How to calculate house flipping profit, step by step
To calculate house flipping profit, add up the four costs — the purchase price, the rehab, the holding costs, and the selling costs — and subtract them from the sale price. A $200,000 purchase with $50,000 of rehab, 6 months at $1,500 a month, and 8% selling costs on a $300,000 sale leaves $17,000 profit. The whole method is seven steps, and the only judgment in it is the sale price and the rehab budget — the two numbers a flipper is most likely to get wrong. Get those right and the profit is honest; get them wrong and it is a fantasy.
The worked example: $200,000, $50,000 rehab, 6 months, $300,000 sale
Step 1 — write down the purchase price: $200,000. Step 2 — write down the rehab: $50,000. Step 3 — work out the holding cost: 6 months at $1,500 a month is $9,000. Step 4 — add the three together: $200,000 plus $50,000 plus $9,000 is $259,000, and that is the cash invested — the money actually at risk. Step 5 — work out the selling costs: 8% of the $300,000 sale price is $24,000. Step 6 — add the selling costs to the cash invested: $259,000 plus $24,000 is $283,000, the total cost. Step 7 — subtract the total cost from the sale price: $300,000 minus $283,000 is $17,000, and that is the profit. The ROI is the profit divided by the cash invested, times 100: $17,000 divided by $259,000 is 6.56%. The house-flipping-calculator does the same seven steps for any flip, with the branches that show what changes when any one of them moves.
What counts as a cost
The purchase price is what you pay for the house before any work — $200,000 here. The rehab is what the renovation costs, all in: materials, labour, permits, and the contingency for what you find behind the walls — $50,000 here. The holding cost is what the house costs every month you own it: the mortgage, the tax, the insurance and the utilities — $1,500 a month here, $9,000 over 6 months. The selling costs are the agent commission on both sides plus the closing costs, taken as a share of the sale price: 8% here, $24,000 on a $300,000 sale. The cash invested is the first three added together — $259,000 — because that is the money that is actually at risk while the flip runs. The selling costs sit apart from it, because they are only paid if the sale happens. Income tax on the profit, fees on the purchase loan, and the value of your own time sit outside this calculation.
What the ROI tells you
The ROI tells you what the money at risk earned, and nothing else. A 6.56% ROI means the $259,000 came back as $259,000 plus $17,000 after 6 months — 6.56% on the money that was actually at risk. The same $17,000 profit is a 15.48% ROI if the purchase is $180,000 instead of $200,000, and a loss of $3,000 — a −1.08% ROI — if the purchase is $220,000. The profit margin on the sale is a different number: $17,000 kept out of every $300,000 of sale price is 5.67%. A 6.56% return in 6 months is fair but thin for the risk — a rehab $30,000 over budget turns this flip into a $13,000 loss. The honest question is never "is 6.56% good" but "is 6.56% enough for the risk, the work, and the months my money is tied up".
How to work backwards from a target profit
To find the sale price a target profit needs, add the profit to the cash invested and divide by one minus the selling-cost rate: for a $50,000 profit on $259,000 of cash invested at 8% selling costs, the sale has to reach about $335,900. For a 10% ROI, the most to pay is about $191,900 — pay more and the ROI falls below the target. The break-even sale price is the cash invested divided by one minus the selling-cost rate: $259,000 divided by 0.92 is about $281,500. Sell above it and the flip makes money; sell below it and it loses. The house-flipping-calculator works all three backwards — sale price, purchase price and break-even — for any target you type in.
What counts as a good flip
There is no single good flip. Most flippers target 10% to 20% on the cash invested, and a common rule of thumb is the 70% rule: pay no more than 70% of the after-repair value minus the rehab — on these numbers, 70% of $300,000 minus $50,000 is $160,000, well below the $200,000 purchase here, which is why this deal is thin. The rule screens against overpaying; it does not replace the seven steps above. The range moves with the market and the risk: a cosmetic flip in a hot market can work at a lower ROI than a structural rehab in a slow one, because the money is at risk for fewer months and the sale is more certain. The honest test is the break-even: about $281,500 here, against a $300,000 sale — an $18,500 cushion. If the cushion is thinner than the rehab contingency, the flip is a bet, not a plan.
Common mistakes
The first mistake is forgetting the selling costs: $300,000 minus $259,000 is $41,000, and it looks wonderful until the $24,000 of commission and closing arrives. The second is underestimating the rehab: a $50,000 budget with no contingency becomes $80,000 the moment the bathroom floor comes up, and this flip goes from $17,000 profit to a $13,000 loss. The third is underestimating the holding months: 12 months instead of 6 costs another $9,000 and takes the profit from $17,000 to $8,000, and a rehab that runs three months over schedule costs $4,500 before a single extra nail is bought. The fourth is dividing by the purchase price instead of the cash invested: $17,000 divided by $200,000 is 8.50%, flattering the deal by leaving the rehab and the holding costs out. And the fifth is trusting the ARV: a house that appraises below $300,000 changes every number on this page, so check the comparables before the offer goes in, not after the rehab is done.
A quick check you can do in your head
You can sanity-check any flip without a calculator. First, the pieces must add up: $200,000 plus $50,000 plus $9,000 is $259,000, plus $24,000 of selling costs is $283,000, and $300,000 minus $283,000 is $17,000. Second, the profit must fall with every cost and rise with the sale price: a $180,000 purchase gives $37,000 profit, a $220,000 purchase gives a $3,000 loss, $80,000 of rehab gives a $13,000 loss, and a $350,000 sale gives $63,000 profit. Third, the backwards figures must line up: about $335,900 of sale price, about $191,900 of purchase price, and about $281,500 of break-even all describe the same deal from three directions. If a flip breaks any of these checks, the number is wrong — check your numbers in the house-flipping-calculator against the worked example above.