How to calculate fix and flip profit

Profit on a flip is what is left after you buy the house, repair it, carry it, and sell it. The gap between the after-repair value and the purchase price is not profit. Closing costs and the months you own the house come out of that gap before any dollar is yours. This page uses the same line items as the flip projection in the deal report, so you can reproduce the figure with a calculator.

The line items

The projection takes an after-repair value, a rehab cost, and a purchase price. In the report the purchase price is the maximum allowable offer from the 25/5/3 formula. You can put any purchase price through the same steps. Buyer closing is 3 percent of the purchase price, rounded to the nearest dollar. Seller closing is 6 percent of the after-repair value, rounded to the nearest dollar. That seller line stands in for the commission and the other costs of reselling at the ARV. It is not a second buyer-closing charge.

Holding is 0.5 percent of the purchase price for each month you expect to own the house, and the default hold is 6 months. The report rounds the whole holding line once: purchase price times 0.005 times the month count. A separate per-month figure, purchase price times 0.005 rounded by itself, is useful when you want to see what one extra month costs. On many prices the two versions match. When they differ by a dollar, use the single rounding of the full hold, because that is what the projection stores.

Total investment is the purchase price plus rehab plus buyer closing plus holding. Net proceeds are the ARV minus seller closing. Profit is net proceeds minus total investment. ROI is profit divided by total investment, multiplied by 100, then rounded to one decimal place. The rounding used in the report is round(profit / total investment × 1000) / 10. If total investment is zero, ROI is reported as 0 rather than as a divide-by-zero error.

A worked example

These figures are a worked example so the arithmetic can be checked. They are not a closed sale and not a recommendation of a price. After-repair value is $200,000. Rehab is $40,000. The purchase price is $94,000, which is the 25/5/3 maximum allowable offer on that ARV and that rehab. You can reproduce the $94,000 on the MAO calculator.

• Buyer closing is 3 percent of $94,000, which rounds to $2,820.
• Holding for 6 months is $94,000 times 0.005 times 6, which rounds to $2,820. One month of that rate is $470.
• Seller closing is 6 percent of $200,000, which is $12,000.
• Total investment is $94,000 + $40,000 + $2,820 + $2,820 = $139,640.
• Net proceeds are $200,000 − $12,000 = $188,000.
• Profit is $188,000 − $139,640 = $48,360.
• ROI is $48,360 / $139,640, which the one-decimal rounding reports as 34.6 percent.

Read $48,360 as the profit if every assumption holds: you buy at $94,000, you spend $40,000 and not a dollar more, you sell at the full $200,000, you pay cash, and you own the house for six months. A sale below the ARV, or a rehab overrun, comes straight out of that profit. The projection does not add a cushion on top of the numbers you gave it.

Do not subtract the offer reserve twice

The offer formula reserves 3 percent of ARV as holding before it will name a purchase price. On this example that reserve is $6,000, and it is already inside the $94,000. The price is lower because of it. You did not also write a $6,000 check labeled holding at the closing table. The flip projection then estimates holding a second way, as 0.5 percent of the purchase price per month, which is $2,820 over six months.

Those two lines do different jobs. The 3 percent reserve is a cushion inside the offer so you do not bid as if carry will be free. The monthly line is a projection of carry after you already own the house. If you subtract the $6,000 again from the $48,360, you have counted one cushion twice and the profit is no longer the projection. Use the monthly line when you are projecting the flip. Use the 3 percent line when you are setting the offer. The holding-cost guide splits the monthly bill into the items a flat percent is standing in for.

What the profit figure leaves out

The projection assumes you pay cash. Interest on a hard-money loan or a private loan is not inside the 0.5 percent monthly line. A point the lender charges at the closing table is not inside the 3 percent buyer-closing line. If you finance the purchase, add the interest and the points yourself on top of these lines, or the $48,360 will be high. The hard money interest guide runs the published hard-money preset on this same example. The monthly holding line is a stand-in for taxes, insurance, utilities, and similar carry, not for debt service.

It also assumes a six-month hold and a sale at the full after-repair value. Each extra month at a $94,000 purchase price adds $470 of holding before rounding the full hold. Selling at $190,000 instead of $200,000 costs you both the $10,000 of price and a slightly smaller seller-closing line, because seller closing is 6 percent of the ARV you told the formula, not of the price you actually get. If you know the resale price will differ from the ARV, put that resale price in the ARV slot for this worksheet only, and keep the comp-based ARV for the offer. Mixing the two without saying so is how a thin deal looks profitable.

The ARV in the example is a round number chosen so the subtraction is easy to audit. Before you treat a real property the same way, the ARV has to come from sold comps, not from the list price and not from this page. How to pull comps for a house flip is the weight the report gives to recency, distance, and similarity, and why a weighted median is not the same as an average of the sold prices.

How to use the number before you write an offer

If the profit is thin before you have walked the house, the purchase price is the lever you actually control. Repairs and ARV move the profit too, but they are estimates of the property. Drop the purchase price, recompute buyer closing and holding from the new price, and leave seller closing tied to the ARV. A lower purchase price reduces three lines at once: the price itself, 3 percent of that price, and 0.5 percent of that price per month. Rehab does not fall just because you paid less, unless the scope changes.

A practical order is: set the ARV from comps, set the rehab from a written scope, run the offer through the MAO calculator, then run this page’s lines with that purchase price. If the profit only appears after you shrink the rehab or raise the ARV, you do not have a profit yet. You have a hope that the inputs were conservative. Change the inputs only when the scope or the comps support the change.

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