How to calculate profit on a house flip
A flip makes money only if the sale price exceeds everything you spend to buy, fix, hold and sell the property. New flippers usually get the rehab budget roughly right and underestimate the rest: loan points, months of interest, utilities, insurance, and 6–10% of the sale price going to agents and closing.
The 70% rule
The 70% rule is a quick way to set a maximum offer: pay no more than 70% of the after repair value minus the rehab cost. On a $310,000 ARV with $45,000 of work, that is $172,000. The 30% margin is meant to cover closing, holding, selling costs and profit. In expensive markets or with cheap money, experienced flippers sometimes go to 75–80%, but the thinner margin leaves less room for surprises.
Always add a contingency
Once walls are open you find what the inspection missed: old wiring, rot, plumbing that is not to code. A 10–15% contingency on the rehab budget is standard, and 20% is sensible for older houses.
Time is a cost
Every extra month adds interest, taxes, insurance and utilities, and your money cannot be used on the next deal. Use the holding period field to see how a two-month delay in permits or contractors changes your annualized return.
Frequently asked questions
What is a good profit on a house flip?
Many flippers aim for at least $25,000–$30,000 or 10–15% of the ARV per deal. Below that, a single surprise in rehab or a price cut on sale can wipe out the profit.
How is ARV determined?
After repair value comes from recent sales of comparable renovated homes nearby, ideally within the last three to six months, of similar size, age and layout. Be conservative and use sold prices, not list prices.
What are typical hard money loan terms?
Hard money lenders commonly lend 80–90% of the purchase price and up to 100% of the rehab, at interest rates around 10–13% plus 1–3 points, for 6–12 months. Terms vary widely by lender and experience.
Should I include my own labor?
If you do work yourself, either include it at a market rate or remember that the profit figure includes payment for your time.