What a flip actually earns, and why the purchase price is only half the question
A flip has exactly one revenue line and about seven cost lines, and the cost lines are where deals are won and lost. Beginners compute profit as sale price minus purchase price minus rehab, then discover at settlement that commission, transfer tax, title, six months of interest, points, insurance and utilities have eaten a third of what they expected. This calculator forces every one of those lines onto the page before you make an offer.
The structure is simple. You buy at B, you spend R on the rehab, you carry the property for m months, you pay a lender for the money, and you sell at A. Whatever is left is yours. What complicates it is that some costs are fixed the day you close and others scale with the sale price. Commission and excise tax are a percentage of whatever the house actually fetches, so they fall when the market disappoints you — but they fall far more slowly than your profit does, which is why a 5% miss on ARV can be a 40% miss on profit.
The second thing the calculator separates is profit from cash invested. Borrowing 80% of the purchase price does not make you more profit; points and interest make it slightly less. What it does is shrink the cash you had to put up, which raises the return on that cash. Both numbers matter, and they answer different questions: net profit tells you whether the deal is worth doing, cash-on-cash tells you whether it is the best home for the money you have.
The formula, line by line
Start from ARV and subtract. Purchase price is what the seller receives. Rehab with contingency is your scope-of-work total multiplied by one plus the contingency rate — a 10% contingency turns a $50,000 scope into $55,000. Contingency is not padding; it is the budget line for what you find when the drywall comes off, and a flip run without one converts every surprise directly into lost profit.
Holding cost is monthly carry times months held. Carry means property tax, builder's-risk or vacant-dwelling insurance, water, power, gas for the heat you must run through a winter, lawn care and any security. It excludes loan interest, which is accounted separately so you can see the cost of leverage on its own.
Financing cost has two parts. Points are charged once on the loan amount: two points on a $200,000 loan is $4,000, paid at closing whether you hold for one month or ten. Interest is charged monthly on the drawn balance. Hard-money loans are almost always interest-only during the term, so the calculator uses L × rate ÷ 12 × months rather than an amortising payment. If your lender charges interest on the full committed amount including undrawn rehab funds, add the difference to the loan amount.
Buy-side closing is title search, lender's policy, escrow or attorney fee, recording, and transfer tax where the buyer pays it. Entering it as a percentage of purchase price is a reasonable simplification; if you have a real title quote, convert it to a percentage and use that.
Sell-side costs are commission plus everything the settlement statement takes on the way out: excise or transfer tax, owner's title policy where the seller pays, settlement fee, and any buyer concessions you agree to. These are entered as a percentage of ARV because that is how they actually behave.
Cash invested is a different sum. It is the down payment (purchase less loan), plus rehab, plus carry, plus financing, plus buy-side closing — everything you fund out of pocket. This calculator assumes the rehab is paid in cash. If your lender advances rehab draws, subtract the advanced portion from your cash invested and add its interest to the financing line; the profit figure does not change, but the cash-on-cash return rises.
Worked example: a $400,000 ARV flip bought at $250,000
You buy a house for $250,000 that comps at $400,000 once finished. Your contractor's scope is $50,000 and you carry a 10% contingency. You expect six months from close to close, with $600 a month in taxes, insurance and utilities. Your lender funds 80% of the purchase at 12% interest-only with 2 points. Buy-side closing runs 1.5% of the purchase price; on the way out you pay 5% commission and 1% in transfer tax and settlement fees.
- Rehab with contingency. $50,000 × 1.10 = $55,000.
- Holding cost. $600 × 6 = $3,600.
- Loan amount. 80% × $250,000 = $200,000.
- Points. 2% × $200,000 = $4,000.
- Interest. $200,000 × 12% ÷ 12 × 6 = $200,000 × 0.01 × 6 = $12,000. Financing total: 4,000 + 12,000 = $16,000.
- Buy-side closing. 1.5% × $250,000 = $3,750.
- Sell-side costs. (5% + 1%) × $400,000 = 6% × 400,000 = $24,000.
- All-in cost. 250,000 + 55,000 + 3,600 + 16,000 + 3,750 + 24,000 = $352,350.
- Net profit. 400,000 − 352,350 = $47,650.
- Margin on ARV. 47,650 ÷ 400,000 = 11.91%.
- Cash invested. (250,000 − 200,000) + 55,000 + 3,600 + 16,000 + 3,750 = $128,350.
- Cash-on-cash ROI. 47,650 ÷ 128,350 = 37.13%.
- Annualized ROI. 37.13% × 12 ÷ 6 = 74.25%.
Now look at the fixed part of the cost: everything except sell-side costs sums to $328,350. Divide by (1 − 0.06) and you get $349,308 — the price at which this flip breaks exactly even. You have $50,692 of price cushion, or 12.7% below your ARV estimate, before the deal stops making money.
How to read the four numbers
Net profit is the only figure that pays for anything. Judge it against the work: a $47,650 profit for six months of managing a general contractor is a real business result; the same $47,650 on a two-year gut renovation is not.
