The flips I watch lose money almost never die on the two numbers everyone argues about. The purchase price was roughly right; the rehab bid was in the ballpark. What killed the deal was a page of lines nobody wrote down before closing: two points on the loan, a builder’s-risk policy instead of a homeowner’s policy, property tax with no homestead cap, three extra months of carry while the house sat on the market, a concession after the buyer’s inspection, and a tax bill that treated the whole gain as ordinary income. Each one is small. Together they are the difference between a flip that pays and a flip that teaches.
I am the Director of Sales at Diamond, and a good share of the investors I talk to in a week are about to make an offer on their first Texas flip. This is the conversation we have before that offer goes in: the max-offer formula DFW buyers use as of 2026, one hypothetical house carried line by line from purchase to after-tax, the seven lines beginners leave off, and the reasons to walk away. It is stage two of the new investor guides path — the “run the numbers” step between finding a deal and funding it.
One plain disclaimer: I am not a lender or a CPA, nothing here is a quote, and the house below is made up to show the shape of the numbers — not a Diamond deal and not a promise of returns.
Why first flips lose money on lines nobody wrote down
A flip has about fifteen cost lines. Beginners underwrite three — purchase, rehab, resale — and treat the rest as rounding. On a $350,000 after-repair value, the financing, holding, and selling costs on a six-month hard-money flip run about $54,000 in the example below, before the contingency — larger than most first-time rehab budgets, and absent from the “buy at X, sell at Y” story. The fix is boring: write every line down before you make the offer. The rest of this guide is that worksheet.
The max-offer formula: ARV × 75–80% − repairs
Start with ARV — after-repair value: what the finished house sells for, based on closed comps within roughly half a mile and the last 90 days, same bed and bath count, similar size and vintage. Closed sales, not active listings or an automated estimate. The fix-and-flip vs. buy-and-hold guide covers how to read ARV and why it is the number most likely to be wrong. Then apply the filter DFW investors use as of 2026:
Maximum purchase price ≈ (ARV × 75–80%) − estimated repairs
The percentage is a buffer that absorbs financing, holding, and selling costs plus your margin in one round number. Condition and how predictable the resale is set where you land in the band:
| Tier | Scope | % of ARV |
|---|---|---|
| Light | Paint, flooring, fixtures, one small system; predictable resale | ~80% |
| Moderate | Kitchen, baths, HVAC, roof, a system or two; permits | ~77% |
| Heavy | Foundation, sewer, rewire, structural, or thin comps | ~75% |
A genuinely clean house that needs only paint and cleanup underwrites higher — the 85–92% band Diamond publishes on the seller side — but that is rarely a first flip; this guide works the 75–80% band.
You will see the textbook 70% rule in older books and podcasts recorded in a softer market; it has compressed in competitive Texas submarkets, and a DFW deal priced at that level today is rare enough that you should ask what is wrong with it. (The 70% cap many hard-money lenders put on what they will advance against ARV is a lending term, not offer math; the financing guide explains the difference.)
One rule beginners get backwards: the percentage is a ceiling, not a target. Buy at the max offer and everything that goes wrong comes out of the buffer the formula assumed.
A worked example: one hypothetical DFW flip, line by line
Picture a late-1970s three-bed, two-bath in an eastern Dallas County suburb: tired kitchen, original baths, an HVAC system on its last summer, worn flooring, a roof with a few years left. A classic moderate-tier rehab, in round numbers.
Step 1: ARV and the max offer
- ARV from closed comps: $350,000
- Tier: moderate, so 77%
- Contractor’s written rehab bid: $45,000, plus a 15% contingency of $6,750 = $51,750 of repairs
- Max offer: $350,000 × 0.77 = $269,500, minus $51,750 = $217,750
Repairs here means the bid plus the contingency — pricing on the bare bid is how first flippers overpay by exactly the contingency. The investor buys at $216,000, a little under the ceiling. That is the price that funds at the title company; the lines below are what it costs to turn it into $350,000.
Step 2: Buyer closing costs
Texas buyers pay the title company’s escrow fee, the lender’s title policy on a financed deal, recording, a survey if the old one is not accepted, and document fees. On a $216,000 purchase, budget about $3,000.
Step 3: Cost of capital
Most first flips in DFW are financed with hard money because it closes in days and funds the rehab. The Texas hard-money financing guide has the rate tables, the LTC versus LTARV mechanics, and how draws work; I will only use its headline ranges. A Texas hard-money loan typically runs about 9%–12% plus 1.5–3 points, advanced at the lower of roughly 90% loan-to-cost and 70%–75% of ARV, and the debt alone usually costs 6%–8% of project cost on a six-month hold.
