Flip Deal Analysis: The Formulas That Decide Yes or No

Run this calculation before you do anything else: after repair value minus rehab, acquisition, holding, financing, and selling costs equals net profit. Divide that profit by cash invested and you get your ROI. That single equation, done honestly, tells you whether a property is a deal or a liability waiting to happen.

Before you fall in love with a listing, run the quick screen. The 70% rule gives you a maximum allowable offer fast: MAO = (ARV × 0.70) − Rehab Costs. For a final offer, use the detailed version: MAO = ARV − Rehab − Holding − Financing − Acquisition − Selling Costs − Target Profit.

Three inputs drive everything: ARV, rehab budget, and hold period (which sets your financing cost). Three outputs tell you whether to move: net profit, ROI percentage, and cash-on-cash return. Skip any one of the three inputs and the outputs are fiction.

• ARV — the anchor number; a miss here poisons every downstream calculation.
• Rehab budget — line-itemed, not eyeballed.
• Hold period — drives interest, insurance, taxes, and utilities.

Key Takeaways

Point	Details
Verify ARV with multiple comps	Use at least three active or sold comps plus a BPO before trusting any ARV number.
Use both MAO formulas	Run the quick 70% rule to filter, then the detailed MAO before making a final offer.
Size contingency at 10 to 15%	A 5% rehab buffer is too thin; structural or permit surprises need extra cushion.
Stress-test before committing	Model a downside case with lower ARV, higher rehab, and a longer hold before you buy.
Automate screening with DealAnalyzerAI	Its AI-driven ARV and rehab estimates plus white-labeled reports speed up high-volume deal screening.

Table of Contents

• What Inputs and Formulas Go Into Flip Deal Analysis?
• How Do You Build an Accurate Rehab Budget?
• How Does Financing Affect Your Flip Numbers?
• What ROI Should You Target Before Making an Offer?
• Why Standardized Reports and AI Estimators Change Your Workflow
• What Mistakes Sink a Flip Deal Analysis?
• Worked Example: Running the Full Flip Deal Analysis
• How Do You Read Local Market Trends Before Underwriting a Flip?
• How Should You Stress-Test a Flip Before Committing Capital?
• What Exit Strategies Exist Beyond a Straight Resale?
• A Faster Deal Doesn’t Mean a Riskier One
• Automating ARV, Rehab, and MAO Without Losing Underwriting Discipline
• Sources
• FAQ

What Inputs and Formulas Go Into Flip Deal Analysis?

Every reliable flip deal analysis starts with after repair value, and ARV deserves more scrutiny than any other number in your model. Pull at least three active or recently sold comps within a half mile and 90 days, adjust for square footage and finish level, and cross-check with a broker price opinion when the comps disagree. ARV is the single most sensitive input in the entire model. A $10,000 miss on a thin-margin flip can erase your profit entirely, according to BiggerPockets’ analysis of ARV sensitivity.

Once ARV is locked, run both MAO formulas:

1. Quick MAO: MAO = (ARV × 0.70) − Rehab Costs. Use this to filter listings in minutes.
2. Detailed MAO: MAO = ARV − Rehab − Holding − Financing − Acquisition − Selling Costs − Target Profit. Use this before you write an offer.
3. Net profit: Net Profit = ARV − Purchase Price − Rehab − Holding − Financing − Acquisition − Selling Costs.
4. ROI: ROI = Net Profit ÷ Total Cash Invested. “Cash invested” means your actual out-of-pocket money: down payment, rehab paid from your own funds, and closing costs, not the full purchase price if you financed most of it.

The 70% rule reserves roughly 30% of ARV for everything else, but that cushion assumes cheap money and a fast timeline. When hard money rates climb past 12% or your hold stretches longer than planned, the 30% buffer often isn’t enough, and the detailed MAO is what protects your margin. Run the 70% rule first, then rebuild the offer with actual numbers before you submit anything.

How Do You Build an Accurate Rehab Budget?

Break rehab into six categories: structural/foundation, roof/exterior, systems (HVAC, electrical, plumbing), interior finishes, kitchen/bath, and site/landscaping cleanout costs. Cosmetic flips typically run $15 to $25 per square foot, moderate rehabs $25 to $50, and full gut jobs $50 to $100 or more, depending on your market and labor costs.

• Walk every property with your contractor before you finalize a number, not after you’re under contract.
• Photo-based estimates work for quick screening, but they undercount hidden issues like knob-and-tube wiring or foundation cracks.
• Add 10 to 15% contingency on top of your line-item total. A 5% cushion is widely considered too thin for anything beyond a paint-and-carpet refresh.
• Structural work and permit-dependent scopes deserve extra time buffer, since delays there ripple directly into holding costs.

