Fix and Flip

Fix and flip is the strategy of buying a property below market, renovating it, and reselling it quickly for a profit. It's the most recognizable active real estate investing model — buy low, add value through rehab, sell high — and it's the primary use case for hard money and fix-and-flip loans.

The flip lifecycle

1. Find & analyze. Source a distressed or undervalued property and underwrite it: estimate ARV from comps, build a rehab budget, and compute your maximum allowable offer via the 70% rule.
2. Acquire & finance. Buy at or below MAO, usually with a short-term loan that funds most of the purchase and the rehab through a draw schedule.
3. Renovate. Execute the scope of work, managed by a GC or yourself, drawing rehab funds as milestones complete.
4. Sell. List the finished property, sell at (ideally) the ARV, repay the loan, and pocket the spread.

The profit math

Profit on a flip is what's left after every cost:

Profit = Sale Price − Purchase − Rehab − Financing − Holding − Selling Costs

The 70% rule is designed so that buying at the right price leaves room for all of these plus profit. A typical target is a meaningful dollar profit and a return that justifies the risk and effort over the (usually 4–9 month) hold.

How flips are financed

Fix-and-flip financing is built for speed and the short hold:

• Short-term, interest-only with a balloon at the sale.
• Sized off LTC and ARV — often up to ~90% of purchase + 100% of rehab, capped at ~70–75% ARV.
• Rehab funded via draws as work is inspected.
• Higher rates and points than long-term loans — acceptable because the loan is outstanding only months.

The risks

Flipping is active and risky, and the losses cluster around a few mistakes:

• Overpaying (bad MAO from an inflated ARV).
• Underestimating the rehab budget — surprises and overruns.
• Holding too long — every extra month adds financing and soft costs, and a soft market can stall the sale.
• A weak exit — if the property doesn't sell, the balloon still comes due.

Fix-and-flip vs. BRRRR

Both start the same way (buy distressed, rehab), but the exit differs: a flip sells for a one-time profit, while BRRRR refinances and holds the property as a rental. Some investors decide between flipping and BRRRR deal-by-deal based on the numbers and their goals.

Practical takeaway

A successful flip is won in the analysis — conservative ARV, an honest rehab budget with a contingency, a disciplined MAO, and a financing structure matched to a realistic timeline. Execute the rehab on budget and sell promptly, and the spread is yours; cut corners on the underwriting and the risks above can erase it.