For this house: project cost is $216,000 + $45,000 = $261,000 (the lender sizes against the scoped rehab; the contingency is your cash). The 90% loan-to-cost cap governs, so the loan is about $235,000 — roughly $190,000 funding the purchase and $45,000 in a rehab holdback released in draws — at 10.5% and 2 points. One caution: the financing guide’s 90% LTC is the experienced-borrower figure; a first-time borrower is often capped nearer 85%, which on this house means a loan of about $222,000 and roughly $13,000 more cash at closing.
| Cost of capital (6-month hold) | Estimate |
|---|---|
| Origination — 2 points on $235,000 | $4,700 |
| Lender fees (doc, underwriting, draw inspections) | $2,500 |
| Interest — 10.5% on drawn funds, averaging ~$215,000 over 6 months | $11,300 |
| Subtotal | $18,500 |
That is about 7.1% of project cost, inside the 6%–8% headline range. Interest accrues only on drawn funds, so the carry starts near $1,650 a month and climbs toward $2,050 as draws fund.
Step 4: Holding costs, per month, times realistic months
The clock runs every month you own the house — through the rehab, the listing period, and until the retail buyer’s loan closes. For a first flip in DFW, I plan on six months: two to three months of renovation, 30–60 days on the market, 30–45 days for the buyer’s financing.
| Holding line | Per month | 6 months (rounded) |
|---|---|---|
| Property tax — ~2.3% nominal on ~$245,000 (the county’s appraised value, usually above a distressed purchase price); no homestead exemption or cap on a flip | $470 | $2,800 |
| Insurance — vacant-dwelling or builder’s-risk policy, pricier than a homeowner’s policy | $450 | $2,700 |
| Utilities — electric for the trades, water, sometimes gas | $200 | $1,200 |
| Lawn, lockbox, trash haul, basic security | $100 | $600 |
| Subtotal | $1,220 | $7,300 |
Interest is already in Step 3. Debt plus holding comes to about $25,800, roughly 9.9% of project cost, consistent with the all-in carry the financing guide publishes.
Step 5: Rehab plus contingency
The contractor’s written bid is $45,000. The 15% contingency — $6,750, the high end of the usual 10–15% because this is a first deal — already went into the repairs line when we set the max offer in Step 1. The contingency is not padding; it is the sub-floor under the old vinyl, the panel the electrician flags, and the permit the bid did not include. The first-flip rehab budget guide breaks the twelve rehab line items down, so I treat the rehab as one number here: $51,750 budgeted, of which the lender funds only the $45,000 bid.
Step 6: Selling costs
You exit to a retail buyer, so you pay retail selling costs. As of 2026, after the 2024 NAR settlement changes, buyer-agent compensation is negotiated rather than published on the MLS, but most DFW sellers still pay both sides — roughly 5.0%–5.5% total when you hire a Texas-licensed listing agent and offer buyer-side compensation to stay competitive. Seller closing costs (owner’s title policy, prorations, recording) run about 1%–2%, and DFW buyers commonly ask for 1%–3% in concessions, plus whatever their inspector finds.
| Selling line (on a $350,000 resale) | Estimate |
|---|---|
| Commission — 5.0% total, both sides | $17,500 |
| Seller closing costs — ~1.5% | $5,250 |
| Buyer concessions — ~1.5% | $5,250 |
| Subtotal | $28,000 |
Eight percent of the resale price, off the top at closing — the largest forgotten line in most first-flip spreadsheets.
Step 7: The summary table
| Line | Amount |
|---|---|
| Resale at ARV | $350,000 |
| Purchase price | −$216,000 |
| Buyer closing costs | −$3,000 |
| Cost of capital (points, fees, interest) | −$18,500 |
| Holding costs (6 months) | −$7,300 |
| Rehab (contractor bid) | −$45,000 |
| Contingency (15%) | −$6,750 |
| Selling costs | −$28,000 |
| Pre-tax margin, contingency fully spent | $25,450 |
| Pre-tax margin, contingency unspent | $32,200 |
A house bought under the 77% ceiling, with the contingency priced into the offer and honest financing, holding, and selling numbers, leaves $25,000 to $32,000 before tax on a six-month hold — a real margin, and thin enough that one surprise matters.
Step 8: Margin target vs. risk
The test I use: the margin has to survive one realistic surprise. Same deal, one assumption moved, everything else constant:
| Scenario | Pre-tax margin |
|---|---|
| Buy at the 75% tier — max offer $210,750, purchase $210,000 (about +$6,400) | $31,850 – $38,600 |
| Four-month hold instead of six (about +$6,300) | $31,750 – $38,500 |
| Two-month slip — eight-month hold (about −$6,600) | $18,850 – $25,600 |
| Rehab runs $9,000 over — contingency gone plus $2,250 | $23,200 |
| ARV was optimistic by $15,000 — resale at $335,000 (about −$13,800) | $11,650 – $18,400 |
Notice which one hurts most. A $15,000 ARV miss — one bad comp — takes half the margin, which is why ARV is the number you spend the most time on and why a thin-comp neighborhood belongs in the 75% tier. On a sub-$400,000 DFW house I want 8–10% of ARV pre-tax with the contingency still in the budget; your cost of capital moves that. This deal at 77% sits just under that bar, at about 7%; at the 75% tier, or with a four-month hold you can actually execute, it clears it.
Step 9: What is left after tax
Texas has no state income tax. Federal tax still applies, and a flip held under a year gets no long-term capital-gains treatment — the gain is ordinary income at your marginal bracket. If you flip regularly, your CPA may treat you as a dealer, which adds self-employment tax and takes a 1031 exchange off the table.
