A flip doesn't pay off when you close on the purchase. It pays off, or doesn't, in the gap between your total cost and the sale price. Before you sign, you need to know whether the deal still works after you've paid for your fix and flip financing, carried the property and sold it.
This guide gives you a repeatable test. You'll price the deal, count the true cost of financing, stress the margin and decide whether the numbers justify borrowing. The math is the same whether it's your first flip or your fortieth.
It matters more now than it used to. ATTOM's Q2 2026 U.S. Home Flipping Report puts the typical gross flipping margin at 21.5%, down from 27.6% a year earlier. ATTOM's profit figures leave out rehab and other costs, so what lands in a flipper's pocket is lower.
Almost every flip comes down to three inputs: what the house will sell for, what the work costs and what you pay for it. Get the first two right and the third mostly sets itself.
After-repair value (ARV) is what the property should sell for once the renovation is done. Everything else in the deal hangs on it, and it's the number investors most often overestimate.
Build it from recent sales of renovated homes close to the property, similar in size, bed and bath count, style and finish level. Work from a range and price the deal on the low end. One good comp isn't an ARV; it's a guess. Our guide to ARV in fix and flip financing walks through the comp process.
This isn't only an offer-price problem. Many lenders size a flip loan against ARV, so a shaky number distorts your funding plan as well.
Walk the property with your contractor and get an itemized scope, not a single lump sum. Then add a contingency for what you can't see yet: old wiring, hidden water damage, permit surprises. How much depends on the age and condition of the house.
For a sanity check, ATTOM notes that flipping veterans estimate rehab and other costs at roughly 20% to 33% of ARV. If your budget lands far below that range, recheck the scope before you trust it. Your rehab budget also drives your draw schedule, so see how renovation draws work before you finalize it.
The 70% rule is a quick screen for the most you should pay: ARV × 0.70, minus estimated repairs. On a $300,000 ARV with $50,000 of repairs, that's $210,000 minus $50,000, or a $160,000 maximum purchase price.
Treat it as a filter, not a verdict. It leans on your ARV and repair estimates, and it ignores financing costs, taxes and market swings, as Rocket Mortgage's explainer points out. In competitive markets, deals that clear 70% are scarce and investors do stretch past it, which adds risk.
Clear it and move on to the full-cost check below. Miss it and you need a specific reason: a cheaper scope, a stronger ARV, a faster timeline. Not a hunch.
The purchase price and the rehab are the costs everyone plans for. Financing, holding and selling are the ones that quietly eat the margin.
Short-term flip loans typically charge interest plus origination points, and many are interest-only. That keeps payments low during the rehab but leaves the full balance due at sale. When you compare offers, compare total dollars over your expected timeline, not just the headline rate. Ask what gets charged at closing, at each draw and at payoff. Our breakdown of fix and flip loan rates, points and approval shows what to look at.
Every month you own the property costs money: interest, taxes, insurance and utilities. ATTOM's Q2 2026 data shows flips averaging 161 days from purchase to resale. Plan around that figure plus a buffer, not a perfect 90-day schedule. For a step-by-step view of how long each stage takes, see the fix and flip loan timeline.
Model your selling costs up front: agent commissions, closing costs and any concessions. The sample deal below uses 6% of ARV; swap in real quotes from your market.
Taxes belong in the model too. The IRS treats gains on property held one year or less as short-term, taxed as ordinary income at graduated rates (IRS Topic 409). How your flips are taxed depends on your situation, so talk to a CPA before you lock in a number.
A deal that only works when everything goes right doesn't work. Run it twice: once on your plan, once on a bad version of your plan.
Here's one deal run end to end. Every input is an illustrative assumption for teaching, not InstaLend pricing or terms.
|
Line item |
Amount |
|
Purchase price |
$160,000 |
|
Rehab |
$50,000 |
|
Origination points (2% of $178,000) |
$3,560 |
|
Interest (6 months at 11%) |
$9,790 |
|
Holding costs (6 × $700) |
$4,200 |
|
Buy-side closing costs |
$3,000 |
|
Selling costs (6% of ARV) |
$18,000 |
|
Total cost |
$248,550 |
|
Sale price (ARV) |
$300,000 |
|
Profit |
$51,450 |
That's a 20.7% margin on total cost. Your cash in before the sale is about $52,550: the $32,000 down payment, points, closing costs, interest and holding costs. Profit on that cash is roughly 98% in six months. That's leverage doing its job. Now see what it does when the deal slips.
