How to Analyze a Real Estate Deal: What Every Flipper Needs to Know
I've been buying and selling single family homes for over 25 years. In that time, I've evaluated thousands of properties — and I can tell you with confidence that deal analysis is one of the most misunderstood skills in this business.
New investors think it requires spreadsheets, contractor bids, and days of due diligence before making a move. Experienced investors know the opposite is true: the ability to evaluate a deal quickly and accurately is one of the most valuable skills you can develop. Hesitation is expensive. Deals don't wait.
In this article I'm going to walk you through how I analyze a single family flip from the ground up — the formula I use, what the numbers actually mean, what drives them, and how to develop the judgment to move fast without making costly mistakes.
The Foundation: The 70% Formula
I'm a flipper at heart, and I've built my entire acquisition strategy around one formula. It's not complicated, but it needs to be understood deeply — not just memorized.
Offer Price = (ARV × 70%) − Estimated Repairs
Let's define the terms:
ARV — After Repair Value — is what the property will be worth once it has been fully renovated and is ready to sell. Not what it's worth today. Not what the seller thinks it's worth. What a buyer will pay for a finished, move-in-ready home in that neighborhood.
Estimated Repairs is the total cost to get the property from its current condition to that finished, sellable state.
The 70% multiplier is where the business lives. Let's talk about what that 30% buffer actually represents — because a lot of investors think it's all profit, and it isn't.
What's Hidden Inside the 30%
When you buy at 70% of ARV minus repairs, that 30% margin has to absorb every cost between acquisition and closing on the sale. That includes:
Closing costs on the purchase
Closing costs on the sale (typically 1–2%)
Real estate commissions on the sale (typically 5–6%)
Holding costs: interest on any borrowed money, property taxes, insurance, and utilities for the entire renovation period
Permits and inspections
Any unexpected repair items discovered during renovation
Your profit
When you add all of that up honestly, your true net profit on a well-executed flip typically falls somewhere between 12% and 18% of ARV — depending on your hold time, your financing costs, and how accurately you estimated repairs. The 30% isn't padding. It's a realistic accounting of what it costs to run a flipping business.
If you're expecting 30% net profit on every flip, you're going to be disappointed — and possibly underwater. Know what the 30% is actually for before you rely on it.
The Two Variables That Drive Everything
The formula itself is the easy part. The hard part — the part that separates experienced investors from beginners, and profitable flips from costly lessons — is accurately determining the two variables: ARV and Repairs.
Neither one is an exact science. I want to say that clearly before we go further. You will never know ARV with certainty until the house sells. You will never know repair costs with precision until the work is complete. What you're doing when you analyze a deal is making an informed, educated estimate — and building in enough margin that you can be wrong on both numbers and still come out ahead.
Why Two Investors Can Offer Very Different Prices for the Same House
This is one of the most common points of confusion for new investors. You lose a deal to someone who paid $15,000 more than you offered, and you can't figure out how the math could possibly work for them.
Here's how it works:
On a $400,000 ARV property, a 2% difference in your formula multiplier — say 70% versus 72% — is an $8,000 swing in your offer before repairs even enter the picture. If that same investor also sees the ARV as $420,000 instead of $400,000, they'll come up with an offer $14,000 higher than yours using the identical formula. Add a more optimistic repair estimate on top of that and the gap widens further.
Sometimes the other investor is taking on more risk than they should. Sometimes they have a genuine structural advantage — a real estate license that lets them avoid paying a buyer's agent commission, a crew that works at cost, or a lender with better terms. A licensed agent listing their own flip, for instance, might reasonably work at 72% because they're recovering 3% on the back end that you're paying to someone else.
Before you chase someone else's price, understand why they can pay it. Don't increase your formula percentage just to win the deal. That's how investors get hurt.
Determining ARV: The Most Important Number in the Analysis
ARV is the single most important variable in the equation. Getting it right — or at least getting it reasonably close — is what protects your margin.
ARV is determined by comparable sales: what have similar homes in that neighborhood sold for recently, after being fully updated? Not listed — sold. And not similar in a loose sense. Similar in meaningful ways: square footage, bedroom and bathroom count, lot size, age, style, and condition.
I'm going to keep the detailed methodology for a separate article — see my guide on how to determine ARV using comps — but here is the principle I want you to internalize now:
Be honest about your comps. Don't cherry-pick the highest sale in the neighborhood and call it your ARV. Use comparable properties, in a comparable condition, within a reasonable radius and a reasonable timeframe. If the comps are giving you a range of $290,000 to $320,000, I'm going to work with the middle of that range. Not the top. The top is possible; the middle is defensible.
I usually end up selling for more than my ARV estimate. That's by design. I'd rather underestimate and be pleasantly surprised than overestimate and scramble.
