Everyone remembers the flips that made money. Few people talk about the ones that quietly lost it, usually because the numbers were off before the first nail went in.

If you are thinking about your first flip, or you already run a renovation business and want to flip properties of your own, the best protection is simple: know your numbers, keep your budget realistic, and set up your partnership clearly before you borrow.

Here is the framework I walk investors through.

The 70% Rule in Plain English

Here is the formula investors use to avoid overpaying:

Maximum offer = (ARV x 70%) minus repair costs

Say a house will be worth $400,000 after repairs and needs $60,000 in work. 70 percent of $400,000 is $280,000. Subtract the repairs and your maximum offer is $220,000. The 30 percent cushion covers financing, holding costs, selling costs and your profit, which are the things beginners forget.

It is a guide, not a law. In a strong market or with cheap financing, some investors go a bit higher. In a buyer’s market, like many areas right now, sticking to the rule or going lower is smarter.

A Rehab Budget Lenders Trust

Lenders fund repairs in draws as the work is completed, so the budget is not a formality. A strong one has:

• A line-by-line scope with real quantities and prices, not round-number guesses.
• A contingency of 10 percent or more, because surprises are normal in older homes.
• An independent bid. If you run a construction or handyman business, get the main rehab quote from an outside contractor. It keeps the budget credible, protects you if costs are questioned, and shows the lender the numbers are not padded or low-balled.
• A realistic timeline that fits the loan term, with permits included.

Want a second set of eyes on your budget and numbers? Start a scenario review

Partners, LLCs and Who Signs What

Flips often involve a capital partner and a renovation partner, or a couple with a business partner. That can work well, but only if the structure is clear before the loan.

• Decide who is the borrower. Most investor loans are made to an LLC, with owners guaranteeing. Lenders typically want to know every person who owns a meaningful share.
• Write down the split. Who contributes money, who does the work, who gets paid first, and what happens if the project runs over.
• Keep the books separate. A dedicated LLC bank account makes closing, draws and taxes easier.
• Start small. One or two flips first, in neighborhoods you know and buyers want, before you scale or hold rentals.

I am not an attorney, so have a business attorney review the LLC and partnership documents. I can tell you what the lender will need to see.

Fix and Flip Loans: Common Questions