1. Start With the End in Mind: Know Your ARV First

Before you pick up a hammer, hire a crew, or start dreaming about subway tile and stainless steel, you need to know one number above all else: ARV—After Repair Value. This is your financial North Star. It sets the ceiling on your entire deal—and determines whether you’re walking away with profit or walking into a money pit.

Why ARV Is Non-Negotiable

ARV determines:

• How much you can offer on the property

• How much you can spend on the renovation

• What kind of profit margin you’re working with

• Whether your exit strategy (flip, BRRRR, sell, or refi) even makes sense
  
  

Ignore this step or get it wrong, and you’re not flipping houses—you’re flipping a coin and hoping for heads.

How to Calculate ARV the Right Way

• Pull solid comps—recent sales, same neighborhood, similar square footage, layout, and year built. Bonus points if they match the post-rehab condition you’re aiming for.
  
  

• Account for your upgrades—don’t assume granite counters and walk-in showers will magically add value unless your comps reflect that level of finish.
  
  

• Use conservative estimates—if comps range from $290K–$310K, base your ARV closer to $290K, not what Zillow told you after one glass of wine.
  
  

Rule of Thumb:

The market decides the ARV—not your gut.
Just because the property “feels like it could sell for more” doesn’t mean it will. Don’t fall in love with potential—fall in love with data.

Start every deal with ARV. Because everything you do—from offer to rehab to resale—flows from that single number. Get it right, and you’re building equity. Get it wrong, and you’re building character. 🫣

2. The 70% Rule: Your Budget's Guardrail

In the fix-and-flip world, where one wrong decimal can turn profits into pain, the 70% Rule is your financial seatbelt. It doesn’t just help you avoid bad deals—it keeps you disciplined when emotions, market hype, or "motivated sellers" try to pull you off course.

The Formula:

Max Purchase Price = (ARV × 70%) − Repair Costs

This simple equation ensures you leave enough margin for:

• Renovation costs

• Holding costs (taxes, insurance, utilities, financing)

• Selling costs (agent commissions, closing fees)

• And most importantly… your profit
  
  

Example:

Let’s say your ARV is $300,000 and your estimated rehab is $50,000.

• $300,000 × 0.70 = $210,000

• $210,000 − $50,000 = $160,000 Max Purchase Price
  
  

That $160K is your absolute ceiling. Offer more than that, and you’re shrinking your profit—or worse, building in risk you can’t afford.

Why It Matters:

This rule acts as a guardrail, not a golden law. In hyper-competitive markets, you might have to push to 75–80%—but only if your holding timeline is short, the market is appreciating fast, and you’ve got a tight rehab team.

But go beyond that? Now you’re not investing. You’re gambling with drywall.

Pro Move:

Let the numbers make the decision—not your feelings.
Stick to your numbers like a chess master playing a long game. Because flips don’t fail from bad ARVs—they fail from bad discipline.

Use the 70% rule to protect your capital, your margins, and your peace of mind.

3. Break Down the Rehab Budget—Line by Line

Here’s how you go from “rookie flipper with a gut feeling” to savvy investor with a profit plan: you break down the rehab budget like a contractor with trust issues. No ballparking. No guesstimating. No relying on what your uncle paid during the Stone Age.

You want real profit? You need real numbers.

Major Rehab Categories to Budget For:

1. Demolition
   
   

   • Tear-out, dump fees, labor

   • Don’t forget the dumpster rental, protective gear, and post-demo clean-up
     
     

2. Framing & Structural Repairs
   
   

   • Anything involving the bones of the house—joists, beams, load-bearing walls

   • If it’s cracked or sagging, it’s costly
     
     

3. Electrical & Plumbing
   
   

   • Rewiring, panel upgrades, outlet installation

   • Plumbing rough-ins, water heater, main line repairs

   • These systems must be up to code (or you’ll pay twice)
     
     

4. HVAC
   
   

   • New furnace? AC install? Ductwork?

