The ability to quickly analyze a deal is one of the most important skills in real estate investing. You need to know within minutes whether a property is worth pursuing — or if you should move on. At Real Estate Sales LLC, we teach a simple system that lets you evaluate any deal fast and accurately.
Step 1: Determine the After-Repair Value (ARV)
The ARV is what the property will be worth after renovation. Pull comparable sales (comps) from the last 90 days within a half-mile radius. Look for properties with similar square footage, bedrooms, bathrooms, and condition. The average sold price of your top three comps gives you a reliable ARV estimate.
Step 2: Estimate Repair Costs
Walk the property — or review photos if investing virtually — and estimate the renovation costs. Use a per-square-foot method for quick estimates: light cosmetic rehabs typically run $15-25 per square foot, moderate rehabs $25-40, and full gut renovations $40-60 or more depending on your market.
Step 3: Apply the 70% Rule
The 70% rule is the industry standard for flippers. Your maximum offer should be 70% of the ARV minus repair costs. For example, if a property has an ARV of $200,000 and needs $30,000 in repairs, your maximum offer is $110,000 (200K x 0.70 – 30K). This formula builds in your profit margin and a safety buffer.
Step 4: Calculate Holding Costs
Every month you own a property costs money — mortgage payments, insurance, taxes, utilities, and maintenance. Estimate your total monthly holding cost and multiply by your expected timeline (typically 3-6 months for a flip). These costs eat into your profit, so factor them in.
Step 5: Know Your Profit Target
Most experienced flippers aim for a minimum net profit of $20,000-$30,000 per deal. If the numbers do not hit your target after accounting for acquisition, repairs, holding costs, and selling expenses (agent commissions, closing costs), it is not a deal worth doing.
Step 6: Check the Neighborhood Trends
Numbers on paper are not everything. Is the neighborhood improving or declining? Are new businesses moving in? Are home values trending up? A property in an up-and-coming area can outperform your estimates, while a declining neighborhood can make a good deal go bad.
Practice Makes Profit
The more deals you analyze, the faster and more accurate you become. Our students at Real Estate Sales LLC practice deal analysis weekly using real properties so that when the right opportunity appears, they can move with confidence and speed.
Visit FlipCheapHouses.com to sharpen your deal analysis skills!
