What is the 70% rule in fix and flip investing?
The 70% rule says you should pay no more than 70% of a property's After Repair Value (ARV) minus your estimated repair costs. Formula: MAO = (ARV × 0.70) − Repairs. This rule builds in room for holding costs, closing costs, and profit. In hot Austin zip codes like 78703 or 78704, experienced investors often stretch to 72 to 75% given faster sale timelines and strong appreciation.
What is ARV and how do I estimate it in Austin?
ARV (After Repair Value) is what the property will sell for once fully renovated, based on comparable sales within the last 6 months within 0.5 miles in similar condition. In Austin, the median asking price per square foot for active listings currently runs from about $172 in Del Valle (78617) to $705 in Tarrytown (78703), and renovated homes typically list above their zip's median. Your ARV estimate is only as good as your comps - always pull actuals from MLS, not Zillow estimates. A local Austin realtor with investor experience can pull accurate comps for you.
What does a typical fix and flip rehab cost in Austin?
Full gut rehabs in central Austin (78702, 78703, 78704) typically run $75 to 125/sqft due to higher labor rates and permit costs. Suburban areas (Pflugerville, Manor, Del Valle) range $45 to 75/sqft. Kitchen remodels run $25,000 to 60,000; bathrooms $8,000 to 20,000; roofs $12,000 to 22,000; HVAC $8,000 to 15,000. Always add a 15 to 20% contingency - Austin projects routinely surface hidden issues like pier-and-beam leveling ($5,000 to 25,000), knob-and-tube wiring, and failed septic systems.
What hard money loan terms should I expect in Austin?
Hard money pricing moves with the rate environment, so get current quotes. As an example, a lender might charge 10 to 14% interest and 2 to 4 origination points on 6 to 12 month terms. LTV is usually 65 to 75% of ARV (not purchase price). Budget your financing cost as: (loan amount × monthly rate) × hold months + (points × loan amount). For a $300K loan at 12%/2 pts over 6 months, that's roughly $18,000 interest + $6,000 points = $24,000 in financing costs.
Is fix and flip still profitable in Austin?
Yes, but margins are thinner than 2020 to 2022. The Austin market has corrected from peak prices, creating more distressed deal flow. Profitable flips today require disciplined buying (at or below MAO), accurate rehab scoping, and targeting zip codes with strong buyer demand and sub-60-day sale times. Central Austin flips with $50,000 to $120,000 profit are achievable; suburban flips typically target $30,000 to $70,000. Work with a realtor who has investor experience to find off-market and pre-MLS opportunities.
What closing costs should I budget for a fix and flip?
Budget approximately 1 to 2% of purchase price to acquire (title, lender fees, inspection) and 6 to 8% of ARV to sell (agent commissions 5 to 6%, title, taxes, closing credits). On a $300K purchase / $450K ARV deal, that's roughly $4,500 to buy and $31,500 to sell - totaling $36,000 in closing costs alone. Always run the full numbers, not just the gross profit. The Deal Analyzer above accounts for all of these.
