:

• Property taxes and insurance (vacant-home policies cost more)
• Utilities kept on for contractors
• Loan interest

At a 6-month hold, $1,500/month in carrying costs is $9,000 gone.

Financing costs

Hard money is common for flips. Expect roughly 10–12% interest plus 1–3 points on the loan amount. On a $200,000 loan, two points is $4,000 up front before a single day of interest.

Transaction costs

• Buy side: closing costs, title, inspection — often 1–2% of purchase.
• Sell side: agent commissions, seller-paid closing costs, and staging — commonly 7–9% of ARV. On a $296,000 sale, that alone is $20,000–$26,000.

Step 4: Run the deal end to end

Here's a clean worked example on that 1,600 sq ft house.

• ARV: $296,000
• Rehab (incl. contingency): $58,000
• Holding costs (6 mo): $9,000
• Financing (points + interest): $16,000
• Selling costs (8% of ARV): $23,680
• Buy-side closing: $3,000

Total non-purchase costs: $109,680.

If you want a $40,000 profit (a reasonable minimum for a project this size), your maximum purchase price is:

$296,000 − $109,680 − $40,000 = $146,320.

If the seller wants $175,000, this is not a deal at those numbers — no matter how good the bones are.

Step 5: Sanity-check with the 70% Rule

Use the 70% rule in house flipping as a quick screen: max offer ≈ (ARV × 70%) − rehab. Here that's ($296,000 × 0.70) − $58,000 = $149,200. That lands close to your detailed max offer of $146,320, which tells you your full underwriting is internally consistent. Use the rule to filter fast; use the full model to actually decide.

Step 6: Pressure-test your profit

A deal that only works in the best case is not a deal. Before you offer, stress the two most dangerous inputs:

• Drop ARV by 5%. If a $296,000 exit becomes $281,000, does profit still clear your minimum?
• Extend the timeline 60 days. Add two more months of holding and interest.
• Blow the rehab by 15%. Does the deal survive a $67,000 rehab?

If profit turns negative under any single reasonable shock, tighten your offer or pass.

The Pros, Cons, and Traps

Pros

• Large lump-sum profits in months, not years.
• Forced appreciation you control through the renovation.
• Faster capital recycling than buy-and-hold.

Cons and risks

• ARV error is the #1 killer — small % misses become big dollar losses.
• Rehab overruns on unknown systems and permits.
• Time is expensive — every extra month erodes profit.
• Market shifts during your hold can move your exit against you.
• Financing costs compound all of the above.

The recurring theme: every mistake traces back to a soft input. Guessed ARV, guessed rehab, guessed hold time.

Where the numbers actually come from

The analysis above is only as trustworthy as the data feeding it. That's why serious flippers stop typing assumptions from memory and pull real, current figures — verified comps, taxes, insurance, and market trends. Platforms like PropertyWiz AI pre-populate those inputs from live market data and stress-test the deal automatically, so you're deciding on facts instead of hopeful guesses. Whatever tool you use, the standard is the same: real data in, or the analysis is worthless.

Analyze every flip the same disciplined way — ARV first, costs in full, profit protected, then the offer. Do that consistently and the bad deals eliminate themselves before they can cost you.