A property can look like an excellent investment at the asking price and still produce disappointing results after renovation and resale costs are included. Before arranging financing, investors should evaluate the numbers, identify potential risks, and decide whether the projected return justifies the capital required. A disciplined review can help prevent an attractive-looking deal from turning into an expensive project.
Start with the after-repair value
After-repair value, commonly called ARV, is the estimated market value of a property once planned improvements are complete. Review comparable sales involving similar homes in the same area, paying attention to property size, condition, layout, and recent sale prices. Avoid basing the estimate entirely on the highest-priced renovated property nearby. Differences in location or finish quality can make those comparisons unreliable. Next, create a detailed renovation budget that includes contractor labor, materials, permits where applicable, and a contingency for unexpected work. Add acquisition costs, insurance, property taxes, utilities, financing expenses, and anticipated selling costs to understand the investment’s full financial requirements.
Determine whether the numbers support borrowing
Investors sometimes use the 70% rule as an initial screening method: the purchase price plus renovation costs should generally remain below 70% of ARV, less any additional selling or holding costs they need to account for. This is a rough investment guideline, not a universal lender requirement or a guarantee of profitability. For example, a property expected to sell for $300,000 after repairs may not be attractive if the acquisition, rehabilitation, and carrying costs leave too little margin for unexpected expenses. Stress-test the estimate by considering lower resale proceeds, higher renovation costs, and a longer selling period. These scenarios reveal how much financial pressure the project could withstand.
Match financing to the project’s risk
Once the numbers are established, compare fix and flip loans based on funding limits, total borrowing costs, term length, and renovation draw procedures. A suitable fix and flip lender should explain how it assesses the property, renovation budget, and ARV, along with the borrower’s qualifications. InstaLend offers asset-based financing for eligible residential investment properties, with final terms depending on the deal and borrower profile. Review the proposed repayment or sale strategy before committing, and proceed only when the projected economics remain reasonable under less favorable assumptions.