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A real estate firm that buys houses ties up money before it earns any. So the questions a partner or lender asks come early. How much do you raise, and how much of it is spent before the first sale? What does one house have to earn? How many sales does the firm need in a year to cover its costs? What happens when fewer houses sell than you planned?
In this article we'll walk through a complete sample business plan for a Tucson, Arizona firm that buys, renovates and resells houses, section by section. We'll cover the executive summary, a strengths-and-exposures table, the rules the firm works under in Arizona and, in particular, all of the financials.
Here's what you'll take away:
- The executive summary: see how to put the funding, the sales target and the first-year loss on one page, so a reader knows what the firm is asking for
- The cost of one house: find out how a $310,000 sale breaks into purchase, renovation, holding and selling costs, and set a maximum offer before you make one
- The Arizona rules: learn where licensing and lead-paint rules touch a buy-renovate-sell firm, and how to write that section without guessing
- The funding table: size your buying pool to the weeks before the first sale, not to the average month
- The five-year profit, cash flow and balance sheet: understand why a profitable firm can still show negative cash from operations while it holds houses
- The downside case: have an answer ready for "what if we sell a fifth fewer houses?", with the steps the owner takes in response
If you're setting up a house-flipping or real estate investment company, read this before you write your own. The firm is fictional, so keep what fits your market and change the rest.
In this plan
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The Short Version
Crest Cross Homes, LLC is an Arizona company that buys dated single-storey houses in central and east Tucson, renovates them with licensed subcontractors and sells them on the open market through a listing agent. It opens on 1 January 2027. Daniel Reyes runs it, with two private partners as co-owners.
The firm raises $1,850,000: $900,000 of equity ($250,000 from Daniel, $325,000 from each partner) and $950,000 of private-lender notes secured on the houses, drawn as $700,000 at opening and $250,000 in month 25. Of the total, $66,000 pays for a truck, tools, office fit-out, legal work, licensing and the launch campaign. The rest is a buying pool, because a house costs about $238,000 to buy, renovate and hold before the buyer pays anything.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Houses sold | 5 | 9 | 12 |
| Revenue | $1,550,000 | $2,844,000 | $3,864,000 |
| Net income after start-up costs | ($111,532) | ($21,079) | $31,640 |
| Closing cash | $980,225 | $571,239 | $548,816 |
Each house earns about $46,500 on a $310,000 sale, 15.0% of the price, after every cost of buying, renovating, holding and selling it. Interest and overhead take all of that in the first two years. Year 2 sells 9 houses against 9.4 needed to break even, and the first profit arrives in Year 3.
Margins this thin leave little room, and the plan says where. A cost ratio 0.8 points higher removes all of Year 3's profit. Selling 20% fewer houses in every year keeps the firm cash-positive but loss-making through Year 3. A fall in resale prices would hurt more than a fall in volume, and the sales section puts figures on it.
About Crest Cross
Legal name: Crest Cross Homes, LLC, an Arizona limited liability company. Owners: Daniel Reyes (50%) and two private partners (25% each). Premises: 1,100 square feet of flex space on Tucson's east side, with an office and a lockable storage bay. Start date: 1 January 2027. Stage: pre-launch. The operating agreement is in draft, the office lease is awaiting signature and two houses are under contract subject to inspection. No purchase money has been committed.
What the firm does
Crest Cross buys a house that sells below its potential, renovates it to the standard buyers in that neighbourhood expect, and resells it. It owns every house throughout. It does not list for others, manage rentals or wholesale contracts.
Dates that matter
| When | What has to be true |
|---|---|
| March 2027 | Two houses owned, a third under contract |
| July 2027 | First sale closes |
| October 2027 | Project manager starts |
| December 2027 | Five sales closed and two houses in progress |
| 2028 | Nine sales, and a loss of under $25,000 |
| 2029 | Twelve sales and the first profit |
Who may do what in Arizona
Arizona law treats three parts of this business separately.
Selling houses. Arizona Revised Statutes section 32-2121 exempts a person or entity that deals in its own property from real estate licensing. The exemption carries conditions, including that the person is not paid specially for a sale and that most of the officers' or members' activities are not brokerage work. Crest Cross buys and sells only its own houses, takes no commission and lists each one with a licensed broker, whose fee is in the cost of every house. Counsel confirms the position before opening.
Renovating houses. The owner-builder exemption in section 32-1121 covers only structures that are not intended for sale or rent, and a sale or offer to sell within a year of completion is treated as prima facie evidence that the project was meant for sale. Crest Cross cannot rely on it. All construction work goes to contractors licensed by the Arizona Registrar of Contractors, and whether the firm needs a licence of its own to manage that work is a question for the $2,500 licensing and $9,500 legal budgets before the first purchase.
