How flip profit is calculated
A flip earns money only once: when the house sells. Every month between purchase and sale costs money, so the calculation adds up everything you spend and subtracts it from what you receive.
Total cost = purchase + purchase closing + rehab + holding costs + loan interest + loan points
Profit = sale price − selling costs − total cost
Return on cash = profit ÷ (total cost − loan amount)
Holding costs are what the house costs you each month while you own it: property tax, insurance (a vacant or builder's risk policy), utilities, HOA dues, lawn care and security. Selling costs include agent commissions, the seller's share of title and escrow fees, transfer taxes and any credits to the buyer. Together they often reach 6–10% of the sale price, so enter a figure that matches how you will actually sell.
Short-term flip loans are usually interest-only with points (an upfront fee as a percentage of the loan), so the calculator charges interest on the loan amount for every month you hold the property.
Worked example
A house bought for $200,000 with $4,000 of closing costs needs a $50,000 rehab. It takes 6 months to renovate and sell, holding costs are $900 a month, and it sells for $320,000 with 7% selling costs.
- Holding: $900 × 6 = $5,400. Total cost: 200,000 + 4,000 + 50,000 + 5,400 = $259,400.
- Selling costs: 7% × $320,000 = $22,400.
- Profit: 320,000 − 22,400 − 259,400 = $38,200, an 11.9% margin on the sale.
- Paid with cash, that is a 14.7% return on $259,400 in six months, about 31.6% a year.
With a $200,000 hard money loan at 10% interest-only and 2 points, the loan costs $10,000 of interest and $4,000 of points. Profit falls to $24,200, but you only need $73,400 of your own cash, a 33.0% return in six months.
Time is expensive: if the same cash flip takes 10 months instead of 6, holding costs rise to $9,000, profit drops to $34,600 and the annualized return falls to about 16%. And if the sale price is $300,000 while the rehab runs to $60,000, profit shrinks to only $9,600.
The 70% rule
A common screening rule says the most you should pay for a flip is 70% of the after-repair value minus the rehab cost. The remaining 30% is meant to cover closing, holding, financing and selling costs plus a profit. In the example, 70% × $320,000 − $50,000 = $174,000, well below the $200,000 purchase price, which is why the profit is thinner than a "typical" flip. The rule is a quick filter; in expensive markets or for cheap houses the percentage may need to change, and a full calculation like this one is what matters.
Estimating the after-repair value
The ARV is the price the renovated house will sell for. Base it on recent sales (not listings) of similar homes in the same neighborhood after renovation: same size, bedrooms, bathrooms, lot and condition. A small error in ARV changes profit dollar for dollar, so test a lower sale price before you buy.
Taxes on flip profits
The profit shown is before income tax. A house held for one year or less and sold at a gain does not qualify for long-term capital gains rates. If you flip houses regularly as a business, the IRS may treat you as a dealer, so the profit is ordinary income that can also be subject to self-employment tax. Talk to a tax professional before your first flip.
Common flip mistakes
- No contingency: many investors add 10–20% to the rehab budget for surprises behind walls.
- Underestimating time for permits, contractors and the sale itself.
- Forgetting the cost of holding the house while it is listed.
- Using an ARV from the best sale in the area instead of the typical one.
Frequently asked questions
How do you calculate profit on a house flip?
Subtract selling costs and every cost of owning the house (purchase, closing, rehab, holding, loan interest and points) from the sale price.
What is the 70% rule in house flipping?
Pay no more than 70% of the after-repair value minus the rehab cost. For a $320,000 ARV and a $50,000 rehab, that is $174,000.
How much are selling costs on a flip?
Commissions, seller closing costs, transfer taxes and buyer credits together often come to about 6–10% of the sale price, depending on the state and how you sell.
Does financing increase my return?
A loan adds interest and points, so profit falls, but you need less of your own cash, so the return on that cash can rise. It also increases the risk if the sale takes longer or the price is lower.
Are flip profits taxed as capital gains?
Usually not at long-term rates, because flips are normally held one year or less. Frequent flippers may be treated as dealers and pay ordinary income and self-employment tax.
Sources
- Internal Revenue Service. Topic no. 409, Capital gains and losses (holding period of more than one year for long-term treatment).
- Internal Revenue Service. Publication 544, Sales and Other Dispositions of Assets.
Last reviewed 3 November 2026. Results are estimates; see our disclaimer.