How to Calculate Flip Profit Accurately
Most new investors calculate flip profit as: sale price minus purchase price minus rehab. That's a starting point, but it misses several cost categories that can reduce your actual profit by 25-40%. A flip that looks like a $50K profit on paper can easily net $30K after all costs are accounted for. This guide covers every line item you need to include for an accurate profit projection.
The complete flip profit formula
Net Flip Profit = Sale Price − Purchase Price − Rehab Costs − Purchase Closing Costs − Holding Costs − Selling Costs − Financing Costs
Let's break down each component with real numbers for a typical flip.
1. Sale price (your ARV)
Start with a conservative ARV estimate based on comparable sales. Use the median of your adjusted comps, not the highest. For this example: $285,000.
2. Purchase price
What you're paying for the property: $175,000.
3. Purchase closing costs (1-3% of purchase price)
These costs are incurred when you buy the property:
- Title insurance (owner's policy): $800-$1,500
- Escrow/settlement fee: $500-$1,000
- Recording fees: $100-$300
- Transfer taxes (varies by state): $0-$2,000
- Attorney fee (closing states): $500-$1,000
- Inspection fee: $300-$500
- Survey (if required): $300-$600
Estimate: $3,500
4. Rehab costs
Your renovation budget based on detailed repair estimation. Include materials, labor, permits, dumpster, and a 10-15% contingency.
Estimate: $42,000
5. Holding costs
Every month you own the property costs money, even when it's vacant during renovation. These costs add up fast and are the most commonly underestimated category.
Monthly holding costs:
- Property taxes: $400/month (varies widely by area)
- Insurance (builder's risk or vacancy): $150/month
- Utilities (electric, water, gas for renovation): $200/month
- Lawn maintenance: $100/month
- HOA (if applicable): $0-$300/month
Monthly total: ~$850/month. Over a 5-month project (3 months rehab + 2 months on market): $4,250
See our guide on holding costs as the hidden deal killer for a complete breakdown.
6. Financing costs
If you're using hard money or private money, financing costs include:
- Loan origination fee (2-3 points): $3,500-$5,250 on a $175K loan
- Monthly interest (10-14% annual rate): $1,460-$2,040/month
- Over 5 months: $7,300-$10,200
- Appraisal fee: $400-$600
- Document preparation: $500-$1,000
Estimate (hard money at 12%, 2 points, 5 months): $12,350
If using cash, your financing cost is $0, but you should still calculate opportunity cost: that capital could have earned returns elsewhere.
7. Selling costs (8-10% of sale price)
Selling costs are the largest hidden expense and the one most often underestimated:
- Real estate agent commissions (5-6%): $14,250-$17,100
- Title insurance (buyer's policy, if seller pays): $800-$1,200
- Escrow/settlement fee: $500-$1,000
- Transfer taxes: $0-$2,000
- Seller concessions (closing cost credits to buyer): $0-$8,550 (0-3% of sale price)
- Home warranty (often expected by buyers): $400-$600
- Staging (if needed): $500-$2,000
- Professional photos: $200-$400
Estimate (with 5.5% commission, 2% concessions): $22,750
Complete calculation
| Line Item | Amount |
|---|---|
| Sale price | $285,000 |
| Purchase price | -$175,000 |
| Purchase closing costs | -$3,500 |
| Rehab costs | -$42,000 |
| Holding costs (5 months) | -$4,250 |
| Financing costs | -$12,350 |
| Selling costs | -$22,750 |
| Net profit | $25,150 |
Notice: the "quick math" approach ($285K - $175K - $42K = $68K) overstates the actual profit by $42,850. That's the cost of ignoring closing costs, holding costs, financing, and selling costs.
Key profit metrics
- Net profit margin: $25,150 / $285,000 = 8.8% (of sale price)
- ROI on cash invested: $25,150 / $220,500 (purchase + rehab) = 11.4%
- Annualized ROI: 11.4% x (12/5) = 27.4% (over 5-month project)
- Cash-on-cash: If leveraged with 20% down ($35K + $42K rehab = $77K cash in), ROI = $25,150 / $77,000 = 32.7%
Use the profit calculator to run these numbers for your specific deals. The MAO calculator works backward from your desired profit to determine the maximum purchase price.
Stress-testing your profit
Run three scenarios for every flip:
- Best case: ARV achieved, rehab on budget, sells in 30 days
- Base case: ARV minus 3%, rehab 10% over budget, sells in 60 days
- Worst case: ARV minus 7%, rehab 25% over budget, sells in 120 days
If the worst case still shows a positive profit (even if small), the deal has adequate margin. If the worst case is a loss, the deal is too thin unless you can acquire at a lower price.
The minimum profit threshold
Most experienced flippers won't pursue a deal with less than $20K-$25K in projected net profit. Below that, one unexpected expense or a slower-than-expected sale wipes out the margin entirely. The risk-adjusted return needs to justify the time, capital, and stress of managing a renovation project.
For each deal, use comp analysis for ARV, repair estimation for rehab costs, and the profit calculator for the complete picture.
Related articles
- Holding Costs: The Hidden Deal Killer
- Flip vs Rent: How to Decide
- Maximum Allowable Offer Guide
- ARV Mistakes That Kill Deals