Lead paint. The EPA's Renovation, Repair and Painting rule applies to anyone paid to disturb painted surfaces in homes built before 1978, and the EPA names house flippers among those covered. Every subcontractor who touches a pre-1978 house must be a certified firm, and the project manager keeps the certificates on the house file.
Tucson's Resale Market
What a Tucson house costs
Redfin put Tucson's median sale price at $366,978 for January to June 2026, 1.2% lower than a year earlier. That figure is for the metro area as a whole and says nothing about the older houses this firm buys. Crest Cross targets houses that resell for $280,000 to $340,000, and its model uses a $310,000 first-year sale price, about 15% below the metro median.
What flipping earns nationally
ATTOM counted 297,045 flips in the United States in 2025. The typical flip made a gross profit of $65,981 and a gross return of 25.5%, down from 32.1% in 2024. ATTOM defines gross profit as resale price minus purchase price, so it leaves out renovation, holding costs and sales costs. Its average flip took 163 days from purchase to resale. ATTOM's report carries no Tucson figures, and nothing below presents a national figure as a local one.
On ATTOM's definition, Crest Cross's first-year house has a spread of $130,000, roughly twice the national typical. The difference is the work: the firm buys only houses that need about $48,000 of renovation, which the national figure also leaves out. If it cannot find houses at that spread, nothing else in the plan holds, so the maximum-offer rule in the sales section is the control that matters most.
Who else bids on the same houses
| Buyer | How they win houses | Where they are stronger | Where Crest Cross aims to compete |
|---|---|---|---|
| Full-time local investors | Repeat relationships with agents and wholesalers | Speed and scale | Seller certainty and a named project manager |
| Out-of-state and institutional buyers | Cash offers on listed houses | Price they can pay | Houses that need real renovation and local judgement |
| Wholesalers | Contract off-market houses, then assign them | Access to leads | Wholesalers as a source of purchases |
| Owner-occupant buyers | Pay a retail price for a house they live in | Emotional pull of one house | Houses that need work most owner-occupants will not take on |
| Sellers who list as-is | Keep control of timing | No discount to an investor | Closing in about three weeks without repairs or showings |
The table describes roles in the market. No source gives a count of Tucson investors, so it makes no claim about market share.
Strengths, gaps, openings and exposures
| Strengths | Gaps |
|---|---|
| Founder has run renovation projects for 11 years | First-year volume is small, so each late closing shows |
| Fixed buy rule that sets a maximum offer on every house | Daniel alone covers acquisitions and the early renovations |
| Partner equity of $650,000 committed before launch | No track record with the lenders yet |
| Openings | Exposures |
|---|---|
| Dated houses that owner-occupants will not take on | Resale prices fall after the house is bought |
| Estate and relocation sellers who value a fast, certain close | Renovation overruns on older houses |
| Agent referrals once the firm has closed a few houses | Costlier credit if note rates rise |
Sellers and Buyers
Crest Cross has two customers, one on each end of every house.
The seller. Typical sellers are heirs settling an estate, owners relocating, landlords retiring from a worn-out rental and owners of a dated house who cannot face the repair list. They want a firm price, a closing date and no showings. The firm offers all three: a written offer within 48 hours of the first visit, an inspection period of ten days and a close in about three weeks. The price is lower than a retail sale would bring, and sellers who want the highest price list with an agent. Some will.
The buyer. The buyer is an owner-occupant looking for a move-in-ready three-bedroom house in the $280,000 to $340,000 range: a first-time buyer, a household moving up from a condominium, a relocating professional or a retiree downsizing. These buyers compare the house with listings that have been lived in for decades, and the renovated finish and new cooling system are what they pay for.
What the buyer's lender decides. Most buyers borrow, so the house has to appraise at or near the contract price. A low appraisal forces a price cut or a lost sale, and this is the largest uncertainty in the model. Crest Cross prices from the three to five closest recent sales and treats an appraisal below contract as the first sign that the next purchase needs a lower offer.