Estimating Repairs: Getting Close Is Good Enough
Repair estimation is where a lot of new investors freeze up — and where some experienced investors get sloppy. Let me walk through how I approach it, and then contrast the two main renovation paths you'll encounter.
Full Gut Renovations
I personally prefer gut renovations — everything comes out, everything gets replaced. Kitchens, baths, flooring, fixtures, mechanical if needed — all of it goes. The reason isn't just about the finished product. It's about predictability. When you're doing a full gut, you don't have to agonize over what to keep versus what needs to go. You know the scope, and that makes estimating far more straightforward.
My current benchmark for a full gut renovation is right around $100 per square foot. But square footage alone doesn't tell the whole story — the age and complexity of the house matter enormously.
My typical deal falls in the 1,100 to 1,200 square foot range. Here's how age changes the math on a gut renovation, even on similar-sized homes:
A 1980s colonial at 2,200 square feet might actually come in lower per foot than a smaller house — closer to $80 per square foot. Why? Because it still only needs one kitchen, one HVAC system. The expensive fixed-cost items don't multiply with square footage, so the per-foot cost drops as the house gets larger.
A 1960s ranch is a relatively clean gut. Expect to land somewhere around $95–$105 per square foot depending on condition. You'll replace the electric and plumbing just like any other gut, but there aren't many surprises.
A 1920s colonial at 2,200 square feet is still a gut — same scope — but the total cost is going to be meaningfully higher than a 1980s colonial of the same size. I'd estimate around $220,000 on the 1920s home versus closer to $160,000 on the 1980s version. It's not that the per-foot rate is dramatically different; it's that older homes carry more complexity and more surprises even when you're gutting them. Plaster walls, irregular framing, quirks in the original construction — it all adds up and slows the work down.
A gut renovation on a 1920s home and a gut renovation on a 1980s home are technically the same scope — but they are not the same job. Older construction takes longer, hides more surprises, and costs more to bring to a modern standard. Budget accordingly.
Cosmetic Renovations: The Other Path
Not every deal is a gut. Plenty of profitable flips involve properties that are dated but structurally sound — they need updating, not gutting. New paint, new flooring, refreshed kitchen and bath fixtures, landscaping, maybe a roof. The bones are good; the house just needs a face lift.
Cosmetic renovations are harder to estimate precisely because the scope is less defined. On a gut, you know what you're doing. On a cosmetic renovation, you're making judgment calls at every turn: is the HVAC serviceable or does it need replacing? Can the kitchen cabinets be painted or do they need to go? Is the flooring salvageable?
The upside is the lower capital requirement. Instead of $110,000–$120,000 to gut a 1,100 square foot home, you might be looking at $25,000–$40,000 to get a cosmetic renovation to a retail-ready finish. That changes the deal math considerably — and it opens the door for investors who are earlier in their career and working with more limited capital.
A purchase price of $180,000 with $30,000 in repairs is a very common, very real deal. It's less dramatic than a high-ARV gut renovation, but it can be just as profitable on a percentage basis and far more accessible for most beginning investors.
Building Your Repair Intuition
If you're early in your investing career and don't yet have a reliable feel for repair costs, here's what I recommend:
Find an investor-friendly contractor — someone who works regularly with investors and understands the scope of renovation work, not just retail homeowner projects — and pay them to walk through a property with you and produce a detailed, line-item estimate. Pay for it if you have to. A thorough estimate from an experienced contractor on one deal is worth more than any course on repair estimation, because it's grounded in real numbers in your real market.
Use that estimate as your calibration tool. Going forward, you'll have a reference point for what things actually cost — framing, drywall, flooring, kitchens, baths, roofing, HVAC — in your specific market with current pricing. You'll develop your own feel over time. But that first detailed estimate accelerates the learning curve dramatically.
I also recommend reading my article on how to find good contractors, because the quality of your contractor relationship directly affects both the accuracy of your estimates and the outcome of your projects.
The Right Posture on Both Numbers
I run my ARV and repair estimates right down the middle. Not aggressive, not overly conservative — middle of the road on both. That means I probably leave a little ARV on the table sometimes. It also means I probably budget a little more for repairs than I end up spending. That's intentional. It means my actual results usually come in better than my projections.
The investors who get into trouble are the ones who push both variables in the favorable direction at the same time — high ARV, low repair estimate — in order to make a deal work on paper. That's not analysis. That's wishful thinking. And when reality doesn't match the projection, the margin evaporates.
On Mistakes: They're Usually Not Deal Killers
Here's something that took me a while to fully internalize, and that I want to pass along clearly:
If you make a reasonable mistake on your ARV or your repair estimate — if you're working from sound principles and you're off by a bit — it is usually not a deal killer. What it means is that you make less than you projected. And making less than you projected on a deal that still closes profitably is not a failure. It's part of the business.
