Q: What rehab contingency should I budget?

10–20% on top of the GC's hard-cost quote, depending on scope and risk. Light cosmetic flips (paint, flooring, fixtures): 10%. Mid-scope (kitchen + 1 bath + minor systems): 15%. Heavy renovation or any property pre-1960 with hidden conditions: 20%+. The contingency covers permit upgrades discovered mid-project, framing surprises behind walls, code requirements that didn't surface until inspection, and the price-fluctuation risk on materials and labor. Investors who skip the contingency line consistently end up there anyway, just without having budgeted for it.

Q: How do I model hard-money loan costs honestly?

Hard-money costs have three components, and only the first is the headline rate. (1) Interest: 9–14% APR depending on lender, LTC, and borrower experience. (2) Origination points: 1–4% of loan amount paid at closing — and these are PERMANENT cost, not refundable on early payoff. (3) Other fees: doc prep, processing, third-party reports — often $1,000–3,000. Effective annualized cost on a 6-month deal can be 20–30% APR all-in once points are amortized over the actual hold period. Always project hold-time longer than your optimistic case — a 6-month underwrite that goes 9 months because the rehab slipped doubles the effective cost of the points.

Q: How long should I budget for the actual hold?

Operator-grade timeline: light cosmetic → 2–3 months total (1 mo close + reno, 1 mo market). Mid-scope → 4–6 months (2–3 mo reno, 1–2 mo market, 1–2 mo close). Heavy renovation → 6–12 months. Add 30–60 days at the end for market time on slower-moving inventory or during seasonal lulls. Holding-cost math compounds badly when timeline slips: at $4K/month carry on a deal that runs 3 months over, you've eaten $12K of profit. Run the calculator with both base-case and slip-case timelines.

Q: What sale closing costs should I include?

Total sale-side costs run 7–9% of ARV in most markets. Components: listing-side agent commission (2.5–3%), buyer-side agent commission (2.5–3%) — note: post-2024 NAR settlement may shift the buyer-agent commission off the seller in some markets, but most fix-and-flip deals still pay both, transfer taxes (varies wildly by state and locality, $0–4% of sale price), title insurance + closing fees ($1,500–4,000 typical), home warranty offered to buyer ($500–1,000). Don't forget: any concessions you negotiate to close the deal (price reductions, repair credits) come out of the same line.

Q: What's a 'good' fix-and-flip ROI?

Operator-grade benchmark: 25–40% ROI on cash invested over a 4–6 month timeline. Annualized that's 50–120% — not because flips are 'easy,' but because flippers compound capital across multiple deals per year and the high ROI compensates for the concentrated execution risk and active labor required. Below 20% ROI on a flip is generally not worth the risk-adjusted effort vs passive rental returns; above 50% usually means an underwriting input is too optimistic (most often ARV).

Question 1

How do I calculate fix-and-flip net profit?

Accepted Answer

Net profit = ARV − (Purchase + Acquisition Closing Costs + Rehab + Holding Costs + Sale Closing Costs). The components most investors under-estimate: holding costs (interest carry, taxes, insurance, utilities for the full timeline including post-rehab market time), sale closing costs (typically 7–9% of ARV with agent commissions, transfer taxes, title, owner's policy), and rehab contingency (10–20% buffer on the GC's quote). Most YouTube fix-and-flip math omits one or more of these.

Question 2

What is After-Repair Value (ARV) and how do I estimate it?

Accepted Answer

ARV is the projected market value of the property AFTER renovation, expressed as the price at which it could be sold to a retail end-buyer. Estimate it by pulling 3–5 closed comparable sales within 0.25–0.5 miles, last 3–6 months, similar finishes / square footage / bed-bath count. Adjust for differences (lot size, garage, condition). The single biggest error in fix-and-flip math is over-stating ARV by 5–10% — that error compounds because it's the top line of the entire deal. Validate against an appraiser-grade comp set, not a Zillow Zestimate.

Question 3

What's the 70% rule and is it useful?

Accepted Answer

The 70% rule: maximum offer = (ARV × 0.70) − Rehab Cost. The 30% buffer is intended to cover all-in costs + profit. The rule is a useful first-pass screen but breaks down in two scenarios: (1) low-ARV deals where the 30% buffer is too thin to cover fixed costs (in markets where ARV < $150K, fixed costs eat too much of the margin), and (2) high-ARV / luxury deals where the 30% buffer is excessive. Replace the rule with a deal-specific underwrite: target net profit ÷ ARV typically 12–18%, target ROI on cash invested 25–40% on a 4–6 month timeline.

Question 4

What rehab contingency should I budget?

Accepted Answer

10–20% on top of the GC's hard-cost quote, depending on scope and risk. Light cosmetic flips (paint, flooring, fixtures): 10%. Mid-scope (kitchen + 1 bath + minor systems): 15%. Heavy renovation or any property pre-1960 with hidden conditions: 20%+. The contingency covers permit upgrades discovered mid-project, framing surprises behind walls, code requirements that didn't surface until inspection, and the price-fluctuation risk on materials and labor. Investors who skip the contingency line consistently end up there anyway, just without having budgeted for it.

Question 5

How do I model hard-money loan costs honestly?

Accepted Answer

Hard-money costs have three components, and only the first is the headline rate. (1) Interest: 9–14% APR depending on lender, LTC, and borrower experience. (2) Origination points: 1–4% of loan amount paid at closing — and these are PERMANENT cost, not refundable on early payoff. (3) Other fees: doc prep, processing, third-party reports — often $1,000–3,000. Effective annualized cost on a 6-month deal can be 20–30% APR all-in once points are amortized over the actual hold period. Always project hold-time longer than your optimistic case — a 6-month underwrite that goes 9 months because the rehab slipped doubles the effective cost of the points.

Question 6

How long should I budget for the actual hold?

Accepted Answer

Operator-grade timeline: light cosmetic → 2–3 months total (1 mo close + reno, 1 mo market). Mid-scope → 4–6 months (2–3 mo reno, 1–2 mo market, 1–2 mo close). Heavy renovation → 6–12 months. Add 30–60 days at the end for market time on slower-moving inventory or during seasonal lulls. Holding-cost math compounds badly when timeline slips: at $4K/month carry on a deal that runs 3 months over, you've eaten $12K of profit. Run the calculator with both base-case and slip-case timelines.

Question 7

What sale closing costs should I include?

Accepted Answer

Total sale-side costs run 7–9% of ARV in most markets. Components: listing-side agent commission (2.5–3%), buyer-side agent commission (2.5–3%) — note: post-2024 NAR settlement may shift the buyer-agent commission off the seller in some markets, but most fix-and-flip deals still pay both, transfer taxes (varies wildly by state and locality, $0–4% of sale price), title insurance + closing fees ($1,500–4,000 typical), home warranty offered to buyer ($500–1,000). Don't forget: any concessions you negotiate to close the deal (price reductions, repair credits) come out of the same line.

Question 8

What's a 'good' fix-and-flip ROI?

Accepted Answer

Operator-grade benchmark: 25–40% ROI on cash invested over a 4–6 month timeline. Annualized that's 50–120% — not because flips are 'easy,' but because flippers compound capital across multiple deals per year and the high ROI compensates for the concentrated execution risk and active labor required. Below 20% ROI on a flip is generally not worth the risk-adjusted effort vs passive rental returns; above 50% usually means an underwriting input is too optimistic (most often ARV).

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