Using the better case, as estimates: $32,200 at a 24% federal bracket is roughly $7,700 of income tax, leaving about $24,500; if dealer treatment applies, self-employment tax is roughly another $4,500, leaving about $20,000. Call it $20,000–$24,500 after tax on this hypothetical deal. Entity structure, deductible expenses, and dealer status are personal and consequential — this is where a Texas CPA earns their fee, before your first closing.
The 7 line items beginners miss
The scannable version — the lines missing from most first-flip spreadsheets I see:
- Points and lender fees, paid at closing. Two points on a $235,000 loan is $4,700 before a single month of interest, cash out of pocket on day one.
- Builder’s-risk or vacant-dwelling insurance. A standard homeowner’s policy typically excludes a house left vacant for more than 30–60 days or under renovation; the right policy costs more, and the wrong one may not pay a claim.
- Property tax at the full rate. No homestead exemption, no appraisal cap — budget the nominal rate on appraised value, around 2.0%–2.6% across most DFW jurisdictions, prorated to your months.
- The selling months. Holding costs run through the listing period and the buyer’s financing — two to three months of carry most budgets stop counting at the last coat of paint.
- Concessions and inspection repairs on the resale. DFW buyers commonly ask for 1%–3% toward closing costs, and their inspector will find something. Budget both.
- The contingency. A 10–15% reserve on top of the contractor’s bid, carried in the repairs line of the offer math rather than in your head — plus the permit, dumpster, and utility-connection lines bids leave out.
- The tax bill. Short-term gain is ordinary income; frequent flippers may owe self-employment tax too. The spreadsheet margin is pre-tax.
Bonus, because it bites: liquidity. The lender reimburses draws; it does not prepay them. On this deal that means about $36,000 at the closing table ($49,000 at a beginner’s 85% LTC) for the down payment, closing costs, points, and fees; $10,000–$15,000 to float contractor payments between draws; $2,900–$3,300 a month in interest and holding; and the $6,750 contingency the lender does not fund — roughly $70,000–$78,000 of cash for a $216,000 house at 90% LTC, and about $13,000 more at 85%.
How the marketplace flip calculator pre-fills each line — and where you must override it
Every deal on the Diamond marketplace has a flip calculator built into the deal page, pre-populated with that property’s numbers.
| Line | Pre-filled from the deal | Override it with |
|---|---|---|
| Purchase price | The deal’s price | Your actual offer |
| ARV | Area resale comps | Your own closed comps |
| Rehab | The scope Diamond scoped | Your contractor’s bid plus contingency |
| Financing | Default assumptions | Your lender’s rate, points, leverage |
| Holding months | Default assumptions | A realistic hold including selling months |
| Selling costs | Default percentage | Your negotiated commission and expected concessions |
The pre-filled ARV and rehab are a starting point, not an underwriting opinion. Change the rehab to your bid plus contingency and watch the max offer move; dial the ARV down $15,000 and watch the margin do what the sensitivity table shows. If the deal only works with the defaults, it does not work for you yet. For the rest of the deal page, in-portal offers, and the single-closing assignment, read how buying from Diamond works.
The published investor case studies are useful calibration: real Texas houses our investors bought through the marketplace and resold after renovation, shown as purchase price to resale price only — run those pairs through this worksheet to see what the gap holds.
Walk away when
If any of these is true, pass; on the marketplace, something new goes live most weeks.
- The ARV rests on active listings or one outlier comp. Closed sales, tight radius, last 90 days, or no deal.
- The margin only exists if the contingency goes unspent. Then there is no margin; there is a bet.
- The rehab number is verbal. A written, itemized bid from a contractor who walked the house, or it is a guess.
- Heavy items without a specialist bid. Foundation, sewer, electrical panel, slab leak, mold — get the specialist’s number first, and drop to the 75% tier.
- Your capital is not lined up. A lender term sheet and proof of funds before the offer, not after acceptance.
- You are stretching the tier to make it pencil. A moderate rehab priced at the light-rehab percentage is the most common first-flip mistake I see.
The bottom line
The max-offer formula is the start of the analysis, not the end: ARV × 75–80% − repairs, with the tier set honestly by condition and the contingency inside the repairs number. Then write every line down, through the tax on what is left, and see whether the margin survives one realistic surprise. On the hypothetical DFW house above, that leaves $25,000–$32,000 pre-tax and $20,000–$24,500 after: a real result, a thin one, and exactly the clarity a first flip needs before you commit capital.
To run this worksheet against live inventory, browse the off-market deals on the marketplace — a free account includes the per-deal flip calculator and the vetted lender and contractor lists. The next stage of the investor guides path covers funding the deal; if the same house might pencil better as a rental, the rental analysis guide runs the hold-side math. Diamond sells deals as a principal and assigns its contracts at a Texas title company; the underwriting, and the decision, are yours.
Not investment, lending, legal, or tax advice; Diamond does not originate loans, give financial advice, or act as anyone’s agent. The house above is made up and the figures are 2026 planning estimates — not underwriting for any property and not a projection of what a flip will return. Price your own deal against a lender’s term sheet and a Texas CPA before you commit capital.