   • These add major value but can chew up budget if you don’t plan for them
     
     

5. Roofing
   
   

   • Full replacements, patch jobs, gutters

   • If it's more than 10 years old, budget for it anyway
     
     

6. Kitchens & Bathrooms
   
   

   • Cabinets, countertops, appliances, plumbing fixtures, tile

   • These rooms sell houses, so don’t skimp—but don’t go full gold-plated, either
     
     

7. Paint & Flooring
   
   

   • Interior and exterior paint

   • Flooring (LVP, carpet, tile)—priced per square foot and labor-heavy
     
     

8. Curb Appeal & Landscaping
   
   

   • Exterior paint, siding, front door, lighting

   • Grass, mulch, flower beds, driveway repair—because first impressions pay
     
     

9. Permits, Inspections & Code Upgrades
   
   

   • Budget for the paperwork and the surprises that inspectors love to find

   • Every city has its quirks—know yours before demo day
     
     

Add a Contingency: 10–20% Minimum

Because guess what? You will find:

• Mold behind drywall

• Outdated wiring

• Rotten subfloors

• And a raccoon living in the attic (don’t ask)
  
  

Final Thought:

A flip without a detailed rehab budget is a ticking time bomb. Break it down. Line by line. Category by category. And always—always—pad for chaos.

Because in this game, the surprises don’t ask permission… but they do demand payment.💸

4. Know Your Soft Costs—The Sneaky Budget Killers

You can have your rehab budget locked tighter than Fort Knox… but still bleed profit if you forget about the sneaky budget assassins known as soft costs. These aren’t part of the actual construction—but they’re very real, and they’ll quietly chew through your margin like termites in a baseboard.

Hard Costs = Rehab

Drywall, paint, tile, plumbing—the stuff you can see.
Easy to estimate.
Easy to track.

Soft Costs = Everything Else

These are the behind-the-scenes expenses that don’t show up on a contractor’s invoice, but definitely show up on your profit and loss statement.

Here’s what you can’t afford to forget:

Major Soft Costs to Budget For:

1. Closing Costs (Both Purchase and Sale)
   
   

   • Title fees, escrow, attorney fees, transfer taxes

   • On the back end, don’t forget agent commissions—that’s 5–6% gone just like that
     
     

2. Loan Origination Fees & Interest
   
   

   • Hard money lenders don’t work for free

   • Expect 1–3 points upfront, and 10–12% annual interest (or more)
     Holding for 6 months? That interest adds up fast
     
     

3. Property Taxes
   
   

   • Pro-rated based on holding period

   • Pay attention to reassessments, especially after renovations
     
     

4. Insurance
   
   

   • You need vacant or builder’s risk insurance during reno

   • It’s more expensive than standard coverage—and absolutely necessary
     
     

5. Utilities During Renovation
   
   

   • Water, gas, electricity—even if no one’s living there

   • Leave the lights off too long, and the city might charge reconnection fees
     
     

6. Staging & Marketing
   
   

   • Want a bidding war? You need professional photos, maybe staging

   • $1,000–$3,000 is typical for a good setup—but it can help you sell faster and for more
     
     

Rookie Mistake: Ignoring Soft Costs

You might nail your rehab and ARV…
Only to walk away with half the profit you expected because you didn’t account for:

• $12K in agent commissions

• $4K in holding costs
  
  

• $3K in taxes, insurance, and utilities

• $2K in staging
  
  

That’s $20K evaporated—just like that.

Pro Tip:

Build soft costs into your initial analysis—not as an afterthought.
Use a spreadsheet, run the numbers, and treat these costs like mandatory expenses, not optional ones.

Because flipping isn't just about swinging hammers. It’s about mastering every line of your budget—especially the invisible ones.

5. Don’t Forget the Holding Costs

You’ve got your ARV, your rehab budget, and your soft costs mapped out. Great. But guess what? Time is also an expense—and if you ignore it, it’ll eat your profits like termites in a crown molding buffet.

Every month you hold that property, you're bleeding money, whether you're swinging hammers or waiting on a permit. These are your holding costs—the hidden monthly burn rate that adds up fast.

What You’re Paying Every. Single. Month:

1. Loan Interest
   
   

   • Hard money loans can hit you at 10–12% or more annually

   • On a $200,000 loan, that's $1,666/month—and that’s before points and fees
     
     

2. Insurance
   
   

   • You’re paying for vacant property or builder’s risk insurance—it’s pricier than normal homeowner’s policies
     
     

3. Utilities
   
   

   • Water, gas, electricity, trash—you can’t do demo or showings in the dark

   • Plus, if the power gets shut off, you may get hit with reconnection fees
     
     

4. HOA Fees (if applicable)
   
   

   • Monthly dues don’t care if you’re mid-reno

   • Some HOAs charge extra for vacant properties or exterior changes
     
     

5. Property Taxes
   
   

   • Depending on your area, this could be hundreds to thousands per month

   • Don’t forget: your tax bill is still due even if the house is gutted
     
     

Do the Math:

If your monthly holding costs are $2,000 and you hold the property for 6 months, that’s $12,000 off your profit line. And that’s if everything goes perfectly.

