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How To Calculate House Flipping Profit

By The Calcumatix Team Reviewed by Calcumatix Editorial Review 4 min read

Quick Answer

House flipping profit equals After-Repair Value minus Purchase Price minus Repair Costs minus Holding and Selling Costs. On a property with an ARV of $300,000, bought for $165,000, with $45,000 in repairs and $30,000 in holding and selling costs, the profit is $300,000 - $165,000 - $45,000 - $30,000 = $60,000. The 70% rule sets a maximum purchase price of (ARV × 0.70) - Repair Costs to ensure that 30% margin is available to cover those costs and profit.

Every house flip has two numbers that determine whether you make money: the maximum price you can pay for the property, and the net profit after all costs come out on the other side. The 70% rule gives you the first number fast. The full profit formula gives you the second. Both depend on an accurate after-repair value, which is why your ARV estimate is the most important input in the entire calculation. This guide walks through both formulas with a full worked example.

How Does The 70% Rule Calculate The Maximum Offer?

The 70% rule is a deal-screening tool: it tells you the highest price you can pay for a property and still leave enough margin for holding costs, selling costs, and a reasonable profit. It does not guarantee a specific profit amount, but it creates a buffer in which profit can exist. The formula is: Max Purchase Price = (ARV × 0.70) - Repair Costs. By applying this simple rule before making any offers, you protect your potential upside.

Step by step:

  1. Obtain an ARV estimate from comparable sales (comps) in the same neighborhood, within the last 90 days, for properties of similar size and condition after renovation.
  2. Multiply ARV by 0.70.
  3. Subtract your estimated total repair costs.
  4. The result is your Maximum Allowable Offer.

Worked example: ARV is $300,000, and repair costs are $45,000. All calculations are rounded to the nearest dollar. Step 1 (multiply ARV): 300,000 × 0.70 = 210,000. Step 2 (subtract repairs): 210,000 - 45,000 = 165,000.

Maximum purchase price: $165,000. The 30% margin withheld (in this case $90,000) must cover all holding costs, selling costs, and net profit. If you pay more than $165,000, the margin shrinks and profit becomes at risk. Use the House Flipping Calculator to model this for your specific deal.

How Do You Calculate The Full House Flipping Profit?

Once you have a purchase price and full cost breakdown, the profit formula gives the exact net result. The full profit formula is: Profit = ARV - Purchase Price - Repair Costs - Holding Costs - Selling Costs. This formula is critical because it captures every expense associated with the flip, ensuring no hidden costs erode your expected margins.

Step by step:

  1. Start with the ARV (the sale price you expect after renovation).
  2. Subtract the purchase price of the property.
  3. Subtract all repair and renovation costs (labor, materials, permits).
  4. Subtract holding costs: mortgage or hard-money loan interest, property taxes, insurance, and utilities paid during the renovation period.
  5. Subtract selling costs: real estate agent commissions (typically 5 to 6% of sale price), closing costs, and staging fees.
  6. The remainder is gross profit before income tax.

Worked example: ARV is $300,000, purchase price is $165,000, repair costs are $45,000, holding costs are $15,000, and selling costs are $15,000. All calculations are rounded to the nearest dollar. Step 1 (gross margin): 300,000 - 165,000 = 135,000. Step 2 (margin after repairs): 135,000 - 45,000 = 90,000. Step 3 (subtract holding and selling): 90,000 - 15,000 - 15,000 = 60,000.

Net profit before tax: $60,000. That is a 25% return on total capital deployed ($60,000 profit divided by $240,000 in purchase price, repairs, and holding/selling costs combined), consistent with the margin the 70% rule is designed to protect.

What Costs Go Into A House Flip Budget?

The most common reason flips lose money is underestimating the cost side of the formula. Each cost category deserves its own line item.

Repair and renovation costs:

  • Structural repairs (foundation, roof, framing)
  • Mechanical systems (HVAC, plumbing, electrical)
  • Interior finishes (flooring, paint, fixtures, kitchen, bathrooms)
  • Permits and inspections
  • Contractor labor and a 10 to 15% contingency buffer

Holding costs (per month of ownership):

  • Loan interest (hard-money loans often carry 10 to 15% annual interest)
  • Property taxes (pro-rated monthly)
  • Homeowner’s insurance
  • Utilities kept on during renovation

Selling costs:

  • Real estate agent commission (5 to 6% of sale price is a common range, per the National Association of Realtors)
  • Closing costs paid by the seller (1 to 3% of sale price)
  • Staging and photography

Why The ARV Is The Most Important Number In Any Flip

The 70% rule and the profit formula both depend entirely on ARV accuracy. If ARV is overstated by $20,000, the maximum purchase price rises by $14,000 (70% of $20,000) and the profit projection rises by $20,000, but neither of those gains is real if the market will not support the higher price. Overstated ARVs are the leading cause of unprofitable flips.

To arrive at a defensible ARV:

  • Pull comparable sales from the MLS, ideally within 0.5 miles and 90 days.
  • Match square footage within 20% and bedroom count exactly.
  • Adjust for condition differences (renovated vs. unrenovated comps).
  • Have a licensed real estate agent or appraiser confirm the estimate before committing to a purchase price.

See the finance calculators hub for related investment and real estate tools.

Sources and References

Disclaimer: This guide is for educational and informational purposes only. It is not financial, investment, or tax advice. House flipping involves substantial financial risk. Actual results depend on local market conditions, renovation costs, financing terms, and factors that cannot be modeled in a formula. Consult a licensed real estate professional, accountant, and financial advisor before making any investment decision.

Frequently asked questions

What does ARV mean in house flipping?

ARV stands for after-repair value. It is the estimated market value of the property after all planned renovations are complete. It is not the list price or the assessed value. ARV comes from an analysis of recent comparable sales of similar renovated properties in the same neighborhood. Getting ARV wrong in either direction is the most common source of error in flip profit calculations.

Is the 70% rule always the right threshold?

The 70% rule is a guideline, not a law. In highly competitive markets where well-renovated properties sell quickly and at premium prices, investors sometimes offer 75 to 80% of ARV minus repairs and still make a profit because their holding costs are shorter and selling costs are lower. In slower markets or on higher-priced properties, some investors apply 65% to preserve margin. Adjust based on your specific market, deal size, and financing costs.

How do hard-money loan costs affect the profit calculation?

Hard-money loans typically carry interest rates of 10 to 15% annually, per common rates published by real estate lenders, plus origination points of 1 to 3% of the loan amount. For a $165,000 loan at 12% annual interest over a 6-month renovation, the interest cost alone is $165,000 × 0.12 × 0.5 = $9,900. Add 2 points origination ($3,300) and the financing cost is $13,200, which must come out of the 30% margin.

What is the difference between gross profit and net profit on a flip?

Gross profit is ARV minus purchase price. Net profit is what remains after subtracting repair, holding, and selling costs. The worked example in this guide shows a gross profit of $135,000 and a net profit of $60,000 on the same deal. Tax liability further reduces net profit: short-term capital gains (for flips held under one year) are taxed as ordinary income at the investor's marginal rate.

How do I calculate return on investment for a house flip?

Divide net profit by total capital deployed. Total capital deployed equals purchase price plus repair costs plus holding costs plus selling costs. In the worked example: $60,000 / ($165,000 + $45,000 + $30,000) = $60,000 / $240,000 = 25% ROI. This is the pre-tax return on total deployed capital, not just the down payment, and is the standard metric for comparing flip deals.