If you've flipped more than one house, you've probably accumulated a spreadsheet that started clean and turned into a monster — twelve tabs, hardcoded numbers from a deal you did three years ago, and rehab estimates that you're not totally sure you trust. You're not alone.
This is one of the most common frustrations among active flippers: everyone has their own version of the spreadsheet, and nobody feels fully confident in it. The good news is there's a cleaner way to think about flip underwriting — one that doesn't require a finance degree or a 10-tab Excel file.
Start With ARV — Everything Else Flows From It
After-repair value (ARV) is the north star of every flip deal. It's what the home will sell for after your renovations, based on comparable sales in the immediate area. If you get this wrong, every other number in your analysis is wrong too.
To find a solid ARV:
- Pull comps within 0.5 miles, same bedroom/bath count, sold within the last 90 days
- Weight recent sales more heavily — the market moves, and a 6-month-old sale might be stale
- Be honest about your finishes. If comps were fully gut-renovated and you're doing a lipstick flip, haircut your ARV accordingly
A good rule of thumb: if you can't find at least 3 solid comps within a mile, you don't have enough data to underwrite the deal confidently.
The 70% Rule Is a Starting Point, Not a Finish Line
You've probably heard of the 70% rule: don't pay more than 70% of ARV minus repair costs. It's a useful quick filter, but it's not a complete underwriting system.
The 70% rule doesn't account for:
- Holding costs (loan interest, taxes, insurance, utilities — typically 1–2% of ARV per month)
- Closing costs on both the buy and sell side (budget 1–1.5% each way)
- Agent commissions on the sale (typically 2.5–3%)
- Unexpected cost overruns — and there are always unexpected cost overruns
A more complete formula for your maximum purchase price:
Max Purchase Price = ARV × 0.70 − Estimated Rehab − Holding Costs − Closing Costs
Run the numbers at two or three rehab scenarios (cosmetic, moderate, full gut) to understand your risk range before you make an offer.
The Rehab Estimate Problem
This is the part most flippers trust the least — and rightfully so. Rehab costs swing wildly based on what you find once walls are open, how reliable your contractor is, and what the local labor market looks like.
A few ways to tighten your estimate:
Use cost-per-square-foot ranges by scope. Cosmetic flips (paint, flooring, fixtures) typically run $15–$30/sqft. Moderate rehab (kitchen and bath updates, new roof) runs $40–$65/sqft. Full gut renovations can be $80–$150/sqft or more depending on the market.
Always build in a contingency. Experienced flippers budget 10–20% on top of their contractor estimate. If you hit it, great — you protected your margin. If you don't, it goes to profit.
Get at least two bids. One bid is a number. Two bids are a data point. Three bids are actually useful.
Scenario Planning: The One Thing That Separates Good Underwriters From Great Ones
The best flip underwriters don't build one model — they build three:
- Base case: Your most realistic assumptions
- Optimistic case: ARV comes in 5% higher, rehab stays on budget
- Downside case: ARV softens 5%, rehab runs 20% over, property sits 60 days longer
If the deal is still profitable in the downside scenario, you have a margin of safety. If the downside scenario wipes out your profit, you either need to renegotiate the purchase price or walk away.
This isn't about being pessimistic — it's about making sure you can absorb a bad outcome and still come out okay.
Key Takeaways
- ARV is everything. Nail your comps before you underwrite anything else.
- The 70% rule is a quick filter, not a complete analysis. Factor in holding costs, closing costs, and commissions.
- Rehab estimates are ranges, not certainties. Always build in a contingency buffer.
- Run three scenarios (base, upside, downside) to understand your true risk before you make an offer.
- Standardize your assumptions. Using the same vacancy, holding cost, and commission inputs across every deal makes your comparisons meaningful.
Frontflip can analyze any address instantly — flip scenarios, rental projections, and comp data in one place. Free on iOS.