Selling the Houses
The anatomy of one house
The first-year house sells for $310,000.
| Item | Amount | Share of sale price |
|---|---|---|
| Purchase price | $180,000 | 58% |
| Title, inspection and lender fees at purchase | $4,500 | 1% |
| Renovation, including a contingency of about 10% of scope | $48,000 | 15% |
| Holding costs (taxes, utilities, builder's risk, six months) | $5,500 | 2% |
| Listing and buyer-agent commission (5%) | $15,500 | 5% |
| Seller closing costs and buyer concessions (2.5%) | $7,750 | 3% |
| Photography and staging | $2,250 | 1% |
| Gross profit before interest and overhead | $46,500 | 15% |
Interest on the notes is charged separately: $15,400 for each house sold in Year 1, $8,600 in Year 2 and $8,700 in Year 3, because the money is borrowed before the houses are bought.
How much Crest Cross will offer
Every offer starts from the same arithmetic: the resale value after repair, less renovation, selling costs, buying and holding costs and the target profit of 15% of resale value.
| Resale value | Renovation | Selling costs | Buying and holding | Target profit | Maximum offer |
|---|---|---|---|---|---|
| $280,000 | $40,000 | $23,250 | $10,000 | $42,000 | $164,750 |
| $310,000 | $48,000 | $25,500 | $10,000 | $46,500 | $180,000 |
| $340,000 | $56,000 | $27,750 | $10,000 | $51,000 | $195,250 |
The maximum is a ceiling and not a bid. Offers on the firm's own sourced leads start below it, and a house that needs a roof or foundation work beyond the planned scope is priced again from the start.
Pricing and sensitivity
Each house is listed at the value its three to five nearest comparable sales support. If it has no offer after 30 days the agent and Daniel review the price. Any cut comes straight out of profit, because the 2.5% closing-cost line is already spoken for.
The margin is narrow enough to measure in small moves. A 5% lower sale price on a $310,000 house removes $15,500, 33% of its $46,500 profit before the small saving on commission. A 10% lower price removes $31,000, 67%. A renovation that runs 10% over budget costs $4,800, about 10% of the profit. For the firm as a whole, a 5% lower price on every Year 3 house cuts profit by about $178,700, and the break-even section shows the effect of a higher cost ratio.
Year by year
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Houses sold | 5 | 9 | 12 | 14 | 16 |
| Average sale price | $310,000 | $316,000 | $322,000 | $328,500 | $335,000 |
| Gross profit per house | $46,500 | $47,400 | $48,300 | $49,275 | $50,250 |
| Houses held at once (average) | about 3.0 | about 4.0 | about 5.4 | about 6.3 | about 7.1 |
| Houses bought (approximate) | 7 | 11 | 13 | 15 | 16 |
Prices rise about 2% a year, from 1.9% to 2.0% in each step.
The first five houses are scheduled by hand, not by formula, at six months each.
| House | Bought | Sold |
|---|---|---|
| A | January 2027 | July 2027 |
| B | March 2027 | September 2027 |
| C | April 2027 | October 2027 |
| D | May 2027 | November 2027 |
| E | June 2027 | December 2027 |
Two more houses, F and G, are bought in September and November and are still in renovation or on the market at the end of the year. That makes 7 purchases in Year 1 and an average of about 3.0 houses held at once.
Finding Sellers
Most startups market to the customer who pays them. Here the marketing buys houses, so the budget is judged by cost per purchase.
Year 1 marketing is $46,000: $12,000 of launch spend from start-up capital and $34,000 of operating spend. Across 7 purchases that is about $6,600 a house, falling to about $3,300 in Year 2 as agents and wholesalers begin to send houses.
| Channel | Year 1 spend | What it is expected to do |
|---|---|---|
| Brand, website and seller-offer page (launch) | $6,000 | A page that explains the three-week close and takes calls |
| First mail wave (launch) | $6,000 | Letters to owners of long-held and inherited houses |
| Mail to absentee, inherited and long-tenure owners | $16,000 | With the first wave, about 29,000 letters at $0.75 each, a 0.4% response of about 120 calls, and 2 purchases |
| Agent and wholesaler relationships | $5,000 | Meetings, a one-page buying brief and a finder's fee on closed purchases; about 4 purchases |
| Search ads aimed at owners selling quickly | $5,000 | About 1 purchase |
| Investor association and trade events | $3,000 | Introductions to agents, lenders and trades |
| Offer packets and printed material | $5,000 | A standard offer package for every seller visit |
The mail response and the 1-in-60 conversion from call to purchase are planning figures, not market data. The purchases column is the real test: a campaign that produces fewer than five purchases by June leaves the first closings short, and the firm would shift spend to agent relationships, which cost the least per purchase.
