How to Analyze a Fix and Flip Deal

Step 1: Estimate the After Repair Value (ARV)

ARV is the price you expect to sell the property for after all renovations are complete. It's based on what similar, recently renovated properties have sold for in the same area.

To estimate ARV, pull comparable sales (comps) that match your subject property on location, size, bedroom count, and property type. Focus on properties that sold in renovated or move-in-ready condition within the last 6 to 12 months and within 1 to 3 miles. Adjust for differences in bed/bath count and square footage. The median sale price of your premium-condition comps is your ARV estimate.

Getting comps right is the hardest part because it requires judgment. A property that sold for $350K three blocks away might not be comparable if it sits in a different school district or has 500 more square feet. The fewer comps you have, the less reliable your ARV, and the more conservative your offer should be.

Deal Labs AI's AIV tool automates this process. It pulls comparable sales, filters them by property type, size, and condition, segments them into market brackets (lower, market, premium), and produces an ARV estimate based on the premium bracket. You can exclude individual comps you think are unrepresentative and recalculate without spending additional credits.

Step 2: Estimate Rehab Costs

This is where most new flippers get burned. Underestimating rehab costs by $20K to $40K is the single most common mistake in fix-and-flip investing. It turns projected profits into actual losses.

A reliable rehab estimate needs to be room-by-room, not a rough guess. Walk through the property (or review listing photos if you're analyzing remotely) and note what needs work in each space. Is the kitchen cosmetic (paint, hardware, countertops) or does it need a full gut (cabinets, plumbing, electrical, layout change)? Is the roof 10 years old or 30? Are the windows original single-pane or already updated?

Each repair item falls into a severity level. Cosmetic work (paint, fixtures, landscaping) costs the least. Moderate work (flooring, bathroom updates, HVAC servicing) costs more. Major work (roof replacement, foundation repair, full kitchen renovation, electrical rewiring) costs the most and takes the longest.

Deal Labs AI's AIRE tool generates a room-by-room rehab estimate by analyzing multiple property data points. It assigns severity levels and provides low, mid, and high cost ranges for each line item, adjusted for regional pricing based on ZIP code.

Step 3: Calculate Maximum Allowable Offer (MAO)

MAO is the highest price you should pay for the property to achieve your target profit. The standard formula:

MAO = (ARV x 70%) - Rehab Costs

The 70% rule is a common starting point, but experienced investors adjust it based on market conditions and their own risk tolerance. In competitive markets, some investors go up to 75% or 80%. In soft markets, staying at 65% or lower protects against ARV declines during the holding period.

Selling costs also need to be subtracted. Agent commissions (typically 5% to 6%), transfer taxes, staging, photography, title and escrow fees, and miscellaneous closing costs usually add up to 8% to 10% of the sale price. Some investors fold these into the 70% rule. Others subtract them separately for more precision.

Deal Labs AI's wholesale calculator handles this automatically. Input your ARV (or let AIV populate it), your estimated rehab costs (or pull them from an AIRE report), and your target MAO percentage. The calculator produces your maximum offer with an itemized breakdown of all selling costs.

Step 4: Estimate Holding Costs

Every month between purchase and sale costs money. Mortgage payments, property taxes, insurance, utilities, and any HOA fees add up. A flip that takes 6 months to renovate and sell has 6 months of carrying costs. A flip that drags to 9 months has 50% more.

A reasonable holding cost estimate for most markets is $1,500 to $3,000 per month depending on the purchase price and local tax rates. On a $200K property with a hard money loan at 12%, you're paying roughly $2,000 per month in interest alone before taxes and insurance.

Build at least one extra month into your timeline as a buffer. Renovations almost always take longer than planned, and properties don't always sell the week they're listed.

Step 5: Calculate Projected Profit

Once you have all the pieces:

Projected Profit = ARV - Purchase Price - Rehab Costs - Selling Costs - Holding Costs

If this number is below $25K to $30K on a typical residential flip, most experienced investors pass. The margin is too thin to absorb the inevitable surprises. Unexpected foundation work. A buyer's inspection that requires concessions. A market shift during the holding period. Healthy profit targets are $40K to $60K on a mid-range flip, though this varies by market and deal size.

Common Mistakes

Overestimating ARV. Using the highest comp instead of the median of premium comps inflates your projected profit and sets you up for disappointment. Be conservative. If your ARV range is $280K to $320K, underwrite at $280K.

Underestimating rehab. Add 15% to 20% to whatever your initial estimate is. Something always comes up once walls are opened. Plumbing surprises, electrical code violations, termite damage that wasn't visible during inspection.

Ignoring holding costs. A flip isn't free to hold. Every month that passes between closing on the purchase and closing on the sale costs money. Hard money interest, taxes, insurance, utilities. These add up to $10K to $20K on a 6-month project.

Skipping the comp analysis. "I think it's worth $300K" isn't analysis. Pull actual comps. If you can't find at least 3 to 5 comparable sales within a mile that support your ARV, your estimate is a guess.