Margin on ARV is the resilience measure. It tells you how far the sale price can slide before profit reaches zero, roughly speaking — precisely, profit hits zero when the price falls by margin ÷ (1 − s) of ARV, because sell-side costs shrink as the price does. At an 11.91% margin and 6% sell costs, the cushion is 11.91 ÷ 0.94 = 12.67% of ARV, exactly the figure the worked example produced. A margin under 10% leaves less room than a single scope surprise typically consumes.
Cash-on-cash ROI measures the deal against the cash you actually committed. It is the number that competes with every other use of that cash. Note what leverage does to it: in the worked example, running the same deal with no loan gives a net profit of $63,650 (no points, no interest) on $312,350 of cash — a 20.38% return, against 37.13% levered. Leverage cut profit by $16,000 and nearly doubled the return on cash, and it also removed $200,000 of your own money from a single address. Those are two different risks, not one.
Annualized ROI exists so that hold periods compare. A 20% return in four months and a 40% return in twelve months look similar until you annualize: 60% against 40%. Treat it as a comparison device rather than a forecast — you will not necessarily find another deal the day this one closes, and the annualization silently assumes you will.
How net profit moves with the sale price
| Purchase price | Net profit | Margin on $400,000 ARV | Cash invested | Cash-on-cash | Annualized |
|---|---|---|---|---|---|
| $230,000 | $69,230 | 17.31% | $122,770 | 56.39% | 112.78% |
| $240,000 | $58,440 | 14.61% | $125,560 | 46.54% | 93.09% |
| $250,000 | $47,650 | 11.91% | $128,350 | 37.13% | 74.25% |
| $260,000 | $36,860 | 9.22% | $131,140 | 28.11% | 56.21% |
| $270,000 | $26,070 | 6.52% | $133,930 | 19.47% | 38.93% |
Assumptions held fixed: $400,000 ARV, $50,000 rehab at 10% contingency, six months at $600 carry, 80% financing at 12% with 2 points, 1.5% buy-side closing, 6% total sell-side costs. Every $10,000 you overpay costs $10,790 of profit.
ARV is an estimate, and it is the input with the largest lever
Every other input is something you can quote: the contractor gives you a scope, the lender gives you a term sheet, the title company gives you a fee schedule. ARV is the one number you produce yourself, and the whole pro forma pivots on it. In the worked example, a 5% ARV miss — $380,000 instead of $400,000 — cuts net profit from $47,650 to $28,850, a 39% reduction, because the sale price falls by $20,000 while sell-side costs only fall by $1,200.
Derive ARV from closed sales of renovated houses within the same school attendance area, same style, and within roughly 10% of the finished square footage, adjusted with the comparable sales adjustment method. Then run the deal again at 95% of that number and see whether you still want it.
Costs flippers leave out of the pro forma
- Interest on rehab draws. If the lender funds the rehab, that money accrues interest too. Add the average outstanding draw balance to the loan amount rather than using only the acquisition loan.
- The lender's fees that are not points. Underwriting, draw inspection fees at $150–$300 per draw, appraisal, and an exit fee on some hard-money products. Roll them into buy-side closing.
- Days on market after the work is done. A rehab that finishes in four months and sells in three is a seven-month hold. Carry and interest do not stop when the last cabinet goes in.
- Buyer concessions and repair credits. Negotiated after inspection, and paid out of your proceeds. They belong in the sell-side percentage.
- Income tax. Flip profit is ordinary income to a dealer in property, not long-term capital gain, and it is generally subject to self-employment tax if you flip as a trade or business. This calculator reports pre-tax profit.
- Your own labour. If you swing a hammer, you have converted unpaid time into profit. The deal looks better than it is on a per-hour basis.
- Permit and utility connection costs on anything structural, and the schedule risk that comes with an inspection queue.
Where this sits among the other flip tools
Use this calculator once you have a specific property, a scope, and a lender quote. It is the full pro forma, and it answers "is this deal worth doing, and at what price?"
Earlier in the funnel, the 70% rule gives you a one-line screen: multiply ARV by 0.70 and subtract repairs to get a maximum offer. It is a fast filter, not an analysis, and it is a poor one in low-priced markets where fixed costs dominate. The maximum allowable offer calculator inverts this page's arithmetic — you state the profit you require and it solves for the purchase price that delivers it.
To build the rehab number rather than guess it, work through the rehab cost calculator room by room. To isolate the carry, the holding cost calculator breaks out the monthly bleed by line item. If your lender is a hard-money shop, the hard money loan cost calculator converts points and fees into a true annualized cost of funds.
If you are weighing whether to sell at all, the BRRRR calculator models the alternative: refinance the finished house, pull your capital back out, and keep it as a rental. That path trades the flip's one-time profit for ongoing cash flow and, unlike a flip, gives you long-term capital gain treatment and depreciation. The break-even between them usually turns on how much of your capital the refinance actually returns.
Nothing here is a legal or tax opinion. The tax treatment of flip income depends on facts about your intent, frequency and holding period that only your accountant can assess.