How a House Moves Through the Firm
From offer to sale
| Stage | Weeks |
|---|---|
| Offer to closing on the purchase | 3 |
| Scope, bids and permits | 3 |
| Renovation | 11 |
| Listing, offer and escrow | 6 |
| Steady-state total | 23 |
Twenty-three weeks is 161 days, close to ATTOM's national average of 163 days. The 2027 houses are scheduled at six months each, because Daniel runs the early ones largely alone and the first permits take longer, and the $5,500 holding cost is for six months.
The renovation budget
The $48,000 on a typical house is a planning figure, not a quote: cooling system service or replacement $8,500, kitchen $9,500, bathrooms $6,000, flooring $5,500, interior and exterior paint $5,500, roof repair and coating $2,000, electrical and plumbing corrections $3,000, desert landscaping and clean-out $2,500, permits $1,100 and a contingency of $4,400, about 10% of the scope. A buyer's inspection will find more, which is what the post-sale repair line is for.
Year 1 cash, worked by hand
The engine's monthly view does not carry the cost of houses, so the tightest point is calculated house by house. Money received in month 1 is $1,600,000. The outlay is five purchases at $184,500 including fees, renovation drawn at $16,000 a month for three months on each house, holding costs, overhead of about $19,600 a month, interest on the first $700,000 and the $66,000 of start-up spending.
| Point in Year 1 | Cumulative outlay | Cash left |
|---|---|---|
| End of March (houses A and B bought) | about $548,000 | about $1,052,000 |
| End of June, before the first sale | about $1,303,000 | about $297,000 |
| End of August, if the first sale slips from July to September | about $1,445,000 | about $155,000 |
The $155,000 is the contingency the reserve is sized to hold. A 5% to 10% fall in the price of the first houses does not change these rows, because it reduces proceeds and not outlay, but it cuts Year 1 profit by about $72,000 (5%) or $143,000 (10%) across five houses, after the saving on commission and concessions. A renovation overrun of 10% on all five adds about $24,000 to the outlay.
Contractors and materials
All trade work goes to licensed subcontractors. Each project manager collects three bids per trade, pays against inspected stages and holds back the final payment until the last inspection passes. Lead-safe certification is checked before a pre-1978 house is started. Materials are bought through two trade accounts, and the firm keeps a standard finish schedule to shorten decisions.
Office and yard
1,100 square feet of flex space at $18 a square foot a year, $19,800 in Year 1. It holds two desks, a conference table and a storage bay for appliances and fixtures. The firm moves into about 1,500 square feet, at $27,000 a year, in Year 4.
Software and records
A deal analyser that applies the maximum-offer formula, a customer system for seller leads, a project tracker with a photo log, and cloud accounting that carries one job ledger per house. Software costs $6,000 in Year 1 and $10,000 by Year 5. Every house has its own file: contract, inspections, bids, draws, permits, certificates and closing statement.
Lenders and notes
Each note is secured on a named house by a first-position deed of trust. The lender advances up to 80% of the purchase cost at closing and releases renovation money after each inspected stage. The note is repaid from escrow when the house sells, and the lender can then lend again. Daniel gives a personal guarantee on each note. The lender receives a monthly report with photographs, spend to date and the expected listing date. The model simplifies this to one balance that carries interest from the day it arrives and is never repaid.
Obligations after the sale
Lead-paint disclosure. On a house built before 1978 the seller must disclose known lead-based paint and hazards, hand over available records, give the buyer the EPA's lead pamphlet, include the Lead Warning Statement in the contract and allow ten days for an inspection, which the buyer may waive. The EPA's page does not say how this applies to a business seller, so counsel confirms the firm's position before the first listing. The firm keeps signed copies for three years after each sale, the retention period the EPA gives.
Construction claims. Arizona Revised Statutes section 12-552 bars contract-based claims, including implied-warranty claims, more than eight years after an improvement is substantially complete, and it covers people who develop or construct improvements to real property. The plan treats the firm as falling within that group, exposed for eight years after each sale, which counsel confirms. Three things follow: permits are pulled and final inspections passed on every house, subcontractors carry their own insurance, and $1,500 a house is budgeted for repairs after the sale.
Insurance
General liability, commercial auto and an umbrella policy cost $13,000 in Year 1. Workers' compensation for employees sits in the 27% payroll on-cost. Builder's-risk or vacant-property cover on each house is in its holding cost.
Who does the work
Daniel manages the early renovations himself. A project manager starts in month 10, a part-time transaction coordinator in month 13 and a second project manager in month 31. That is two people on payroll at the end of Year 1, 2.5 full-time equivalents in Year 2 and 3.5 from Year 3. Each project manager runs about three renovations at a time, and Daniel takes the rest. Year 5 revenue per full-time equivalent is $1,531,429.
