The industry standard rule of thumb used by experienced investors. Never pay more than 70% of your expected sale price after renovation, minus your renovation costs. The remaining 30% covers all your costs and leaves room for profit.
What is Fix and Flip?
Buy, renovate and sell is a real estate investment strategy where you purchase a property that needs work, improve it through renovation, and sell it for a profit. The goal is to buy low, add value through renovation, and sell high — ideally within 6 to 12 months.
It sounds simple, but the devil is in the details. Successful investors are disciplined with their numbers, conservative with their estimates, and ruthless about not overpaying for a property.
Expected Sale Price After Renovation — The Most Important Number
The expected sale price is what the property will be worth — and what you expect to sell it for — after all renovations are complete. Everything else in the deal flows from this number — your maximum offer, your profit, your ROI.
To find the expected sale price, look at comparable sales (comps) — similar homes in the same neighborhood that sold recently in fully renovated condition. This is not what the house is worth today — it's what it will be worth when finished.
The 70% Rule
The 70% rule is the most commonly used guideline in fix and flip investing. It gives you a quick way to calculate the maximum price you should pay for a property.
($275,000 × 0.70) − $45,000 = $192,500 − $45,000 = $147,500
You should not pay more than $147,500 for this property.
The 30% buffer accounts for all your costs — closing costs, holding costs, agent commissions, and your profit. It's not an exact formula, but it's a reliable guardrail.
Short-Term Renovation Loans (Hard Money)
Most investors who buy, renovate, and sell use short-term renovation loans — commonly called hard money loans — short-term, asset-based loans from private lenders. Unlike conventional mortgages, hard money lenders focus on the property's value and your experience, not your personal income or credit score.
They're fast (can close in days), flexible, and designed for renovation projects. The tradeoff is higher rates (8–14%) and origination points (1–3%) charged upfront.
Monthly interest: $120,000 × (11% ÷ 12) = $1,100/month
Origination: $120,000 × 2% = $2,400 upfront
Total interest cost for 6 months: $6,600 + $2,400 = $9,000
Rehab Budget — The Biggest Wild Card
Rehab costs are where most new flippers get burned. Costs almost always come in higher than expected. Hidden water damage, bad wiring, permit delays, contractor no-shows — the list goes on.
Experienced flippers always add a contingency buffer — typically 10–20% on top of their budget — specifically for unexpected costs. This is not pessimism, it's experience.
Understanding Your ROI vs Return on Cash
These two numbers tell you different things about how well a deal performed.
ROI (Return on Investment) divides your net profit by the total project cost — the all-in cost of the deal. This tells you how efficiently you used capital.
Return on Cash divides your net profit by only the cash YOU put in out of pocket — down payment plus closing costs plus rehab costs paid in cash. Because you used a loan for the rest, your actual cash invested is lower, making your return on cash higher.