Fix-and-Flip Fundamentals

The Three Numbers That Decide Whether You Make Money (or Lose Sleep)

Every fix-and-flip deal, no matter how glamorous the before-and-after photos look on Instagram, lives and dies by three stubborn numbers. They don’t care about your optimism, your vision board, or how confident you feel walking through the property with a tape measure and a latte.

Those three fundamentals are:

1. Purchase price
2. Renovation budget
3. After-Repair Value (ARV)

They form a triad (or should we say triumverate?) that’s built entirely out of math. Bend one corner too far, and the whole thing collapses. No amount of wishful thinking will save you, unless you artificially inflate or deflate the numbers, which has a funny way of coming back later… usually at the worst possible moment.

These are also the three numbers private and hard money lenders care about most when underwriting a fix-and-flip loan. If they work, they can often compensate for other risks. If they don’t, nothing else really matters.

Let’s break them down the way they actually show up in real deals across Maryland, DC, and Northern Virginia.

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Fundamental #1: Purchase Price (Where the Money Is Actually Made)

You’ve heard it before because it’s painfully true: you make money when you buy.

This is the most important number in the entire transaction, and it’s the one you have the most control over at the very beginning. This is where marketing, deal sourcing, negotiation, and sheer discipline do the heavy lifting.

If you can’t negotiate a meaningful discount, hoping to “save it” later by trimming the renovation budget or stretching the resale price is like trying to outrun gravity. It rarely ends well.

This is also where our borrowers who are real estate agents tend to shine. Finding discounted properties, understanding seller motivation, and structuring competitive offers is literally what they do all day.

I’m currently working with a first-time investor looking at a single-family detached property in Largo. The house is marketed as an “investor special” and the numbers technically work, but the margins are modest. Here’s the problem: another investor recently bought a larger neighboring home for $20,000 less than what our borrower is considering paying. Same neighborhood. Similar resale comps. Same market forces. All else being equal, that other investor has a built-in advantage before the first hammer ever swings. If your purchase price is too high, you’re starting the race already out of breath.

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Fundamental #2: Renovation Budget (Where Profits Go to Die)

The second cornerstone is the renovation budget, and this is where contractors-turned-investors have a real edge.

Accurately defining the scope of work, pricing it competitively, and executing it on time and on budget is the difference between a clean flip and a slow financial leak.

You don’t have to be a contractor to succeed. We see plenty of newer investors knock it out of the park. But you do need:

• Reliable, tested contractors
• Clear contracts and draw schedules
• Strong project management

Underestimating rehab costs is one of the most common and expensive mistakes we see, especially in older housing stock throughout Baltimore City, Prince George’s County, and parts of DC where surprises live behind every wall.

This is also why lenders scrutinize renovation budgets so closely. A sloppy budget isn’t just risky, it’s a preview of future delays, change orders, and cost overruns.

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Fundamental #3: ARV (The Market Doesn’t Care About Your Feelings)

After-Repair Value is where optimism goes to get tested by reality.

At New Funding Resources, we stress one thing above all else: ARV must be realistic. It’s not about what the property could be worth in a perfect world. It’s about what buyers in that exact neighborhood are actually paying right now for similar homes.

No amount of over-improvement will let you escape market gravity. Your resale value is ultimately anchored to:

• Recent comparable sales
• Neighborhood price ceilings
• Buyer expectations in that zip code

We regularly see investors over-improve properties hoping to “push the comp.” Sometimes it works. Often, it just compresses profit and extends days on market.

Our underwriting process focuses on conservative, supportable ARVs because strong fundamentals protect both the borrower and the lender. When ARV is solid, it can offset risks like shifting market conditions or minor execution hiccups.

Internal linking opportunity:
Link here to how ARV is calculated or our underwriting approach to fix-and-flip loans.

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Why These Three Numbers Matter to Lenders

These three fundamentals form the core foundation of every fix-and-flip deal, and they’re the backbone of private lending decisions.

When purchase price, rehab budget, and ARV are aligned, they can often compensate for other risks that lenders can’t fully control, such as:

• Borrower experience level
• Market volatility
• Construction delays
• The occasional black-swan surprise

When they don’t align, even the most experienced investor can get into trouble fast.

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The Non-Fundamentals That Still Make or Break Your Profit

Once the math works, execution takes over. These aren’t fundamentals, but they absolutely affect your bottom line.

Speed of Execution

Time is expensive, especially when you’re borrowing private money.

I recently spoke with a borrower trying to refinance a stalled flip originally funded by another hard money lender. The loan was originated in March 2025. Nearly a year later, the project has achieved exactly two things: permits and full interior demolition. On a $500,000 loan at 12%, that delay cost $60,000 in interest alone. Even the best deal can turn unprofitable if it drags on long enough.

Design That Sells the Dream

You don’t need to over-improve, but you do need to stand out. Investors who consistently perform well understand that they’re not just selling square footage, they’re selling a lifestyle. Clean lines, modern finishes, and thoughtful layouts attract stronger, more decisive buyers. The goal isn’t to chase unrealistic pricing. It’s to get the property under contract quickly with the most qualified buyer possible.

The Right Pricing Strategy

Greed is expensive. Our experience shows that successful flips in the DMV consistently sell within 5% to 7% of appraised value. Pricing above market in hopes of finding “that one buyer” usually leads to longer days on market, price drops, and weaker offers later. Price it right from the start. Let urgency work in your favor.

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Final Thoughts: Local Knowledge Is the Real Advantage

Fix-and-flip success isn’t about shortcuts. It’s about respecting the math, understanding the local market, and executing with discipline.

At New Funding Resources, we work exclusively with investors across Maryland, Washington DC, and Virginia, and we see firsthand how local knowledge impacts outcomes. Neighborhood nuances, buyer behavior, and realistic pricing expectations matter just as much as spreadsheets.

If you’re evaluating a deal and want a second set of eyes from a lender who understands the local market, we’re always happy to talk through the numbers before they turn into regrets.