Now add delays:

• Permit holdups

• Contractor no-shows

• Inspection fails

• Bad weather
  
  

Suddenly you're holding for 8 months, not 6… and that $12K became $16K.

Pro Tip:

Multiply your total monthly holding costs by your estimated timeline, then pad it by 20–30%. Assume delays. Plan for headaches. Budget like Murphy’s Law is your project manager.

Because flipping isn’t just construction—it’s temporarily running a real estate business, with overhead costs ticking away every single day. Ignore that, and you’re not flipping houses—you’re flipping your profit right out the window.

6. Factor In Financing (It Ain’t Free Money)

Let’s get one thing straight: leverage is a weapon. Used right, it can scale your flips and supercharge your returns. But ignore the true cost of financing, and that big juicy profit margin you thought you had? Gone. Poof. Like a contractor on payday.

When you're using hard money or private money, you're not borrowing Monopoly cash. You’re renting money—and the rent ain't cheap.

The Real Costs of Real Estate Financing:

1. Origination Points
   
   

   • Most lenders charge 1–3% upfront, just to say “hi”

   • On a $250,000 loan, that’s $2,500–$7,500 before you touch a hammer
     
     

2. Monthly Interest
   
   

   • Common rates for hard money sit at 8–12% annually, billed monthly

   • That’s $1,667–$2,500 per month on that same $250K loan
     
     

3. Draw Fees
   
   

   • You don’t get all your rehab funds upfront

   • You request draws as work gets done—and some lenders charge $100–$250 per draw
     
     

4. Other Sneaky Fees
   
   

   • Appraisals, underwriting, doc prep, inspection fees—they stack

   • Some lenders even charge prepayment penalties if you finish early
     
     

Why This Matters:

You might look at a deal and see a $50K spread. But if you didn’t factor in:

• $6K in points

• $10K in interest

• $1,000 in fees
  
  

That $50K margin is now closer to $33K—and that’s before rehab surprises, holding costs, and market shifts.

Pro Tip:

Always bake financing into your initial deal analysis. Treat it like a line item in your budget, not an afterthought. And if you’re using leverage to scale your flipping business (smart move), build relationships with lenders who are transparent, fair, and fast.

Because in this game, money isn’t just a tool—it’s also an expense. Plan for it, price it in, and protect your profit like your empire depends on it.

(Spoiler: it does.)

7. Create a Dynamic Budget You Can Adjust on the Fly

Here’s the truth no HGTV montage will show you: your budget will change. Not might. Will. Because the moment you start swinging hammers, real estate starts laughing at your spreadsheet. Pipes burst. Permits stall. Material prices spike. And suddenly, your perfect plan needs real-time updates—or your profits vanish into thin air.

That’s why smart investors don’t just make a budget—they manage the hell out of it.

Your Budget = A Living, Breathing Beast

Treat your budget like a project control center, not a one-time task. Whether you use:

• Google Sheets

• Excel

• FlipperForce, Rehab Valuator, or another project management tool

• Or even a giant whiteboard (hey, if it works...)
  
  

The key is constant updates. Track everything.

What to Monitor Like a Hawk:

1. Estimated vs. Actual Costs
   
   

   • Did you budget $8K for a roof but pay $9,400?

   • Track that overage and adjust other line items accordingly
     
     

2. Scope Changes
   
   

   • Did you add recessed lighting or change materials mid-reno?

   • Add the cost immediately—don't “deal with it later”
     
     

3. Contractor Bids
   
   

   • First quote was $5K, but the second one came in at $3,800?

   • Log both, and note why you chose one over the other
     
     

4. Timeline Shifts
   
   

   • Every week you go over your schedule adds to holding costs

   • Update your timeline and see how it affects your bottom line in real time
     
     

Why It Matters:

A static budget is a guess.
A dynamic budget is a weapon.

It helps you:

• Catch cost creep before it snowballs

• Make informed tradeoffs when unexpected issues hit

• Stay in control of your margins—not just hope they’re intact at closing
  
  

Pro Tip:

Hold a weekly budget review—even if it’s just you and a coffee. Check your numbers, adjust for reality, and make strategic decisions before your bottom line takes the hit.

Because flips fail more from ignored budgets than bad ARVs. Be the investor who treats their budget like a battlefield map—because every number is either helping you win… or setting you up to lose.