How to calculate flip profit
Flip profit is the sale price minus every dollar spent from purchase to closing of the sale, including the costs that are easy to forget.
| Line | Amount |
|---|---|
| Sale price | $330,000 |
| Purchase and buying costs | ($204,000) |
| Rehab | ($50,000) |
| Holding, 6 months | ($4,800) |
| Interest and points on $200,000 | ($16,000) |
| Selling costs at 8% | ($26,400) |
| Profit before tax | $28,800 |
Buying closing costs are often quoted at 2% to 5% of the price for a home purchase;[5] selling costs, holding costs and the loan terms come from your own quotes.
What goes wrong: the same flip under pressure
Flips are sensitive to time and budget because the costs keep running while the sale price is fixed by the market.
| Scenario | Profit | Return on cash |
|---|---|---|
| As planned | $28,800 | 38.5% |
| Two months longer | $23,200 | 28.9% |
| Rehab 20% over budget | $18,160 | 23.5% |
| Sells 5% lower | $13,620 | 18.2% |
The 70% rule
Many flippers cap the purchase price at 70% of the after-repair value minus the rehab: here $330,000 × 70% − $50,000 = $181,000. It is a rule of thumb from practice, not a standard from any agency, and it ignores the actual loan and selling costs that the worksheet counts. See the 1% rule page for the other screening rules and their limits.
Taxes on a flip
A flip held one year or less produces a short-term gain, taxed at ordinary income rates; only property held more than one year gets long-term rates.[1] Enter your ordinary rate in the worksheet for a rough after-tax figure. If buying and selling houses is your business, the houses may not be capital assets at all: property held primarily for sale to customers is excluded from the definition,[2][3] so the profit is ordinary income. Ask a tax professional how this applies to you. A property held primarily for sale also does not qualify for a like-kind exchange,[4] so a flip cannot be rolled into the next one tax-free; see the 1031 exchange calculator for investment property that does qualify.
A flip is a business riskValues can fall while you hold the property and costs can run over.[6] If you plan to keep the house and rent it instead, compare the BRRRR calculator.
To compare the result with other uses of your cash, the ROI calculator annualizes any return.
Frequently asked questions
How do you calculate profit on a house flip?
Subtract the purchase price, closing costs, rehab, holding costs, loan interest and points, and selling costs from the sale price.
What is the 70% rule in house flipping?
A rule of thumb that caps the purchase price at 70% of the after-repair value minus the repair costs. It is not an official standard.
How are house flipping profits taxed?
A property sold within a year of purchase produces a short-term gain, taxed at ordinary income rates. A property held for sale cannot use a 1031 exchange.
What is a good return on a house flip?
It depends on the risk, the time and your alternatives. Look at the profit after a delay or a budget overrun, not only the planned figure.