The Partners and Daniel Reyes
Daniel Reyes spent seven years as a project manager at a production home builder in Tucson, then four years running remodel projects for a local remodeling company. He has bought, renovated and sold three houses of his own. His $250,000 is his savings, and he draws $85,000 a year from month one.
Why the early pace is safe to try
The plan buys five houses in six months, which is a faster start than three personal flips would suggest. Three controls apply. Each of the first five purchases needs a partner's approval of the maximum offer and the renovation budget. Any house with a total cost above $300,000 needs the same approval for the life of the firm. And if the first two houses run more than 10% over their renovation budgets, no new purchase is made until the partners have reviewed the overruns.
The partners and what they receive
One partner runs an HVAC supply business in Tucson and the other is a retired community-bank lender. They put in $325,000 each and hold 25% each, with Daniel at 50%. They have no day-to-day role and meet Daniel monthly. Capital is returned pro rata before profit is shared. Profit is shared 50% to Daniel and 25% to each partner, and if the firm is taxed through its owners, the firm first pays the owners' tax on their share. By Year 5 the model shows $30,000 distributed and $951,588 of book equity against $900,000 paid in, so the partners' combined book value is $675,794 against $650,000 put in. That is a modest return after five years. The plan shows no sale of the firm, and the partners accept that the value is in the houses still being bought.
Where the team is thin
Daniel has not raised private notes, run payroll or negotiated a lender agreement. An attorney drafts the loan documents, an outside CPA firm keeps the books and prepares the owners' tax filings within the $8,000 of Year 1 professional fees, and the monthly lender report doubles as a discipline on the firm's own numbers.
If Daniel is out
The partners' agreement names the project manager as acting lead for up to 60 days, with purchases suspended unless a partner approves them. The coordinator hired in month 13 holds every file, so a house can reach a sale without Daniel.
The Money Side
A single five-year model feeds every table: monthly for 2027, yearly from 2028. A house costs about $263,500 to buy, renovate, hold and sell, and the buyer pays only at the end, so the firm funds each one for about six months. The funding, cash flow and balance sheet tables show that gap, and the balance sheet lists the houses still held at each year end.
Funding the houses
| Use of funds | Amount |
|---|---|
| Used pickup, tools, laptops and phones | $36,000 |
| Office fit-out and storage racking | $6,000 |
| LLC set-up, city business licence, contractor-licence review | $2,500 |
| Legal: operating agreement, loan documents, purchase contracts | $9,500 |
| Launch: brand, website, first direct-mail and seller-lead campaign | $12,000 |
| Buying and renovation pool (about $1.53M of it is in hand before the first sale) | $1,784,000 |
| Total uses | $1,850,000 |
| Source of funds | Amount |
|---|---|
| Daniel Reyes's savings | $250,000 |
| Two private equity partners | $650,000 |
| Private-lender notes, first advance (secured on the houses) | $700,000 |
| Private-lender notes, second advance (month 25) | $250,000 |
| Total sources | $1,850,000 |
Daniel Reyes puts in $250,000 and two private partners $325,000 each, so equity is $900,000, 49% of the $1,850,000 raised. Private lenders advance $950,000 against first-position deeds of trust: $700,000 in January 2027 and $250,000 in month 25, at 11% a year, a planning rate and not a quoted one. Lender fees are inside each house's $4,500 acquisition cost. Interest runs on the whole balance from the day it arrives, which is cautious: real notes are drawn house by house and repaid from escrow when the house sells, and the model shows no repayment at all. The second advance exists because inventory grows with sales, from $474,300 to $1,640,160 of houses held; without it, closing cash goes below zero in Year 5. Daniel gives a personal guarantee on each note. The large line in the uses table is a pool, not January spending. Of the $1,600,000 received in month 1, $1,534,000 is available for houses after the $66,000 of fixed start-up costs. By hand, the outlay to the end of June is about $1.30 million, leaving about $297,000. If the first sale slips two months, the outlay to the end of August is about $1.45 million, leaving about $155,000, and that is the contingency.
What the numbers rest on
- Year 1 closes five houses at $310,000. Years 2 to 5 close 9, 12, 14 and 16 at average prices of $316,000, $322,000, $328,500 and $335,000, a rise of about 2% a year. The starting price is about 15% below the $366,978 Redfin metro median for early 2026 because the firm buys older, smaller houses. Tucson prices fell 1.2% over that period, so the rise is a choice, and the break-even section tests a price fall.
