House flipping looks simple from the outside: buy low, fix it up, sell high. The financial reality is that most of the lines on a flip's profit-and-loss statement aren't the purchase price or the rehab budget — they're the unsexy holding, financing, and selling costs that get ignored in optimistic underwriting. A clear-eyed framework for those costs is the difference between a flipper who makes money on 4 of 5 deals and one who breaks even on average.
The 70% rule
The flipper's first-pass screen is the 70% rule:
Maximum offer = (ARV × 70%) − rehab cost
Where ARV (After Repair Value) is what the property will sell for once renovated. The 30% deduction covers all costs other than rehab — closing both ends, holding, financing, profit. If you can't acquire the property at or below this number, the deal is too thin.
What the 30% buffer is actually paying for
Break the 30% down on a deal with a $300K ARV (so $90K of "buffer"):
- Selling costs: 6% agent commissions, 1%–2% closing/title, total ~$24,000
- Buying costs: ~$3,000 (lender, title, inspection)
- Holding costs: 4 months × $1,500/month in mortgage, taxes, insurance, utilities = $6,000
- Financing costs: hard-money loan at 11% with 2 points on a $180K loan, 4-month hold = ~$10,000
- Contingency / overruns: $10,000 — rehabs always cost more
- Profit target: $35,000–$40,000 — what's left after the above
The 30% isn't a profit margin. It's everything other than purchase and renovation, with profit as the residual. Skip any of those line items and the deal looks better than it is.
Estimating ARV correctly
ARV is the single most important number in the calculation, and the easiest one to get wrong. Standards for a defensible ARV:
- Pull 3–5 sold comps from the past 90 days within 0.5 mile
- Comps should be the same school district, same condition tier as the post-rehab property
- Adjust for differences in square footage, bed/bath count, and lot size
- Cap at the highest comp price unless your property has a clear advantage
Pulling listings instead of solds is a beginner mistake. Listed prices reflect seller hopes; sold prices reflect what the market actually paid.
Rehab budget: the systematic walk-through
For each major system, write down a number on the walk-through. Use these 2026 ranges as anchors:
- Kitchen full remodel: $20,000–$40,000
- Bathroom remodel: $8,000–$18,000 each
- Roof replacement: $10,000–$18,000
- HVAC replacement: $7,000–$12,000
- Flooring (LVP, 1,500 sf): $7,000–$11,000
- Interior paint (1,500 sf): $4,000–$7,000
- Exterior paint: $4,000–$10,000
Add a 15% contingency on top. If you've never done a flip before, make it 25%.
Worked example
You find a 1,400 sq ft house listed at $185K. Comps suggest a $300K ARV after a moderate rehab. Your contractor estimates $55K all-in.
- Maximum offer (70% rule): $300K × 0.70 − $55K = $155K
- The asking is $185K. You either negotiate to $155K, walk away, or accept that your projected profit is much thinner than typical.
If you bought at $155K and sold at $300K with a $55K rehab, expected profit after the line items above is roughly $35K–$40K on a 4–6 month hold. That's a 22%–25% return on the cash invested if you used hard money.
The two mistakes that kill flips
- Optimistic ARV. Assuming your house will sell for the highest comp because you'll fix it up "really nicely." It will sell for the median comp.
- Holding period denial. Most new flippers underestimate days on market and rehab duration. Every extra month is $1,500–$3,000 in carry costs.
Try the calculator
Our fix and flip calculator applies the 70% rule, accounts for all the carry and selling costs above, and shows you both the maximum offer and the expected profit at any given purchase price.