For example: if I'm looking at a gut renovation and I estimate a $50,000 profit, but I'm off on my ARV or repairs and I end up netting $30,000 — I'm still having a very good day. On the cosmetic flip, if I projected $40,000 and I land at $25,000 because the HVAC needed replacing after all, that's disappointing but not catastrophic. The margin was there to absorb the hit.
The math only breaks down catastrophically when you've been aggressive in both directions. High ARV estimate plus low repair estimate equals a deal that looked great on paper and falls apart when reality arrives. That's the mistake to avoid. Honest numbers, even imperfect ones, keep you safe.
Be honest about the numbers. Middle of the road on ARV. Middle of the road on repairs. Let the margin do its job. That's how you flip houses without losing sleep.
Speed Matters More Than Precision
This is where a lot of newer investors make a mistake that costs them deals without ever realizing it.
The search for certainty — the desire to know for sure that you're going to make exactly $50,000 before you make an offer — is a deal killer. By the time you've spent three days verifying every comp and getting three contractor bids, another investor has already tied the property up. They didn't know the exact profit either. They knew approximately, they liked the range, and they moved.
Due diligence is essential. I'm not telling you to skip it. But due diligence has to be done quickly, or it becomes a liability rather than a protection.
I can evaluate most homes in five minutes or less. That's not because I'm cutting corners — it's because I've done this long enough that the evaluation is internalized. I know my market. I know my costs. I know what middle-of-the-road comps look like for that neighborhood. The framework is so familiar that working through it is fast.
You'll get there too. The way you get there is by doing the analysis — over and over, on deal after deal — until the framework becomes instinct. You don't get faster by studying more. You get faster by doing more.
If you need days to evaluate a deal, you will lose that deal to an investor who needed minutes. Develop the skill. Make the analysis part of your routine. Speed and accuracy are not opposites — experienced investors have both.
Putting It All Together: Two Real-World Examples
Let me walk through two scenarios side by side so the formula feels concrete across different deal types.
Example 1: The Cosmetic Flip (The More Common Deal)
You find a vacant single-family home, around 1,200 square feet, built in the 1970s. Good bones, solid structure, but hasn't been updated since the Clinton administration. It needs new flooring, paint throughout, an updated kitchen and baths, and some landscaping. The HVAC is functional, the roof has a few years left, and the electrical is fine.
You pull comps and estimate the ARV at $240,000 — middle of the range. Your repair estimate for a cosmetic renovation comes in around $30,000.
Applying the formula:
($240,000 × 70%) − $30,000 = $138,000 offer
If the seller is at $180,000 and you can negotiate to $138,000–$145,000, you're in business. If they won't move below $160,000, the deal doesn't work at your numbers — and you walk. This kind of deal is where most investors start. Lower capital requirement, manageable scope, real profit.
At a $138,000 purchase with $30,000 in repairs, your all-in cost is $168,000 before soft costs. Selling at $240,000 leaves roughly $72,000 in gross margin — and after commissions, closing, holding costs, and interest, you're netting somewhere in the $30,000–$45,000 range depending on your timeline and financing. A very good day.
Example 2: The Full Gut (My Preferred Deal)
You find a vacant, distressed 1,150 square foot home from the 1960s. Everything needs to go — kitchen, baths, flooring, fixtures, likely HVAC, possibly electrical. This is a full gut.
After pulling comps, you estimate the ARV at $300,000 — middle of the range, not the ceiling. At roughly $100 per square foot for a full gut on a 1960s home, your repair estimate is $115,000.
Applying the formula:
($300,000 × 70%) − $115,000 = $95,000 offer
More capital required, more complexity — but also more control over the outcome. When you gut a house, you know exactly what went in and you can stand behind the finished product. The margin on a gut renovation at the right purchase price can be substantial.
On both examples, the same principle applies: if your ARV comes in higher than estimated when you sell, that upside flows almost entirely to your bottom line. If repairs come in under budget, same result. Conservative inputs on the way in create pleasant surprises on the way out.
The cosmetic flip and the full gut are both legitimate paths. The gut gives you more control and predictability on scope. The cosmetic renovation requires less capital and is often where newer investors build their early track record. Know which one you're looking at before you run your numbers — they require very different repair estimates.
The Bottom Line on Deal Analysis
The 70% formula is a tool, not a guarantee. What makes it work is using it honestly, consistently, and quickly — with realistic inputs that reflect real market data, not the outcome you're hoping for.
Master your comps. Build your repair intuition. Develop a feel for your market. And then make offers — because the analysis only produces results when it leads to action.
The investors who struggle with deal analysis are almost never struggling because the math is hard. They're struggling because they want certainty before they move. Real estate investing doesn't offer certainty. It offers margin — and margin, used correctly, is what protects you when you're wrong.
Trust the formula. Be honest about the inputs. Move quickly. And keep making offers.
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