How to Calculate Profit on a House Flip (Formula and Example)

Profit on a house flip is the after-repair value minus every cost between buying and selling: ARV − purchase price − rehab − contingency − purchase closing costs − financing − holding costs − selling costs. On a $320,000 ARV house bought for $200,000 with a $48,000 rehab, a cash flip earns $35,000 — a 10.9% margin — and the same flip on hard money earns $17,540.

The flip profit formula, line by line

ARV (after repair value) is what the house should sell for once the work is done; everything else is a cost. The formula Flip Investor OS uses in its deal analysis and in the free Flip profit calculator:

Profit = ARV − Purchase price − (Rehab + Contingency) − Purchase costs − Financing (points + interest) − Holding costs − Selling costs
Margin = Profit ÷ ARV
ROI    = Profit ÷ Cash invested

The eight lines, with the defaults the app starts from (you replace them with your own):

1. ARV — from 3–5 renovated comps; see how to calculate ARV.
2. Purchase price — what you pay the seller.
3. Rehab — the repair estimate, ideally built zone by zone from a walk-through.
4. Contingency — a reserve for surprises; default 10% of the rehab.
5. Purchase closing costs — title, escrow, recording, lender fees; default 2% of the price.
6. Financing — points when the loan is made plus interest for every month; zero if you pay cash.
7. Holding costs — taxes, insurance, utilities, HOA and other monthly costs for the whole hold; default $1,500 a month for 6 months.
8. Selling costs — agent commissions and the seller's closing costs; default 6% of ARV.

Costs vary by market, lender and season; the defaults are a starting point, not a forecast. What does not vary is the list. Most flips that disappoint on paper left out lines 4, 6, 7 or 8.

Worked example: a cash flip

The example house used across this site: 1,600 sq ft, 3 bed 2 bath, built in 1978.

Check the total: 200,000 + 52,800 + 4,000 + 9,000 + 19,200 = 285,000; 320,000 − 285,000 = 35,000.

Selling costs are not part of cash invested: they are paid out of the sale proceeds, so you never front them. Everything else is money that leaves your account before the house sells.

The same flip with hard money

Hard money is a short-term loan from a private lender, priced in points (a fee of 1% of the loan each) and a high annual rate. The app's default loan funds 90% of the purchase price and 100% of the rehab budget including contingency, at 11% a year with 2 points. The simplification the app states openly: interest is charged on the full loan for the whole term, even though a lender usually releases rehab money in draws — a conservative assumption.

The loan took half the profit and more than four-fifths of the cash requirement off the table at the same time. Both facts are true; which one matters depends on what else your money could be doing. The loan math on its own, with draws and cash at closing, is in the hard money loan article.

Margin vs ROI: two different questions

Margin — profit divided by ARV — measures safety. A 10.9% margin means the sale price can come in 10.9% lower, or the costs 10.9% of ARV higher, before the profit is gone. It does not care how the deal was financed.

ROI — profit divided by the cash you put in — measures efficiency. It says what your own money earned. Borrowing raises it, because the denominator shrinks faster than the numerator.

The hard money case shows why you need both. ROI went from 13.2% to 34.8%, which looks like a better deal. Margin went from 10.9% to 5.5%, which says the deal became twice as fragile: an ARV 6% below plan now produces a loss instead of a smaller profit. A deal with a great ROI and a thin margin is a deal that pays well if nothing goes wrong.

Annualized ROI (ROI × 12 ÷ months) is useful for comparing a four-month flip with a ten-month one, and dangerous in isolation: it rewards speed, and speed is the number most likely to slip.

What profit target makes sense?

Flip Investor OS uses a target profit of 10% of ARV by default — $32,000 on this house — and turns it into the one number a buyer needs: the maximum price at which the profit still equals the target, every cost counted.

Maximum offer (cash) = (ARV − Selling − Holding − Rehab − Contingency − Target profit) ÷ (1 + Purchase costs %)

On the example house that is (320,000 − 19,200 − 9,000 − 52,800 − 32,000) ÷ 1.02 = $202,941 cash, and $186,703 with the hard money loan above, because every borrowed dollar of price also costs points and interest. At $200,000 the cash buyer is $2,941 under the ceiling; the hard money buyer is $13,297 over it, and each dollar of price above the ceiling costs about $1.09 of profit once the purchase costs and the loan on it are counted: 13,297 × 1.0875 ≈ $14,460, the distance between $17,540 and $32,000. The 70% rule article compares this full offer with the rule of thumb on the same house.

Why a share of ARV rather than a fixed dollar amount? Because the risk scales with the price. $32,000 on a $320,000 house and $32,000 on a $700,000 house are not the same margin of safety; 10% of each is.

You can open the free calculator with your own numbers; the price for a 10%-of-ARV profit is shown next to the profit.

Stress tests: ARV −5%, rehab +20%, three more months

A profit on paper is a profit under one set of assumptions. The three that fail most often are the sale price, the rehab and the timeline, so the app runs three stress tests and then all of them together. On the cash example:

Check the last row: 304,000 − 200,000 − 63,360 − 4,000 − 13,500 − 18,240 = 4,900. With hard money the same "all together" case — a larger loan for nine months — turns into a loss of roughly $20,000.

None of these is a prediction. A 5% miss on ARV is one comp that did not hold; 20% on the rehab is one surprise behind a wall; three months is one slow permit office or one slow buyer. Each alone leaves this deal in profit. All three together leave $4,900 for six to nine months of work and $265,800 at risk — and that is the number to look at before signing, because it is the one you would live with.

The app's deal score describes exactly this — how much margin survives the stress tests, and how firm the inputs are — with neutral labels. It does not say buy or don't buy; the margin and the risk are on the screen, and the decision is yours.

From the calculator to the project

A calculator answers "is there a profit at this price?". The next question — "did I actually make it?" — needs three numbers kept apart, and most spreadsheets merge them by the second week.

In Flip Investor OS a property's deal analysis becomes the original plan when it turns into a project, and that plan is frozen. Next to it sits the current forecast, which changes as bids arrive and surprises appear, and the actual, built from expenses with their receipts. Line by line, the project shows what changed and why: a bid $3,000 over the estimate, a month added, a line that was still "Unpriced" when the plan was saved.

That is where the profit formula earns its keep. The $35,000 was never a promise; it was the base case. What the project tells you, at the end, is which assumption moved — and the next deal's numbers are better for it.