5 Key Fix and Flip Metrics and Terms for Successful Investments
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June 5, 2024

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Successful fix-and-flip investments rely on the accuracy of certain metrics. These fix-and-flip metrics help ensure that a property will be as profitable as possible, and minimize the risk involved in the project.

Metrics are especially important for investors seeking financing from a private money lender, as they will help borrowers prove to the lender that the project is viable.

Let’s look at five fix-and-flip metrics you need to know for successful investments, including after-repair value (ARV) and loan-to-value (LTV) ratio.

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1. After-repair value (ARV)

A fix-and-flip project’s ARV helps investors estimate the future sale price of a property post-renovations.

ARV is an important metric for investors because it helps them determine the potential profit—and ultimately, whether the project is worth the investment.

Why ARV matters

  • Helps investors set an accurate budget for renovations that doesn’t exceed the value they add to the property
  • Helps investors determine whether the project is financially viable
  • An important metric for private lenders to use in calculating the loan amount and terms

How to calculate ARV

An accurate ARV calculation involves researching comparable sales in the same neighborhood or area as the property you want to purchase.

Steps involved in calculating ARV:

  1. Look for recent sales of properties that are similar in size, style, condition, and location to the subject property post-renovation
  2. Adjust the sales prices to reflect any differences in comparison to your property
  3. Calculate the average of the adjusted prices
  4. Consider any market trends or features you are adding to the property that could influence the sale price
  5. Get a professional appraisal for the most accurate calculation

2. Loan-to-value (LTV) ratio

The LTV ratio is a key metric for lenders to determine the risk of lending against the value of a property.

For fix-and-flip projects, the LTV ratio influences how much financing the lender can give the investor to purchase and renovate a property.

Why the LTV ratio matters

  • Helps lenders determine loan approval and risk based on how much the investor can contribute
  • Impacts the interest rate and terms of a loan

How to calculate the LTV ratio

The LTV ratio is typically calculated with the following formula:

LTV Ratio = (Loan Amount / Current Property Value) x 100

However, with fix-and-flip properties, the current value isn’t the most accurate figure.

Instead, lenders will use the ARV rather than the purchase price.

Once you have calculated the LTV ratio, multiply by 100 to get the percentage.

3. Loan-to-cost (LTC) ratio

The LTC ratio is another gauge of risk that lenders use to compare the loan amount to the total cost of a fix-and-flip project, including the purchase price and renovations.

Why the LTC ratio matters

  • Helps lenders determine how much to lend to an investor and how much risk is associated with the project
  • Helps investors understand how much of their own money they’ll need to put into the project
  • Helps investors accurately budget for the project
  • Reveals the potential profitability of the project

How to calculate the LTC ratio

Lenders calculate the LTC ratio with the following formula:

LTC Ratio = (Loan Amount / Total Project Cost) x 100

The loan amount equals the total amount the investor borrows to finance the project.

The total project cost includes the purchase price of the property, all renovation and repair costs, and any other necessary expenses to complete the project.

4. 70% rule

The 70% rule is a guideline that fix-and-flip investors use to determine the maximum price to pay for a property to remain profitable.

The 70% rule states that investors should not pay more than 70% of the ARV of the property minus the costs of repairs and renovations.

Why the 70% rule matters

  • Helps investors weigh the risk of a project by making sure there is a wide enough margin between the purchase price and the sale price post-renovations
  • Investors can more quickly rule out properties that don’t meet this guideline

How to calculate the 70% rule

To calculate the 70% rule, inventors must first know the ARV of the property.

Then, they must estimate all costs of renovating the property, including materials and labor.

The formula for the 70% rule is as follows:

Maximum Purchase Price = ARV x 0.70 – Repair Costs

Fix-and-flip investors can adjust this guideline to fit their specific goals. 

For example, some real estate investors may use 75% instead of 70%.

5. Net profit

With fix-and-flip investments, net profit refers to the amount of money you earn after all expenses are paid, including:

  • Property purchase price
  • Renovations and repairs
  • Holding costs
  • Financing costs
  • Selling costs

Essentially, your net profit reveals the financial success of your project.

Why net profit matters

  • Determines whether the project was worth the investment
  • Helps investors understand which types of properties and renovations are worth their time and money
  • Gives investors a complete picture of risk, costs, and rewards

How to calculate net profit

To calculate the net profit of your fix-and-flip, you’ll need to know the following:

  • The final sale price of the property
  • Total costs of the project

You can plug these figures into the following formula:

Net Profit = Final Sale Price – Total Costs

Other relevant terms

To maximize the success of your project, familiarize yourself with these other key terms for fix-and-flip investors:

  • Holding costs: Expenses involved in owning a property, including property taxes, insurance, utilities, and loan interest
  • Financing costs: Interest and fees associated with borrowing money for the project
  • Return on investment (ROI): A measure of the project’s profitability, calculated by dividing the total investment cost from the net profit
  • Capital gains tax: Taxes on the profit you make from selling the property

Fix-and-flip properties encompass much more than just the purchase price and renovation costs.

A deep understanding of all costs involved in this project helps investors meet their fix-and-flip metrics and goals more effectively.

Apply with Park Place Finance today

Park Place Finance loves to help fix-and-flip investors with all experience levels, from first-time flippers to experts.

Due to their speed and flexibility, hard money fix-and-flip loans from private lenders are the optimal financing choice for investors of all skill levels.

Park Place Finance is your trusted hard money lender, with over $1 billion in loans funded across 47 states.

To start your loan, complete our brief online form or call (866) 407-1599 to speak with a dedicated account executive.

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