House Flipping 101: Running the Numbers for Success
One of the questions I get asked most—by new investors, wholesalers, and even curious friends—is how I evaluate a property for a quick resale. I have this conversation all the time, especially with wholesalers trying to pitch me investment deals. And there’s a good reason for that: when it comes to flipping houses, the money isn’t made when you sell—it’s made when you buy.
If your numbers are off from the start—whether it’s the ARV, repair budget, or holding costs—what seems like a great deal can quickly turn into a costly mistake. That’s why I take the time to run the numbers carefully and follow a system that removes emotion from the equation. In this article, I’ll walk you through exactly how I analyze a flip, the formulas I use to calculate potential profit, and the key numbers and terms you need to understand if you’re serious about flipping houses and making consistent returns investing in real estate.
Step 1: Determining the ARV
ARV stands for After-Repair Value—this is the price you expect the property to sell for after all the necessary repairs and updates are complete. Some investors refer to it as the resale value. To determine this number accurately, you’ll need to run a Comparative Market Analysis (CMA). This means looking at recently sold homes in the area that are similar in size, condition, age, and location. When someone says they’re “running comps,” this is exactly what they’re doing: analyzing comparable sales to estimate what your property will be worth once it's fully renovated.
The absolute best way to run comps is through the local MLS. It’s one of the many advantages of working with a knowledgeable real estate agent who has direct access to the most accurate and up-to-date data. If you’re not working with a licensed agent, don’t worry—there are still other options. Websites like Zillow and Redfin offer free tools that allow you to see which homes have sold in the area, what they sold for, and even let you view photos that were used to market the property. While they’re not as precise as MLS data, they’re a good starting point for getting a rough idea of local values.
🆚 MLS vs Zillow/Redfin: Pros & Cons of Running Comps
📌 MLS (Multiple Listing Service)
✅ Most accurate and up-to-date data
✅ Includes sold, pending, and active listings
✅ Access to detailed property history and agent notes
✅ Helps identify cash vs financed sales, seller concessions, and more
❌ Only accessible through a licensed real estate agent or broker
📌 Zillow / Redfin
✅ Free and easy to use
✅ Great for quick overviews and photo comparisons
✅ Useful for spotting trends in a neighborhood
❌ Data may be outdated or incomplete
❌ Can miss off-market sales or show incorrect price estimates
Step 2: Estimating Renovation Costs
After establishing the ARV, the next step is determining your renovation budget. This is the amount of money you’ll need to invest into the property to bring it up to the resale value you're targeting. This number is often referred to as the repair estimate or rehab cost.
Renovation costs typically fall into two main categories: major repairs (the “majors”) and cosmetic updates (also called “finish-outs”).
The majors refer to the critical structural and mechanical components of the home that affect safety, functionality, and financing eligibility. These include:
Foundation
Roof
HVAC (Heating and Air Conditioning)
Plumbing
Electrical systems
These repairs usually come with a higher price tag and can significantly impact the home's value—and what type of financing a future buyer can use.
Cosmetic updates, or finish-outs, include the visual and surface-level improvements that make the home desirable to buyers. These often include:
Paint
Flooring
Cabinets and countertops
Tile
Bathtubs and showers
Light fixtures and hardware
While cosmetic items tend to cost less than major repairs, they are just as important when it comes to buyer perception and final sale price. For example, a home with new plastic laminate countertops may function the same as one with granite—but granite can dramatically increase appeal and value in a buyer’s eyes.
It takes a solid understanding of current material and labor costs to accurately analyze repairs and assign a realistic budget. This is another reason why partnering with a licensed real estate agent—especially one experienced in investment property acquisitions—can be a powerful asset. Additionally, working with a reliable general contractor (GC) can add tremendous value for both new investors and seasoned flippers looking to scale their operations.
A general contractor typically oversees the renovation project by hiring and managing skilled laborers, also known as subcontractors, to complete the work. These subcontractors include specialists like plumbers, electricians, roofers, carpenters, and HVAC technicians. GC’s usually have established relationships with these professionals, which helps streamline the process and maintain quality.
Once you’ve completed a few projects and built up your own network of subcontractors, you may be able to save money by managing the rehab yourself. But early on, having a knowledgeable GC in your corner can prevent costly mistakes and keep your project on schedule.
