Investment Strategy
Reno & Resale: The Fix-and-Flip Guide
Buy, renovate, and sell — how flip financing, budgeting, holding costs, and taxes actually work in 2026, with a calculator that models the whole deal.
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How Fix & Flip Works
Unlike BRRRR, there's no refinance or long-term hold — the property is sold, and the whole return is realized at once.
- Buy — Purchase a property below market value, usually one needing real renovation, with a clear exit price in mind before you close.
- Renovate — Execute the rehab on budget and on schedule; every extra month of delay is another month of holding costs eating into profit.
- List & Sell — Market the finished property at or near your projected resale price, and close.
Typical Timeline
Most fix-and-flip loans run 6-18 months, with 12 months being the most common term — though a well-run project can complete faster.
Market Reality Check
Industry-wide gross flip returns fell to their lowest level since 2008 in recent data, alongside rising median purchase prices — margins are real but thinner than a few years ago, making disciplined underwriting more important, not less.
BRRRR vs. Flip
The financing, rehab, and holding-cost math are nearly identical to BRRRR — the difference is the exit. A flip sells for a lump-sum profit; BRRRR refinances to keep the property as a rental.
Financing a Flip
Fix-and-flip loans are priced differently than a conventional mortgage — short-term, higher rate, and structured around the project, not the borrower's long-term income.
2026 Rate Range
Most borrowers see rates in the 9%-12% range, with the strongest, most experienced borrowers occasionally accessing rates near 9.99% from select lenders.
Points & Fees
Expect 1.5-3 origination points on top of the interest rate — factor the all-in cost (rate plus points over your actual hold period), not the headline rate alone.
Loan-to-Cost & Loan-to-ARV
Many lenders offer up to 90% loan-to-cost, but cap total leverage around 70% of after-repair value — meaning your rehab budget and purchase price together still need real equity behind them.
Interest-Only Structure
Most fix-and-flip loans are interest-only during the hold, which keeps monthly holding costs lower than a fully amortizing loan — but the full principal is still due at sale.
The 70% Rule
This rule originated specifically in fix-and-flip investing, before BRRRR investors adopted the same formula.
The Formula
Maximum purchase price = (After Repair Value × 70%) − estimated rehab budget. It builds in room for financing costs, holding costs, selling costs, and actual profit.
Why It Matters More Now
With margins compressed industry-wide, a purchase price that ignores this rule leaves little cushion if the rehab runs over budget or the resale takes longer than planned.
Holding & Selling Costs
The costs that accrue whether or not the property has sold yet — easy to underestimate, and often the difference between a good flip and a break-even one.
Loan Interest
Interest-only payments accrue every month of the hold — the single largest holding cost on most leveraged flips.
Property Taxes & Insurance
These continue whether or not the property is generating any income during the rehab and listing period.
Utilities
Keeping power and water on during construction and showings adds real monthly cost with no offsetting income.
Selling Costs
Agent commissions and closing costs typically run 6-8% of the sale price — a real deduction from gross proceeds that's easy to leave out of a back-of-envelope estimate.
How Flips Are Taxed
This is the part that surprises a lot of first-time flippers — and it changes the real, after-tax return significantly.
Ordinary Income, Not Capital Gains
Properties held under 12 months are taxed at ordinary income rates rather than long-term capital gains rates — and since most flips finish well within a year, this is the default outcome for nearly every flip, not an exception.
Possible "Dealer" Classification
Investors who flip frequently may be classified by the IRS as real estate dealers rather than investors, which can add self-employment tax on top of ordinary income tax, and can affect eligibility for certain tax strategies available to buy-and-hold investors.
Interest Is Generally Deductible
Interest paid on financing used for the flip is generally deductible as a business expense, provided the loan is properly documented and the funds were actually used for the investment property.
This is educational information, not tax advice — dealer classification and deduction rules are fact-specific. Talk to a CPA experienced with real estate flips before your first deal, not after you've filed.
↑ Back to topReno & Resale Calculator
Enter your numbers below — holding costs, financing costs, selling costs, and estimated taxes are all factored into the final return.
Considering holding the property as a rental instead of selling? Our BRRRR Method Guide covers the refinance-and-hold version of this same math.
Open the BRRRR Guide →
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Quick-Reference Glossary
| Term | Meaning |
|---|---|
| ARV | After Repair Value — the property's expected value once renovations are complete. |
| LTC | Loan-to-Cost — the loan amount as a percentage of total project cost (purchase + rehab). |
| LTARV | Loan-to-After-Repair-Value — the loan amount as a percentage of the projected finished value. |
| 70% Rule | Max offer = ARV × 70% minus rehab budget — a quick purchase-price screening formula. |
| Dealer Status | An IRS classification for frequent flippers that can add self-employment tax and limit certain tax strategies. |
| Points | Upfront loan origination fees, each equal to 1% of the loan amount. |
| ROI | Return on Investment — net profit divided by the cash actually invested in the deal. |
Frequently Asked Questions
What interest rate should I expect on a fix-and-flip loan in 2026?
Most borrowers see rates in the 9% to 12% range, with the strongest, most experienced borrowers occasionally accessing rates closer to 9.99% from select lenders. Expect 1.5 to 3 origination points on top of the rate, and budget based on all-in cost (rate plus points over your hold period), not the headline rate alone.
How are house flip profits taxed?
Properties held under 12 months are taxed at ordinary income rates rather than long-term capital gains rates — and since most flips are completed well within a year, this is the default outcome for nearly every flip. Investors who flip frequently may also be classified by the IRS as real estate dealers, which can add self-employment tax on top of ordinary income tax. A CPA familiar with real estate dealer classification is worth consulting before your first flip, not after.
What is the 70% rule for house flipping?
A quick screening formula: maximum purchase price equals the after-repair value (ARV) multiplied by 70%, minus the estimated rehab budget. It originated specifically in fix-and-flip investing as a way to build in margin for financing costs, holding costs, selling costs, and profit, all of which a simple purchase-plus-rehab number leaves out.
How long does a typical house flip take?
Most fix-and-flip loans run 6 to 18 months, with 12 months being the most common term, though many flips complete faster. The actual timeline depends heavily on renovation scope, permitting, and how quickly the finished property sells once listed.
Why has flipping profitability declined in recent years?
Rising purchase prices, elevated financing costs, and higher renovation costs have compressed margins across the industry — 2025 data showed typical gross returns falling to their lowest level since 2008. That makes disciplined underwriting (the 70% rule, realistic holding-cost estimates, and conservative ARV projections) more important than ever, rather than less.