Pro Tip: Get two independent contractor bids on any project over $30,000 in rehab. Bids that differ by more than 20% usually mean someone missed scope, not that one contractor is simply cheaper.

How Does Financing Affect Your Flip Numbers?

Hard money loans typically charge higher interest than conventional financing, plus origination points due at closing. Whether the loan covers just the purchase or purchase-plus-rehab changes your cash-invested figure substantially, since a rehab-inclusive loan reduces your out-of-pocket cash but increases the balance you’re paying interest on.

Monthly holding costs to model correctly:

• Loan interest (prorate any annual rate to a monthly carry cost)
• Property taxes and insurance (annual bills divided into monthly chunks)
• Utilities, HOA dues, and basic landscaping or security

Stress-test both interest rate and hold time. A rehab that takes six months instead of three, or a rate that jumps from 10% to 13%, can swing net profit by thousands of dollars on the same property, sometimes enough to flip a profitable deal into a break-even one. Never assume the fastest-case timeline in your base model. Build the realistic one and treat the fast case as upside.

What ROI Should You Target Before Making an Offer?

Most experienced flippers target a significant positive ROI on invested cash. Below that range, the deal usually isn’t worth the risk unless the timeline is unusually short, say a 60-day cosmetic flip where your capital isn’t tied up long enough to matter as much.

• Break-even sale price tells you your downside: what you’d need to sell for just to cover every cost with zero profit. If that number sits close to your ARV, walk away.
• Profit per month matters more than total profit when you’re comparing deals with different timelines. A $30,000 profit over 3 months beats a $40,000 profit over 8 months.
• Annualized ROI lets you compare a flip against other uses of your capital, including just holding cash in a higher-yield account.

Why Standardized Reports and AI Estimators Change Your Workflow

Screening ten deals a week with spreadsheets alone burns hours you don’t have. A two-step workflow fixes that: run the quick 70% filter first, build the detailed model only on properties that clear it, then verify with a contractor before you offer.

• White-labeled reports shorten loan review cycles because capital partners see a consistent, professional format instead of a raw spreadsheet.
• AI-driven photo and comps analysis narrows ARV variance and speeds up rehab cost estimation when you’re evaluating many properties in a short window.
• A standardized report also makes your investment thesis easier to defend when a lender or partner asks follow-up questions.

Professional investors consistently favor standardized, white-labeled property reports because they build credibility with capital partners faster than a homemade spreadsheet ever will, according to Anderson Advisors’ review of investor reporting practices.

What Mistakes Sink a Flip Deal Analysis?

The most common misses: underestimated holding costs, an overly optimistic ARV, contingency set too low, and permit or structural surprises that weren’t in the original scope.

• Red flag in comps: relying on listings instead of closed sales, or comps outside a reasonable distance and timeframe.
• Red flag in bids: a contractor quote that’s dramatically lower than two others, often a sign of missing scope rather than a good deal.
• Fix it by raising contingency to 15%, adding a cushion to your hold-time estimate, and stress-testing your interest rate before you commit.

Pro Tip: If your ARV comps and your contractor bids both feel “convenient” instead of conservative, that’s usually your gut telling you the deal doesn’t actually work.

Worked Example: Running the Full Flip Deal Analysis

Take a property with ARV of $300,000, purchase price of $180,000, rehab budget of $45,000, 12% contingency ($5,400), closing costs of $6,000, hard money financing at 11% plus 2 points over a 5-month hold.

1. Quick MAO: ($300,000 × 0.70) − $45,000 = $165,000.

2. Detailed MAO: $300,000 − $45,000 (rehab) − $6,000 (closing) − $12,000 (holding/financing estimate) − $6,600 (selling costs) − $30,000 (target profit) = $200,400.

3. Net profit: $300,000 − $180,000 − $50,400 (rehab plus contingency) − $6,000 − $12,000 − $18,000 (financing interest and points combined) − $18,000 (selling costs at 6%) ≈ $15,600.

4. ROI: $15,600 ÷ roughly $85,000 cash invested ≈ 18%.

How Do You Read Local Market Trends Before Underwriting a Flip?

ARV and days-on-market are only as good as the market conditions behind them. Before you lock a number, check three things: absorption rate (how fast comparable homes are selling), inventory trends (rising inventory usually softens prices), and the direction of local price appreciation over the past two to three quarters, not just the past year.

Watch mortgage rate movement closely. Rising rates shrink your buyer pool and can push your projected ARV downward between the day you underwrite the deal and the day you list it five or six months later. That gap is exactly why conservative ARV assumptions matter more in a rising-rate environment than in a stable one.

Local economic indicators worth tracking include employment growth in the metro area, new construction permits (a leading signal of future supply), and whether major employers are expanding or contracting nearby. A neighborhood with a new corporate campus announcement behaves very differently over your hold period than one facing a plant closure.