Change three inputs at once:
|
Metric |
Base case |
Downside case |
|
Total cost |
$248,550 |
$264,105 |
|
Profit |
$51,450 |
$11,895 |
|
Margin on total cost |
20.7% |
4.5% |
|
Cash in before sale |
$52,550 |
$69,545 |
|
Return on cash |
97.9% |
17.1% |
The deal still makes money, but profit drops by about 77% and you need roughly $17,000 more cash than you planned. On that 9-month timeline, the sale price has to stay above about $263,300, which is 12% below your original ARV. That gap is your real cushion.
Decide your bar before you make the offer. One workable test: the deal still clears your minimum profit in the downside case, not just the base case. For more on how financing affects returns, see our post on whether fix and flip financing can improve ROI.
Once the numbers hold, the next question is what kind of capital fits a short-term renovation project.
Private lenders for fix and flip deals, including hard money lenders, lend against the property rather than your paycheck. That's what makes hard money fix and flip loans quicker to underwrite than a bank loan. Here's how the main options compare in general terms.
|
Funding source |
How it's typically underwritten |
Fit for a flip |
|
Private or hard money lender (asset-based) |
Focuses on the property and the deal, with the property as collateral |
Built for short holds and rehab draws, and typically the faster route |
|
Bank or conventional loan |
Typically leans on income, credit and documentation |
Often slower, and usually not structured around renovation draws |
|
Your own cash |
No lender underwriting |
No interest or points, but it ties up capital and limits how many flips you can run at once |
Cash is common: ATTOM reported that 61.1% of flips in Q1 2026 were all-cash purchases. Financing is how investors run more deals than their own cash allows. If you're weighing lender types, our comparison of fix and flip loans and hard money loans breaks down the differences.
Same test, bigger cushion. If you're researching fix and flip loans for beginners, start with a smaller scope and more reserve than feels necessary. Asset-based lenders weigh the property and the numbers heavily, so a clean deal package counts for a lot when you're new. Be ready to explain your plan, your contractor and your reserves. Our guide to a fix and flip loan with no experience covers what to prepare.
Some problems don't show up in a spreadsheet until it's too late. Pass, or renegotiate hard, if you see any of these:
For more ways flips go sideways, see 8 critical mistakes that turn a house flip into a flop.
Run every deal through the same eight tests before you ask a lender for terms.
|
Test |
Go if |
|
Offer price |
At or below ARV × 0.70 minus repairs, or you can name exactly why you're above it |
|
ARV |
Backed by several recent comps and priced on the low end of your range |
|
Rehab |
Itemized bids plus a contingency |
|
Full-cost margin |
Profit clears your minimum after interest, points, holding and selling costs |
|
Downside case |
Still profitable if the price drops, the rehab runs over and the hold stretches |
|
Cash reserve |
You can cover overruns and extra months without scrambling |
|
Exit |
There's a Plan B, such as holding the property as a rental |
|
Lender fit |
Draw schedule, extension terms and payoff costs match your timeline |
Frequently Asked Questions
There's no universal number. Set a minimum in dollars and as a percentage of total cost, measured after every cost in this guide.
Often, with an asset-based lender, but approval depends on the deal and the details. Asset-based lenders focus on the property, the ARV and the rehab plan rather than your income. Requirements vary by lender, so check what properties qualify for fix and flip financing and talk to a lender before you make an offer.
Get quotes on the same deal and compare total cost and terms: interest rate and points, fees at closing and at each draw, how fast draws are funded, how quickly the lender can close, extension terms and payoff charges. A list of top fix and flip lenders won't tell you which one fits your deal. Matching quotes will. Down payment is a good first comparison point, so see how much down payment a fix and flip loan needs.
The Short Version
A flip is worth financing when it still pays after interest, points, holding time and selling costs, and when it survives a bad case. Price the ARV conservatively, budget the rehab with a cushion, use the 70% rule as a filter, then run the full-cost and downside math.
If the deal passes, you're ready for the next step: get a quote on InstaLend's fix and flip loans and put your numbers in front of a lender that moves at your pace.