- Cost of sales is 85% of the resale price. For the first-year house that is $263,500: $180,000 to buy, $4,500 of title, inspection and lender fees, $48,000 of renovation including a contingency of about 10% of scope, $5,500 to hold the house for six months and $25,500 of selling costs. Gross profit is $46,500, 15.0% of the sale, after every cost of the house and before interest and overhead.
- From Year 2 a house takes about 163 days from purchase to sale, the national average in ATTOM's 2025 report. The five 2027 houses are scheduled at six months each because Daniel runs the early ones largely alone. Year-end inventory is 36% of that year's cost of sales: 163 days of holding, about 90% of cost of sales being inventory cost and about 85% of final cost carried on average. Cash from operations is negative in every year because the houses held keep growing.
- Interest at 11% is $77,000 in Years 1 and 2 and $104,500 from Year 3, which is $15,400 for each house sold in Year 1 and about $8,700 in Year 3.
- Each house is sold through a licensed listing agent: 5% commission, 2.5% for seller closing costs and buyer concessions, and $2,250 of photography and staging. The firm sells only its own houses and takes no commission.
- Marketing finds houses to buy. Year 1 is $46,000, of which $12,000 is launch spend funded from start-up capital, and it produces 7 purchases: 5 sold in the year and 2 held at year end. That is about $6,600 a purchase, falling to about $3,300 in Year 2.
- Payroll adds 27% to wages for payroll taxes, health cover, workers' compensation and a retirement match (15% for the part-time coordinator). Daniel manages the early renovations himself until the project manager starts in month 10. Renovation labour is paid to licensed subcontractors inside each house's rehab cost. Pay raises of 3% a year are a separate line from Year 2.
- Insurance of $13,000 in Year 1 buys general liability, commercial auto and an umbrella policy. Workers' compensation is in the payroll on-cost and builder's-risk cover on each house is in its holding cost. Repairs and claims after a sale are budgeted at $1,500 a house, and deals priced but not bought cost $4,000 in Year 1.
- Buyers' escrow agents pay at closing, so there are no receivables. Tax is charged at corporate rates, 21% federal and 4.9% Arizona, as a stand-in. An LLC would normally pass its profit to its owners, who pay tax on their own returns, so the tax line is the best guide to the tax distributions the firm would make.
- Capital is returned pro rata before profit is shared 50% to Daniel and 25% to each partner. Only $30,000 is distributed, in Year 5. The model ends without a sale of the firm, so the partners' share of Year 5 book equity is $675,794 against $650,000 paid in.
Resale revenue
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Resale of renovated houses | $1,550,000 | $2,844,000 | $3,864,000 | $4,599,000 | $5,360,000 |
| Total revenue | $1,550,000 | $2,844,000 | $3,864,000 | $4,599,000 | $5,360,000 |
| Growth on prior year | – | 83% | 36% | 19% | 17% |
One revenue line moves in steps of $310,000 or more. A closing that slips from December into January takes a fifth of Year 1 revenue with it, and with the first sale in July the first six months bring in nothing. Year 2 grows 83% as the firm runs a full year of closings against half a year; later years add two or three houses and about 2% on price.
Year 1, month by month
| Month | Resale of renovated houses | Total revenue | EBITDA |
|---|---|---|---|
| Jan 2027 | $0 | $0 | ($19,581) |
| Feb 2027 | $0 | $0 | ($19,581) |
| Mar 2027 | $0 | $0 | ($19,581) |
| Apr 2027 | $0 | $0 | ($19,581) |
| May 2027 | $0 | $0 | ($19,581) |
| Jun 2027 | $0 | $0 | ($19,581) |
| Jul 2027 | $310,000 | $310,000 | $26,919 |
| Aug 2027 | $0 | $0 | ($19,581) |
| Sep 2027 | $310,000 | $310,000 | $26,919 |
| Oct 2027 | $310,000 | $310,000 | $26,919 |
| Nov 2027 | $310,000 | $310,000 | $26,919 |
| Dec 2027 | $310,000 | $310,000 | $26,919 |
No house closes until July. EBITDA is negative in each of the seven months without a closing and positive in the five with one: July, September, October, November and December. Monthly cash is not shown, because the model books the cost of houses in the yearly cash flow. The tightest point is worked out by hand in the operating section: about $297,000 of headroom at the end of June, and about $155,000 at the end of August if the first sale slips to September.
