How to use the house flip calculator
- Enter the purchase price, the rehab budget and the after repair value (ARV), which is what a similar renovated home sells for.
- Enter the months you will hold the property and the monthly holding costs such as property tax, insurance and utilities.
- Set the buying closing costs and selling costs as percents. The defaults are examples, so use quotes from your agent and title company.
- If you finance the purchase, open the advanced options and enter the loan, rate and points. Read the profit, return on cash and the maximum offer from your own rule.
Formula
Total cost = purchase + buying costs + rehab + holding + loan interest and points + selling costs
Profit = ARV - total cost
Cash invested = total cost - selling costs - loan
Return on cash = profit / cash invested
Maximum purchase price = ARV x rule % - rehab
Loan interest is interest only on the loan for the months held. The 70% default is an example rule of thumb that you can change.
Worked example
Buy for $170,000, spend $45,000 on rehab and sell at an ARV of $320,000 after 6 months. Buying costs at 2% are $3,400, holding costs are 6 x $1,200 = $7,200 and selling costs at 8% are $25,600.
Total cost is $251,200, so profit is $68,800. The 70% rule gives a maximum purchase of $320,000 x 0.70 - $45,000 = $179,000. With an 80% loan at 10% and 2 points, financing costs $6,800 of interest and $2,720 of points, cutting profit to $59,280.
The 70 percent rule
The rule says to pay no more than 70% of the ARV minus repairs, leaving room for costs and profit. It is a rough screen used by many investors, not a law, and it fails in very cheap or very expensive markets. The percent is editable here so you can test your own margin.
Where flips go wrong
Overestimated ARV, rehab overruns and a longer hold are the usual causes. Add a cushion to rehab and months, and compare the ARV against recent sales rather than listings. Taxes on the profit are not included. Compare the flip with holding the home as a rental using the rental property calculator and measure return with the ROI calculator.
Financing and cash needed
Short term loans often charge higher rates and points, and they can be interest only. Enter your terms to see how financing changes profit and return on cash. For a standard purchase loan see the mortgage calculator, and for closing costs see the closing cost calculator.
Assumptions and limits
- ARV, rehab, holding costs, closing and selling percents, loan terms and the 70% rule are inputs or examples.
- The loan covers a share of the purchase price only, with interest only payments.
- Income and capital gains tax, permit delays, carrying costs after the hold and unexpected repairs are not modeled.
- This is a first screen for a project, not a forecast or investment advice.
Frequently asked questions
How do I calculate house flipping profit?
Subtract the purchase price, closing costs, rehab, holding costs, financing costs and selling costs from the after repair value. What remains is the pre tax profit.
What is the 70 percent rule in house flipping?
It says to pay at most 70% of the after repair value minus the repair costs. It is a rule of thumb for leaving room for costs and profit, not a guarantee.
What is ARV?
After repair value is the price the home should sell for once the work is done, usually judged from recent sales of similar renovated homes nearby.
Why is return on cash different from profit margin?
Return on cash divides profit by the money you put in, so a loan can raise it. Margin divides profit by the sale price. Both are shown so you can compare.