School district changes, zoning shifts, and infrastructure projects (a new transit line, a highway expansion) all move ARV in ways that lagging comp data won’t show yet. If you’re flipping in a market you don’t know intimately, spend an afternoon at the county planning office or its website before you trust your comps blindly. Markets with thin transaction volume deserve wider ARV ranges and bigger contingency buffers than markets where dozens of comparable sales close every month.

How Should You Stress-Test a Flip Before Committing Capital?

Run every deal through three scenarios: base case, downside case, and worst case. Base case uses your realistic ARV, rehab budget, and timeline. Worst case stacks all three at once.

If your downside case still shows positive profit, the deal has real margin. If your downside case shows a loss, you’re relying on everything going right, which is not underwriting, that’s hoping.

Sensitivity analysis works best as a simple table you run for every property:

Vary one input at a time to see which lever hurts you most. On most flips, ARV sensitivity dwarfs the others because it affects both your top-line sale price and your MAO ceiling simultaneously. Rehab overruns are the second-biggest threat, which is exactly why the contingency rules above exist. Interest rate and hold-time extensions matter most on deals financed with variable-rate hard money, since a rate jump compounds every month you’re still holding the property.

Build this stress test into your standard process rather than reserving it for deals that already feel risky. The properties that look safest on paper are often the ones where nobody bothered running the downside case.

What Exit Strategies Exist Beyond a Straight Resale?

Reselling at ARV isn’t the only exit, and building your model around resale-only thinking limits your options when the market shifts mid-project. Renting the property after rehab (the BRRRR approach: buy, rehab, rent, refinance, repeat) changes your entire analysis from a profit-per-flip calculation to a cap rate and cash flow calculation. Instead of net profit and ROI, you’re now solving for monthly cash flow after mortgage, taxes, insurance, and management, plus the cap rate the stabilized property would command if sold as a rental.

A lease-option exit, where you sell to a tenant-buyer with an option to purchase later, spreads your exit over a longer window and adds option-fee income up front, but it also extends your holding cost exposure and adds legal complexity around the option agreement itself.

Wholesaling the deal to another investor before you ever touch rehab is a third path, useful when you’ve locked a great purchase price but don’t have the capital or contractor relationships to execute the rehab yourself.

Each exit changes which formulas matter. A resale lives and dies on ARV and net profit. A rental exit lives and dies on cap rate, monthly cash flow, and long-term appreciation. Building flexibility into your underwriting, running the numbers for both a flip and a hold before you close, gives you an exit if market conditions shift while you’re mid-rehab.

A Faster Deal Doesn’t Mean a Riskier One

Screening volume forces a choice: speed or conservatism. The right answer is both, done in sequence. If ARV feels shaky or contractor quotes swing wide, walk. Standardized reports aren’t cosmetic, they cut negotiation time and help you secure capital before a competing buyer does.

— Sam

Automating ARV, Rehab, and MAO Without Losing Underwriting Discipline

The math above works, but running it manually on a dozen properties a week eats hours you’d rather spend closing. DealAnalyzerAI automates the exact process this article walks through: AI-generated ARV ranges pulled from comparable sales, rehab cost estimates built from uploaded property photos, automatic MAO calculations using both the quick and detailed formulas, and risk flags that surface issues before you make an offer.

The output isn’t just a number on a screen. You get an investor-ready, white-labeled report you can hand to a capital partner without spending an evening formatting a spreadsheet, the exact credibility advantage that speeds up loan review conversations. That combination, speed on the screening side and polish on the reporting side, is what lets you evaluate more deals without cutting corners on the underwriting itself.

If you’re screening more than a handful of properties a week, try the free deal analyzer and run your next property through it before you write an offer.

FAQ

What Is the 70% Rule in Flipping?

It’s a fast screening tool, not a final underwriting number, especially when hard money rates run above 12% or the hold extends.

How Much Does It Cost to Flip a 1,500-Square-Foot House?

Cost depends entirely on rehab scope: a cosmetic refresh typically runs $15 to $25 per square foot, while a full gut rehab can reach $50 to $100 or more per square foot.

What Is the 3-3-3 Rule in Real Estate?

Definitions vary across investing communities, and no single standardized version applies universally to flip underwriting, so treat any 3-3-3 framework you encounter as a general planning heuristic rather than a formula to build your model around.

What Is the Most Profitable Item to Flip in a Renovation?

Kitchens and primary bathrooms typically return the most value relative to their cost in a resale-focused flip, since buyers weigh both spaces heavily when judging a home’s condition and finish quality.

How Do I Know If a Flip Deal Is Worth Pursuing?

Tools like DealAnalyzerAI’s fix-and-flip calculator run this comparison automatically from your property inputs.

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