Who is on payroll
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and acquisitions lead | $85,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Project manager | $70,000 | Month 10 | 1 | 1 | 1 | 1 | 1 |
| Transaction coordinator (part time, 20 hours a week) | $28,000 | Month 13 | – | 0.5 | 0.5 | 0.5 | 0.5 |
| Second project manager | $72,000 | Month 31 | – | – | 1 | 1 | 1 |
| Total payroll incl. on-costs | $130,175 | $229,050 | $274,770 | $320,490 | $320,490 |
Daniel manages the first renovations himself and hires the project manager in month 10, when the firm holds about four houses. A part-time coordinator joins in month 13 to run contracts, escrow and permits, and a second project manager in month 31, once the firm is holding five or more houses at a time. Each project manager runs about three renovations at once and Daniel takes the rest. Payroll is 8% of revenue in Years 1 to 4 and 7% in Year 5. Daniel's $85,000 starts in month one and is already in the costs.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $1,550,000 | $2,844,000 | $3,864,000 | $4,599,000 | $5,360,000 |
| Cost of houses sold (purchase, rehab, holding, selling costs) | ($1,317,500) | ($2,417,400) | ($3,284,400) | ($3,909,150) | ($4,556,000) |
| Gross profit | $232,500 | $426,600 | $579,600 | $689,850 | $804,000 |
| Payroll incl. on-costs | ($130,175) | ($229,050) | ($274,770) | ($320,490) | ($320,490) |
| Rent | ($19,800) | ($20,400) | ($21,000) | ($27,000) | ($27,800) |
| Utilities | ($3,000) | ($3,100) | ($3,200) | ($3,600) | ($3,700) |
| Marketing | ($34,000) | ($36,000) | ($38,000) | ($40,000) | ($42,000) |
| Insurance | ($13,000) | ($15,000) | ($17,000) | ($19,000) | ($20,000) |
| Professional fees | ($8,000) | ($9,000) | ($10,000) | ($11,000) | ($12,000) |
| Software subscriptions | ($6,000) | ($7,500) | ($8,500) | ($9,500) | ($10,000) |
| Vehicle fuel, repairs and site-visit costs | ($6,000) | ($8,400) | ($10,200) | ($12,000) | ($13,200) |
| Deals priced but not bought (inspections, drive-by estimates, appraisals) | ($4,000) | ($5,500) | ($7,000) | ($8,000) | ($9,000) |
| Post-sale repairs and warranty claims | ($7,500) | ($13,500) | ($18,000) | ($21,000) | ($24,000) |
| Phones, supplies, signage and licences | ($3,500) | ($4,300) | ($5,000) | ($5,500) | ($6,000) |
| Equipment replacement | $0 | ($4,000) | ($6,000) | ($10,000) | ($6,000) |
| Annual pay raises (3% a year) | $0 | ($6,872) | ($16,733) | ($29,718) | ($40,224) |
| EBITDA | ($2,475) | $63,978 | $144,197 | $173,042 | $269,586 |
| Depreciation | ($8,057) | ($8,057) | ($8,057) | ($8,057) | ($8,057) |
| Interest | ($77,000) | ($77,000) | ($104,500) | ($104,500) | ($104,500) |
| Income tax | $0 | $0 | $0 | $0 | ($34,954) |
| Net income before start-up costs | ($87,532) | ($21,079) | $31,640 | $60,485 | $122,075 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($24,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($111,532) | ($21,079) | $31,640 | $60,485 | $122,075 |
Year 1 loses $87,532 before start-up costs and $111,532 after them. EBITDA is close to zero at ($2,475), and $77,000 of interest accounts for the loss. Year 2 loses $21,079: nine houses against the 9.4 needed. Year 3 is the first profit, $31,640, and tax stays nil through Year 4 because the early losses are carried forward. Net margin never exceeds 2.3%, so a small error in cost per house erases it.
