Fix and Flip Basics: How to Analyze a Deal with One Simple Formula
Thinking about flipping houses? If you’re planning to buy, renovate, and sell for a profit, the most important question is:
“What’s the most I should pay for this property?”
Here’s a simple, proven formula to help you stay profitable and avoid costly mistakes. Stay around and listen to enough talk and you will hear “you make money when you buy?” Purchasing real estate requires making a purchase offer as a buyer and the seller accepting it. Before agreeing to a purchase price how do we determine if it is a good deal? This is what I do in the most stripped down way. Experience will allow this process to become almost routine. I spend a few seconds looking at a property and it either looks great or falls short.
The next step is to walk through it, take pictures, formulate a renovation plan, estimate repairs, get accurate comparable sales, determine the best financing option, I keep everything in a Google Doc but essentially I have a balance sheet and it outlines the investment and one lines the ROI…
The Fix and Flip Formula
Use this straightforward equation to find your Max Purchase Price:
✅ ARV – 35% Profit – Renovation Costs – 10% Holding & Closing = Max Offer
Let’s walk through this using a target ARV (After Repair Value) of $175,000.
1️⃣ ARV = After Repair Value
This is what the property will realistically sell for once it’s fixed up. In this example, you’re targeting projects that will sell for:
ARV = $175,000
2️⃣ Target Profit (35%)
You want a healthy return to cover risk, surprises, and still pay yourself. 35% of ARV is:
$175,000 x 0.35 = $61,250 profit goal
3️⃣ Renovation Costs
Every property will vary, but let’s assume a mid-range renovation. Include materials, labor, permits, and contingencies.
Estimated Rehab = $35,000
4️⃣ Holding & Closing Costs (10%)
This covers loan interest, taxes, insurance, utilities, agent commissions, and closing fees.
$175,000 x 0.10 = $17,500
Now Plug It All In:
bashCopyEdit$175,000 (ARV)
- $61,250 (Profit)
- $35,000 (Renovation)
- $17,500 (Holding & Closing)
= $61,250 Max Offer
Your max purchase price for this deal should be around $61,250
Why This Works
This formula builds in your profit, protects you from unexpected costs, and prevents overpaying. It’s simple enough to run on the fly, and strict enough to keep you from losing money.
If the seller won’t meet your number?
Walk away. There’s always another deal.
Summary: The Fix & Flip Equation
ARV – 35% Profit – Renovation – 10% Costs = Max Offer
With a target resale value of $175,000, your max purchase price needs to land around $61,250 for the deal to be worth it.
Ready to Run the Numbers?
Whether you’re just starting or already flipping, having the right formula can make or break your business. This basic analysis declares a property a good deal. Our motto is trust but verify. Part of what we do in the cities we do it in Pittsburgh, New Castle, and Toledo is knowing the markets. After reading this article take action. Reach out at the number below. My experience since 2004 has been in managing the operations of real estate investments as an interested student, general contractor, and project manager. Hard money lenders and private money lenders enjoy working with clients who understand the process. We do not manage properties. We build portfolios. If you have real estate goals our team can help you reach your goals at an accelerated pace. Your goals deserve a full time partner.
Lets discuss your goals and current situation. A logical plan with us a long term partner will to help get you across the finish line.
412-401-5883
marcusgeiser@gmail.com
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