Step 3: Other Factors to Consider
This is where I see a lot of people miss the boat—and then wonder why their investment didn’t make as much money as they expected. Buying and selling real estate comes with a number of hidden costs, and if you don’t factor them in from the beginning, they can eat away at your profit fast.
Here are the key “other costs” you should always include in your flip analysis:
1. Holding Costs
These are the expenses you’ll pay while you own the property. They include:
Loan interest (especially if you’re using hard money)
Property taxes
Homeowner’s insurance
Utilities (electricity, water, gas, etc.)
Even a short delay in the renovation timeline can drive these numbers up—so build in a buffer and don’t underestimate your timeline.
2. Closing Costs (Title & Escrow Fees)
Whether you’re buying or selling, there are closing costs involved. These include title company fees, escrow fees, transfer taxes, and possibly lender fees. These can range from 1% to 3% of the purchase or sale price, depending on your market.
3. Agent Commissions
If you’re using a real estate agent to list and sell the property (which I highly recommend to get top dollar), expect to pay around 5% to 6% of the sale price in commissions—often split between the listing and buyer’s agents.
These estimates can vary depending on several factors—like your location, current interest rates, the number of days the property sits on the market, and unexpected delays or repairs. Because of this, these numbers aren’t set in stone—they can (and often do) fluctuate.
If you want to be as precise as possible, you can create a detailed, line-item breakdown of each cost. But for quicker analysis—especially when reviewing multiple deals—you can simplify it by estimating these additional costs as a percentage of the ARV. A general rule of thumb is to set aside 10–12% of the ARV to cover holding costs, closing fees, and agent commissions.
Step 3: Determining Purchase Price
Okay, so you’ve done your homework—you’ve estimated the ARV, created a realistic rehab budget, and accounted for the additional costs that come with buying, holding, and selling the property. Now it’s time to bring it all together and figure out the most important number of all: your Maximum Allowable Offer (MAO). This is the highest price you can offer on a property while still leaving enough room for a profit. There are a few variations of this formula, but here are two simple, effective ways to calculate it:
The first—and most widely used—method for determining your purchase price is called the 70% Rule. This rule is a quick way to estimate your Maximum Allowable Offer (MAO) on a flip property. It suggests that an investor should pay no more than 70% of the After Repair Value (ARV) minus the cost of repairs.
The 70% accounts for all your additional expenses: holding costs, closing fees, agent commissions, and your target profit margin. While it’s a simplified model, it’s surprisingly effective for quick deal analysis—especially when reviewing multiple properties at once.
Here’s the formula:
ARV × 70% – Repair Costs = MAO
For example, if the ARV is $250,000 and repairs will cost $50,000:
$250,000 × 70% = $175,000
$175,000 – $50,000 = $125,000 MAO
That means your top offer should be no more than $125,000 to stay within safe margins.
While the 70% Rule is great for quick estimates, I personally prefer a method that focuses directly on targeting profit instead of just percentages. This approach is a little more intentional—and flexible—because it builds your desired profit right into the equation.
Here’s how it works:
First, I subtract 12% of the ARV to account for holding costs, closing fees, and agent commissions. That leaves me with 88% of the ARV as my adjusted starting point. From there, I subtract the estimated rehab costs, and finally, I subtract the profit I want to make on the deal.
The formula looks like this:
ARV × 88% – Rehab Costs – Desired Profit = MAO
This method lets you reverse-engineer your offer based on how much you actually want to walk away with.
📌 Example:
Let’s say:
ARV = $250,000
Rehab Costs = $50,000
Target Profit = $50,000
$250,000 × 88% = $220,000
$220,000 – $50,000 (rehab) = $170,000
$170,000 – $50,000 (profit) = $120,000 MAO
So, your maximum offer should be no more than $120,000 if you want to hit your profit target.
💡 Pro Tip: A good rule of thumb is to aim for a profit equal to your rehab budget. If you’re investing $50,000 into the property, try to walk away with at least $50,000 in profit. This keeps your risk-reward ratio in balance.
Conclusion:
Flipping houses isn’t just about spotting potential—it’s about knowing your numbers. Whether you use the 70% Rule for speed or the profit-first method for precision, having a clear system keeps you from making emotional decisions and helps you stay profitable. The goal is simple: buy smart, renovate right, and sell with confidence. Stick to the math, trust your process, and you’ll set yourself up for consistent success in real estate investing.