The Math of a Flip, Worked End to End (Example Numbers)

The analysis: building the offer from the top down

Our example house: a 3-bed, 2-bath, 1,450 sq ft home in a neighborhood of similar ranches. Renovated comparables sold in the last six months at $228,000, $236,000, and $219,000; adjusting for condition and a fourth comp at $241,000 with a larger lot, we set ARV conservatively at $230,000 — deliberately using the middle of the range, not the top, because the eventual buyer of our flip will negotiate from the same comps.

The rehab scope, from a walk-through: roof overlay $8,500, HVAC replacement $6,800, kitchen $16,000, two bathrooms $9,500, flooring throughout $6,200, paint interior/exterior $4,800, electrical and plumbing repairs $3,900, windows (six) $3,300, misc. and permits $2,500 — subtotal $61,500, plus a 10% contingency of $6,150, for a rehab budget of $67,650. MAO = ($230,000 × 0.70) − $67,650 = $93,350. We offered $90,000 to leave a little negotiating air, and settled with the seller at $92,000.

What the 70% was protecting

It is worth pausing on what the held-back 30% — $69,000 in this example — has to cover, because the rest of the teardown spends it. Selling costs on a $230,000 sale: agent commissions, seller closing costs, and concessions typically run 7–9% — call it $18,400 at 8%. Holding costs at roughly $1,600 per month across a planned six months: $9,600. Acquisition closing costs on the purchase: about $2,800. Sum: roughly $30,800 of real costs. What remains of the $69,000 — about $38,200 — is the profit-and-cushion pool if everything goes to plan.

That is the design of the rule. It does not promise $38,200; it budgets $38,200 of room for profit plus everything reality adds. The teardown's real question is how much of that pool the project defends. Watch the next two sections spend it.

The project: where the budget bent

Demo found two things the walk-through missed: subfloor rot in the hall bath ($1,900 to make right) and an electrical panel that the insurer required replaced rather than repaired (adding $1,400 over the allowance). Both came from contingency — which is what contingency is for — leaving the rehab tracking at $66,900 against the $67,650 budget with finishes still to go. Then the schedule bent: the HVAC install slipped two weeks, pushing flooring and paint, and the total hold stretched toward seven months instead of six — an extra $1,600 of holding cost, arriving silently, one month at a time.

The counter-move is worth noting because it is the only kind that works: the flipper protected the sale date instead of the budget's pride. The punch list was worked by two crews in parallel, the photographer was booked before the final clean, and the listing launched on the Friday the house was truly ready — not the Friday the schedule had promised. The house listed at $232,000 (comps had firmed slightly) and went under contract in week two at $229,000.

The settlement, and the grade

Final accounting for the example: sale $229,000. Selling costs came in at $17,900 (7.8%). Rehab finished at $68,400 — $750 over budget, with the overruns traced to the subfloor and panel, absorbed partially by lines that came in under. Holding costs: seven months at an actual average of $1,580, totaling $11,060. Acquisition costs $2,760. Purchase price $92,000. Total spent against the sale: $212,120. Net before taxes: $16,880 on roughly $103,000 of cash deployed across the project.

Now the grade. The analysis promised a profit pool of about $38,200 at plan; the deal delivered $16,880. The gap is almost entirely traceable: a sale price $1,000 under ARV, $750 of rehab overage, and roughly $19,700 of the plan's assumed costs simply being real life priced honestly (the original plan under-budgeted selling and holding at the optimistic end). The lesson is not that the deal failed — it cleared a real return on the cash and the timeline. The lesson is where grades come from: line-by-line comparison, every deal, without flinching. The next analysis this flipper writes will budget seven months of holding and 8% selling costs from the start. That is how estimates get true.

What to copy from this teardown

Three habits, in order. Analyze top-down from comps, never bottom-up from what the seller wants. Track actuals in the same categories as the estimate, monthly, so variances appear while they are still decisions. And grade the settlement against the analysis in writing — the file from deal one is the single best input to deal two. Do those three things and your math improves every project, which matters more than whether any single project's math was perfect.

Re-running the example with worse luck

Stress-test the same deal the way a lender would: sale price 5% under ARV ($218,500), rehab 10% over budget ($75,000), and an eight-month hold ($12,600). The settlement now reads: $218,500 minus selling costs of about $17,500, minus $92,000 purchase, $75,000 rehab, $12,600 holding, $2,800 acquisition — net roughly $18,600 of costs against the price beyond plan, pulling the outcome to approximately breakeven before taxes. That is the honest function of the cushion: the deal did not become a catastrophe at plausible bad luck; it became a wash. Deals analyzed at 80% of ARV with guessed repairs do not survive the same stress test — they go underwater, which is where 'the market turned on me' stories actually come from.

Run this stress version on every real analysis, and adopt a simple rule: if the stressed outcome is a loss you cannot comfortably absorb, the deal is too thin for your current reserves, whatever the base case promises. Profit lives in the base case. Survival lives in the stress case. A flipping career is mostly the second one, repeated.

The example's last gift is its filing system: analysis, weekly actuals, settlement, and grade in one folder. Do that on deal one and deal ten's analysis writes itself from evidence instead of optimism.

Notice, finally, what this teardown did not blame: the market. Prices moved a little, a crew slipped a little, an inspector found a little — the ordinary weather of a real project. Analyses that only work in perfect weather are not analyses; they are wishes with formatting. The discipline on display here — conservative ARV, itemized repairs, contingency held for the hidden things, actuals tracked in the estimate's own categories, and a written grade at the end — is portable to any deal in any market, at any price point. Steal the categories. Steal the grading. The numbers will be your own, and within a few projects, your grades will start arriving before your settlements do: you will know, mid-project, almost exactly where a deal will land. That foreknowledge is what people mean when they call an investor experienced.