What is House Flipping?
Flipping is the strategy of buying a distressed property, renovating it to retail standard, and reselling at full market value within 4-9 months. Profit comes from the spread between all-in cost (purchase + rehab + carry + closing) and net sale proceeds.
Flipping math is anchored by the 70% rule: total all-in cost ≤ 70% of After Repair Value. The 30% spread covers profit, ARV slippage, rehab overruns, and the cost of being wrong.
When it works, flipping is the fastest cash-generating strategy in residential REI — a $40-80k profit per deal in 5-7 months. When it fails, the failure is visible: the property doesn't sell at projected ARV, carrying costs eat the spread, the flipper takes a loss or breaks even on capital that could have generated 8-12% in lower-risk strategies.
Most flippers lose money on their first 1-3 projects because they underestimate carry, rehab variance, and ARV slippage. The disciplined flipper walks from 90% of evaluated deals — what they refuse to buy matters more than what they find.
Concepts that connect.
After Repair Value (ARV) is the projected market value of a property after all planned renovations are complete, based on recently-sold comparable properties in similar condition within a half-mile radius. It is the single most important number in any flip or BRRRR underwrite.
The 70% rule is a flipper's underwriting heuristic: total all-in cost (purchase + rehab + carry + closing) should not exceed 70% of the property's After Repair Value. The remaining 30% covers profit, slippage, and the cost of being wrong.
Maximum Allowable Offer (MAO) is the highest price a wholesaler or flipper can pay for a property and still hit their required profit margin. Derived from the 70% rule: MAO = (ARV × 0.70) − repair costs − assignment fee.
A rehab budget is the line-item plan of construction costs for a flip or BRRRR — typically broken down by trade (demo, framing, plumbing, electrical, drywall, paint, flooring, kitchen, baths) and contingency. Rehabs without a written budget consistently run 20-40% over informal estimates.
A hard-money loan is a short-term, asset-based loan used by investors to acquire and renovate properties — typically 6-18 month terms at 9-13% interest with 2-4 origination points. Used when conventional financing doesn't fit (speed, condition, or borrower qualification).
Comparable sales (comps) are recently-sold properties similar to a subject property, used to estimate market value. A defensible comp set has three to five sales in the last 90 days within a half-mile, matched on bedrooms, bathrooms, square footage (±20%), age (±10 years), and condition.
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