How to calculate house flipping profit
A flip’s profit is the sale price less everything it cost to buy, renovate, hold and sell.
The formula
Profit = sale price − purchase price − rehab − holding costs − selling costs
Worked example
Under the 70% rule, the most to pay is ARV × 70% − repairs. With a $300,000 after repair value and $40,000 of repairs, that is $170,000. For example, if you buy at $170,000, spend $40,000 on rehab, sell for $300,000, and assume illustrative holding costs of $10,000 and selling costs of $20,000, profit is $300,000 − $170,000 − $40,000 − $10,000 − $20,000 = $60,000.
How to use this calculator
Enter the purchase price, the rehab cost and your buying costs. Then enter the months held, your holding costs, the sale price you expect and your selling costs. The house flipping calculator shows the profit, the total costs, the return on cost, the annualized return, the profit margin on the sale and the maximum offer under the 70% rule.
What the result means
Profit is what is left before income tax. ROI compares that profit with the money you put in. In the example, purchase, rehab and holding costs come to $220,000, so a $60,000 profit is a return of about 27.3% on that cash. The maximum offer is a ceiling for your bid, not a target.
More examples
When the plan slips
These start from the worked example and change one thing at a time.
| Scenario | Profit |
|---|---|
| As planned | $60,000 |
| Rehab runs $10,000 over | $50,000 |
| Sale price 5% lower ($285,000) | $45,000 |
| Both | $35,000 |
A 5% miss on the sale price takes a quarter of the profit.
Where the sale price goes
In the worked example, the $300,000 sale price splits like this: purchase 56.7%, rehab 13.3%, holding costs 3.3%, selling costs 6.7% and profit 20%.
Buying below the maximum
If you buy the same house for $160,000 instead of $170,000, profit rises to $70,000 and the cash you put in falls to $210,000. That is a return of about 33.3%.
The 70% rule at other prices
With a $250,000 after repair value and $30,000 of repairs, the maximum offer is $250,000 × 70% − $30,000 = $145,000. With a $400,000 value and $60,000 of repairs, it is $280,000 − $60,000 = $220,000.
What changes the result
- Sale price. It is the largest number in the formula, so small percentage errors cost the most.
- Purchase price. Every dollar saved at purchase is a dollar of profit.
- Rehab cost. Overruns come straight out of profit.
- Time. Holding costs build every month you own the house, so delays cut profit even when the budget holds.
- Selling costs. Agent commissions are negotiable and not set by law, and they are usually the biggest selling cost.
Common mistakes
- Setting the after repair value from asking prices instead of recent sales.
- Leaving no allowance for surprises behind walls and under floors.
- Counting holding costs only for the rehab and not for the time it takes to sell.
- Forgetting selling costs when working out profit.
- Treating the 70% rule as a promise of profit. It is a rule of thumb.
Related calculators
Start with the ARV calculator to estimate the sale price, and the renovation cost calculator to budget the rehab. The real estate commission calculator and the home sale proceeds calculator help with selling costs. Results are estimates.
Frequently asked questions
What is the 70% rule?
A guideline that leaves about 30% of the after repair value for costs and profit.
What are holding costs?
Loan interest, property tax, insurance and utilities while you own the property.
How are flip profits taxed?
Often as ordinary income, and people who flip houses regularly may also owe self-employment tax, whatever the holding period. Ask a tax professional about your situation.
What are selling costs on a flip?
The costs of the sale itself, such as agent commissions and the seller’s closing costs. They are paid out of the sale price.
Does the 70% rule cover holding and selling costs?
Yes. The 30% that is held back is meant to cover holding costs, selling costs and your profit. Repairs are subtracted separately.
What if I finance the purchase?
The interest and loan fees become part of your holding costs, so add them in. Borrowing lowers the cash you need but also lowers the profit.