How the calculation works
A flip makes money only if the sale price is bigger than everything you spend to buy, fix, carry and sell the house. The calculator adds up each cost and subtracts it from the after-repair value (ARV):
profit = ARV − purchase price − rehab (with contingency) − buying closing costs − loan points and interest − holding costs − selling costs
- Financing assumes an interest-only loan with interest charged on the full balance every month. Many lenders fund rehab money in draws, so your real interest may be a bit lower.
- Cash invested is everything you pay before the sale (price, rehab, closing, points, interest, holding) minus what the lender funds. Selling costs come out of the sale proceeds.
- ROI is profit divided by cash invested. Annualized ROI compounds that return over the months you hold, so a 6-month flip and a 12-month flip can be compared fairly.
- The 70% rule says the most you should pay is 70% of ARV minus repairs. It is an investor rule of thumb, not a law or lender standard. It does not know your interest rate, local closing costs or how long the job will take.
Worked example
You find a house for $300,000 that should sell for $450,000 once fixed. Rehab is budgeted at $60,000 plus a 10% contingency ($66,000). A hard money lender funds 85% of the price and all of the rehab ($321,000) at 11% with 2 points. Holding costs are $700 a month, and you expect to close the sale in 6 months. Selling costs are 5% commission plus 1.5% seller closing costs.
| Item | Amount |
|---|---|
| Sale price (ARV) | $450,000 |
| Purchase price | −$300,000 |
| Rehab + 10% contingency | −$66,000 |
| Buying closing costs (2%) | −$6,000 |
| Points ($6,420) + interest ($17,655) | −$24,075 |
| Holding costs (6 × $700) | −$4,200 |
| Selling costs (6.5% of ARV) | −$29,250 |
| Net profit before tax | $20,475 |
| Your cash invested | $79,275 |
| ROI / annualized | 25.8% / 58.3% |
On paper that looks fine. But the 70% rule caps the offer at $450,000 × 0.70 − $66,000 = $249,000, about $51,000 below what you are paying. The sensitivity table shows why that matters. If the house sells for 10% less ($405,000), the profit turns into a loss of about $21,600. A rehab that runs 20% over budget cuts profit to about $6,300. Three extra months of interest and holding costs cut it to about $9,500.
Taxes on flip profits
The IRS says gains on assets held one year or less are short-term, and net short-term capital gains are taxed as ordinary income. Many flippers are treated differently again: IRS Publication 544 says property held mainly for sale to customers in your trade or business is not a capital asset at all, so the profit is ordinary income. The Form 8824 instructions add that a like-kind (1031) exchange does not apply to real property held primarily for sale, so you generally cannot defer tax on a flip by rolling it into another property.
That is why the tool asks for your tax rate instead of assuming a capital gains rate. Whether you are an investor or a dealer depends on your facts, so check with a tax professional.
Edge cases
- All cash: set financing to all cash. Profit rises (no interest or points), but ROI usually falls because more of your money is tied up.
- Long timelines: past 12 months, holding costs and interest often erase thin margins. Use the +3 months row as a stress test.
- Big-city closing costs: NYC sellers pay city and state transfer taxes. Use the seller transfer tax calculator and enter the result as a percentage of ARV.
What to do next
If you plan to rent the house instead of selling, run it through the BRRRR calculator and the rental cash flow calculator. Check your ARV against real sales with how to price a home using comparable sales, and read selling a house as-is if you might need a quick exit.