The Math of a Flip: ARV, Repairs, and MAO End to End

A flip is not a house project with a profit at the end. It is an arithmetic problem that happens to involve a house, and the arithmetic is knowable — almost completely — before you make an offer. ARV from comps, repairs from a tiered estimate, holding costs from a calendar, selling costs from your market's norms, and financing costs from your lender's sheet combine into one number: the most you can pay. Operators who run this math the same way on every deal make fast, calm decisions. Operators who improvise it discover their real numbers at the closing table, in the wrong direction.

This guide works the full stack end to end, then stress-tests it: what breaks when the rehab runs long, when the ARV was optimistic, when the market softens mid-project. All dollar figures in the examples are illustrative teaching numbers, clearly labeled, never presented as Wise Revival deals or typical results. Your market's inputs will differ; the structure will not. Learn the structure cold, feed it honest local inputs, and the math will tell you — before emotion can — whether a house is a deal or a donation.

1. ARV: prove the exit price first

Everything starts with what the finished house will sell for. Build the ARV from adjusted sold comps in renovated condition, as our comps guide teaches, and write the conservative case beside the expected case. The ARV is a claim about a future buyer's behavior, so evidence quality matters: five close, recent, similar sales support confidence; two distant ones support a discount. Never let a seller's ask, a website estimate, or a neighbor's anecdote into this line. If the ARV is wrong by ten percent, every downstream line inherits the error, and no amount of rehab discipline recovers margin that never existed. Experienced flippers spend more time challenging the ARV than any other input, because it is the one they cannot control later.

2. Repairs: tier the house, price the tiers

Estimate repairs by scope tier — cosmetic, mid-grade, full renovation — using per-square-foot ranges for your market, then replace ranges with line items for major systems: roof, HVAC, electrical, plumbing, foundation. Add holding-period surprises a contingency line, sized honestly: small for cosmetic work on a sound house, substantial for a full gut or an older property with deferred everything. Walk the house or pay for eyes on it; photos from a listing hide as much as they show. The repair estimate is the second-most-abused input in flip math, usually by optimism about kitchens and blindness about systems. Price the house that exists, including the unphotogenic systems work buyers and inspectors will demand.

3. Holding and selling costs: the quiet margin-eaters

Holding costs accrue monthly from closing to closing: loan payments or interest, insurance, taxes, utilities, lawn and security, and your own time. Selling costs arrive at the end: agent commissions if you list, seller closing costs, concessions, and price reductions if the market makes you chase it. Together they commonly consume a meaningful slice of ARV, which is precisely why the 70% rule holds back 30 percent. Put real numbers on both lines using your actual timeline — then double the timeline mentally and check whether the deal survives. A flip that only profits on a ninety-day hold is a bet on contractors, inspectors, and buyers all performing perfectly at once.

4. Financing costs belong on the worksheet

If you borrow, interest, points, origination and draw fees, and extension costs are deal costs, not footnotes. A hard-money or private loan that adds thousands in financing changes the maximum offer by roughly that amount. Model the loan you will actually get — your lender's real terms for your experience level — not the terms advertised to seasoned borrowers. If you use your own cash, the honest comparison still charges the deal something for tying that cash up, even if you keep the accounting informal. Deals evaluated as if money were free look profitable right up until the money's owner — a lender, a partner, or your future self — presents the bill.

5. MAO: assemble the maximum allowable offer

Two assemblies serve two moments. For screening, the 70% rule: MAO = 0.70 × ARV − repairs. For a deal you intend to pursue, the full stack: ARV minus repairs, minus holding, minus selling, minus financing, minus your required profit equals your maximum price. Run both; when they disagree materially, investigate which input the screening rule is misjudging for this house — an unusually fast market, an unusually heavy rehab, an unusually slow title. Your required profit is not greed and not optional: it is the payment for project risk, the cushion for the estimate you got wrong, and the reason the business survives its bad deals. Set it before negotiation and defend it during negotiation.

6. Stress-test: three ways deals die

Test one: repairs overrun by twenty percent. Test two: the hold doubles. Test three: the exit price lands at your conservative ARV instead of the expected one. A sound deal degrades gracefully under each test — thinner profit, not a loss. A fragile deal fails all three at once because its inputs were correlated optimism. If stress tests kill a deal at your intended price, you have three honest moves: lower the offer, reduce scope with a genuinely cheaper plan (not a wished one), or walk. The fourth move — proceed and hope — is how tuition gets paid. Write the stress results on the worksheet; future you, mid-renovation, will be grateful someone was sober at purchase.

7. Track actuals and close the learning loop

During the project, log actual costs against every estimate line weekly. At sale, complete the ledger: estimate versus actual for ARV, repairs, holding, selling, financing, and profit. This post-mortem, done on every deal without exception, is the mechanism by which your estimates become accurate — your market's real cost per square foot, your contractors' real timelines, your neighborhoods' real selling costs. Within a handful of deals your worksheet stops being a generic template and becomes a calibrated instrument. That instrument, more than any single profitable flip, is the asset that makes flipping a business rather than a sequence of gambles.

Worked example

Where beginners go wrong on this — and the fix for each

Three mistakes account for most of the damage we see on this topic. First, skipping the written step. Operators do in their heads what this guide does on paper — a value, an estimate, a decision — and the head version quietly edits itself mid-negotiation. The fix is boring and total: one worksheet, filled in before the conversation that could change it, re-run only when a fact changes. Second, borrowing confidence from other people's results. A stranger's market, exit, and risk tolerance are not yours, and copying their numbers without your inputs is how sound methods produce unsound deals. The fix is to treat every outside example — including the worked example above, which is labeled illustrative for exactly this reason — as a structure to fill with your own verified local numbers. Third, doing this once and calling it learned. The first attempt at any skill in this guide will be your worst one. The fix is reps with records: do it on practice properties, log the estimate against the eventual reality, and let the gap teach you. Within a handful of logged repetitions, your judgment stops being borrowed and starts being calibrated — and calibrated judgment, not any single technique, is what this entire library is trying to build in you.

Your first week with this guide

Do not try to master this in a weekend; instead, schedule five small, finished reps. Day one, re-read this guide and write the three numbers or decisions it asks for, in your own words, on one page. Day two, run the linked tool — the Flip Profit Calculator — on a real property currently listed or recently sold in your market, and save the inputs. Day three, repeat on a second property and compare what changed and why. Day four, find the gap in your own knowledge the reps exposed — a term, a data source, a local rule — and close it in the glossary or the Learn step for this subject. Day five, write the one-page version of your process that future-you will follow, and file the week's worksheets together. Five finished reps teach more than fifty pages of highlighting, and they produce the paper trail your second week builds on. When the week is done, continue to the Learn step matched to this guide — the path orders these skills the way a deal does, and the next skill assumes this one is practiced, not just read.

How we run the numbers: every formula and data source behind this guide is documented on How We Run the Numbers. Where a figure comes from an outside source, the page says so beside the figure.

Frequently asked questions