This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
How a flip makes or loses money
A house flip means buying a property, renovating it and selling it quickly at a higher price. The difference between the purchase and sale prices looks like profit, but many costs come out of it before you see a dollar.
The costs to include
- Purchase price and closing costs on the purchase, often 2 to 5%.
- Renovation costs, plus a contingency of 10 to 20% for surprises behind the walls.
- Holding costs for every month you own the house: loan interest, property taxes, insurance, utilities, HOA dues.
- Selling costs: agent commissions, seller-paid closing costs and concessions, often 6 to 10% of the sale price.
- Taxes on the profit.
The calculation
- Total invested = purchase + purchase closing costs + renovation + monthly holding costs × months.
- Net sale = sale price − selling costs.
- Profit before tax = net sale − total invested.
- Net profit = profit before tax − tax.
- Return on investment = net profit ÷ total invested.
Example
A house bought for $200,000 with 2% closing costs, $40,000 of renovation, $1,500 a month of holding costs for 6 months and 6% selling costs on a $300,000 sale leaves a pre-tax profit of $29,000. At a 22% tax rate, net profit is about $22,600, a return of about 9% on $253,000 invested.
The 70% rule
Experienced flippers use a quick screen: maximum purchase price = 70% × after-repair value − renovation cost. In the example, that is 0.7 × $300,000 − $40,000 = $170,000. Paying $200,000 leaves little room for overruns or a drop in prices.
Taxes
In the US, a house held one year or less produces a short-term capital gain, taxed at ordinary income rates. People who flip regularly may be treated as dealers: their profit is business income, subject to self-employment tax of 15.3% on top of income tax, and losses are treated differently. Some states add their own income tax. Ask a tax professional before starting.
Risks
Renovations take longer and cost more than planned, permits can delay work, and a market slowdown can stretch the sale over months. Financing with hard-money loans at high rates makes every delay more expensive. Build a margin of safety into your numbers.