Fix and Flip
Buying a distressed property, renovating it, then selling it quickly for a profit.
Definition
Fix-and-flip investing involves purchasing a distressed or undervalued property, renovating it to retail condition, and selling it — ideally within 6–12 months — for a profit. The investor's income is the spread between their total cost basis (purchase price + rehab + carrying costs + selling costs) and the sale price.
Profitability depends on accurately estimating ARV and rehab costs upfront, managing the renovation efficiently, and timing the sale for a seller-favorable market. Flippers who underestimate repairs or overestimate ARV can quickly turn a projected profit into a loss.
Flipping is active, not passive — it's closer to running a construction business than a traditional investment. It requires knowledge of construction, contractor management, local market conditions, and deal-finding. Successful flippers systematize their process, build reliable contractor networks, and develop robust deal pipelines.
Tax treatment: profits from flips are typically taxed as ordinary income (not capital gains) if the property is held less than one year, since the IRS may classify the investor as a 'dealer.' Consult a CPA who specializes in real estate about structure and holding periods.
Related Terms
After Repair Value (ARV)
The estimated market value of a property after all renovations are completed.
Rehab Costs
The total estimated cost to renovate a property, including materials, labor, permits, and contingencies.
Maximum Allowable Offer (MAO)
The highest price an investor can pay for a property and still achieve their target profit.
Hard Money Loan
Short-term, asset-based loans from private lenders — used for acquisitions and rehabs when speed matters.
Comparable Sales (Comps)
Recent sales of similar properties used to estimate the market value of a subject property.
Exit Strategy
The plan for how and when an investor will eventually sell or dispose of an investment property.
Related Article
Estimating Rehab Costs Without a Contractor (And When You Should Get One)
7 min · Flipping