Where the cash goes
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($577,775) | ($408,986) | ($272,423) | ($156,368) | ($102,734) |
| Truck, tools and office fit-out | ($42,000) | $0 | $0 | $0 | $0 |
| Funding received | $1,600,000 | $0 | $250,000 | $0 | $0 |
| Note principal repaid | $0 | $0 | $0 | $0 | $0 |
| Owner distributions | $0 | $0 | $0 | $0 | ($30,000) |
| Net change in cash | $980,225 | ($408,986) | ($22,423) | ($156,368) | ($132,734) |
| Closing cash | $980,225 | $571,239 | $548,816 | $392,448 | $259,714 |
Cash from operations is negative in every year because the houses held for sale, a line on the balance sheet below, grow every year, from $474,300 to $1,640,160. The model never repays the notes, so year-end cash is higher than the firm would hold; in practice each sale repays a note. Closing cash is positive in every year and lowest in Year 5, at $259,714 after the $30,000 distribution.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $980,225 | $571,239 | $548,816 | $392,448 | $259,714 |
| Accounts receivable | $0 | $0 | $0 | $0 | $0 |
| Houses held for sale | $474,300 | $870,264 | $1,182,384 | $1,407,294 | $1,640,160 |
| Truck, tools and office fit-out (net) | $33,943 | $25,886 | $17,829 | $9,771 | $1,714 |
| Total assets | $1,488,468 | $1,467,389 | $1,749,029 | $1,809,513 | $1,901,588 |
| Private-lender notes | $700,000 | $700,000 | $950,000 | $950,000 | $950,000 |
| Paid-in capital | $900,000 | $900,000 | $900,000 | $900,000 | $900,000 |
| Retained earnings | ($111,532) | ($132,611) | ($100,971) | ($40,487) | $51,588 |
| Total liabilities and equity | $1,488,468 | $1,467,389 | $1,749,029 | $1,809,513 | $1,901,588 |
Break-even and margins
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -0.2% | 2.3% | 3.7% | 3.8% | 5.0% |
| Net margin (before start-up costs) | -5.6% | -0.7% | 0.8% | 1.3% | 2.3% |
| Payroll incl. pay raises as share of revenue | 8% | 8% | 8% | 8% | 7% |
| Revenue per full-time equivalent at year end | $775,000 | $1,137,600 | $1,104,000 | $1,314,000 | $1,531,429 |
| Average monthly revenue | $129,167 | $237,000 | $322,000 | $383,250 | $446,667 |
| Monthly revenue needed to cover operating costs | $130,542 | $201,457 | $241,891 | $287,116 | $296,897 |
| Debt service cover (EBITDA / interest + principal) | -0.0x | 0.8x | 1.4x | 1.7x | 2.6x |
The last two rows of the ratios table compare what the firm earns with what it needs to cover operating costs. Year 1 averages $129,167 a month against $130,542 needed, so it falls just short. Year 2 averages $237,000 against $201,457, which covers operating costs but not interest. Counting interest and depreciation, the firm needs to sell 6.9 houses in Year 1, 9.4 in Year 2, 11.3 in Year 3, 12.8 in Year 4 and 12.9 in Year 5, against 5, 9, 12, 14 and 16 planned. One point on the cost ratio is 1% of revenue: $38,640 in Year 3 and $53,600 in Year 5. A ratio 0.8 points higher removes all of Year 3's $31,640 pretax profit. A 5% lower resale price on every Year 3 house cuts revenue by $193,200 and, after the 7.5% of price saved on commission and concessions, profit by about $178,700.
Two fewer houses in every ten
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $1,240,000 | $2,275,200 | $3,091,200 | $3,679,200 | $4,288,000 |
| Net income before start-up costs | ($105,642) | ($60,378) | ($5,271) | $59,396 | $131,031 |
| Net income after start-up costs | ($129,642) | ($60,378) | ($5,271) | $59,396 | $131,031 |
| Closing cash | $962,115 | $513,830 | $454,496 | $297,039 | $203,261 |
Revenue 20% below plan is 4 houses in Year 1 and the equivalent of about 7, 10, 11 and 13 in Years 2 to 5. The response: the coordinator starts six months later, the second project manager is never hired, marketing is cut by 20%, Daniel takes a 20% pay cut, the firm stays in its first office and no distributions are paid. On those terms the firm loses money through Year 3 and is profitable from Year 4, and it ends every year with at least $203,261 in cash. Equity at the end of Year 1 is $770,358. The case holds the same dollars of unsold houses as the base case, so cash is below the base case in every year. It also keeps the second note advance, which the firm would probably not draw, so it is slightly cautious on interest. A fall in price would be worse than a fall in volume, because the money for each house is already spent.
Sources
- Redfin median sale price for Tucson, January to June 2026, as reproduced in Stacker, Tucson mid-year housing market review, published 3 August 2026. A secondary source for a primary Redfin figure.
- ATTOM, 2025 Year-End U.S. Home Flipping Report.
- Arizona Revised Statutes, section 32-2121, real estate licensing exemptions.
- Arizona Revised Statutes, section 32-1121, contractor licensing exemptions.
- Arizona Revised Statutes, section 12-552, limits on actions involving real property development and construction.
- U.S. EPA, Renovation, Repair and Painting Program.
- U.S. EPA, Real estate disclosures about potential lead hazards.
- Tax Foundation, Arizona state tax index: corporate income tax rate of 4.9%.
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