How to Analyze a House Flip, Step by Step

A flip analysis is a chain: one weak link — usually the ARV or the rehab number — quietly poisons every figure after it. Work the steps in order, write every assumption down, and let the deal fail early if it is going to fail. A deal that dies on your screen costs nothing. A deal that dies in month four costs real money.

This page walks the full method using one sample deal from start to verdict: buy $135,000, rehab $45,000, ARV $260,000, a 6-month hold, and hard-money financing at 85% loan-to-cost, 12% interest-only, 2 points. Every number below comes from that single example, so you can follow the arithmetic yourself.

Step 1 — ARV from sold comps, not from hope

ARV (after-repair value) is what the finished house will sell for, and it must come from sold comparable properties — similar size, condition after repair, same neighborhood, recent closing dates. Active listings are wishes; sold comps are evidence.

• Use at least three sold comps and adjust for square footage, beds/baths and condition.
• If the comps disagree, weight the closest and most recent, not the highest.
• Write the ARV down and treat it as fixed for the rest of the analysis. Revisit it only with new evidence, never because the deal “needs” a higher one.

Sample: ARV = $260,000, taken from sold comps.

Step 2 — Estimate the rehab, by category

Never estimate rehab as one lump sum (“about forty grand”). Break it into categories — kitchen, baths, roof, HVAC, flooring, paint, electrical, plumbing, appliances, landscaping, demo/cleanup, permits, misc — price each one, then add a contingency line (around 10%) as a real budget row, not a rounding error. A category estimate can be argued with and verified; a lump sum cannot.

Sample: rehab = $45,000 across the categories, contingency included. The full method is in the rehab budget guide and the rehab cost estimating guide.

Step 3 — Holding and financing costs

A flip bleeds money every month it sits. Add them all:

• Holding costs: insurance, taxes, utilities, lawn/security — sample: $650/mo × 6 months = $3,900.
• Buying costs: closing at purchase — sample: 2% of $135,000 = $2,700.
• Financing: the sample uses hard money at 85% loan-to-cost. Loan = $153,000 (85% of the $180,000 purchase + rehab). Points: 2% = $3,060. Interest-only at 12%: $1,530/mo × 6 = $9,180.
• Selling costs: agent commissions and closing — sample: 7.5% of ARV = $19,500.

Note the discipline: interest here is modeled on the full loan from day one. If your lender charges interest only on drawn funds, your real cost will be lower — model the conservative case and let reality pleasantly surprise you, not the reverse.

Step 4 — MAO: two formulas, both worth computing

The 70% rule (fast filter):

The $135,000 asking price passes — by $2,000. That is a pass, but a thin one; the classic rule assumes average holding and financing costs, and a 12% hard-money loan on a 6-month hold is not average. Full treatment: the 70% rule guide.

The all-in formula (the check that matters):

This works backward from the profit you require and prices everything in explicitly. On the sample's terms, the all-in maximum price works out to $156,660 — the highest purchase price at which the deal still clears its required return after every cost. If the two formulas disagree, trust the all-in one: the 70% rule is a screen, not a valuation. Full treatment: the all-in MAO guide.

Whichever you use: write the number down before you negotiate. An MAO computed after you have seen the seller's price has a way of drifting upward.

Step 5 — The verdict on the sample

The deal works on paper. Now the step most analyses skip.

Step 6 — Sensitivity: break the deal on purpose

Run the sample again with worse assumptions:

Conclusion from the grid: this deal is an ARV bet, not a rehab bet. The quality of your comps matters more than the contractor's bid — and a $2,000 cushion over MAO is no cushion at all. At $140,000+, walk or renegotiate.

Step 7 — Decide

A complete flip analysis ends in one of three verdicts:

1. Buy — MAO passes on both formulas and the deal survives at least one stress scenario.
2. Renegotiate — the math works at a lower price; your MAO is the offer ceiling.
3. Walk — the deal only works with zero contingency, a heroic ARV, or both. There will be another house.

Run your own numbers

This exact walkthrough is the sample pre-loaded in our House Flip Analyzer spreadsheet. The free Lite version runs the full first pass on one sheet — profit, cash invested, ROI, break-even price and the 70% rule verdict. The Full version adds the sensitivity grid, the category rehab budget with live actuals from an expense log, contractor quote comparison, change orders, payments tracking and a project dashboard — 17 sheets that carry the deal from screening through the sale.

This page and the spreadsheets are calculation tools only and do not constitute financial, investment, tax, or legal advice. Sample numbers are illustrative; verify all figures — especially ARV and rehab costs — against your own comps and contractor quotes before purchasing any property.