How house flip profit is calculated

The idea in one paragraph

A house flip profit is what is left after you sell, once every cost of the project has been subtracted—not the gap between the purchase price and the after-repair value. Purchase, buyer closing costs, renovation, financing interest, months of holding costs, and selling costs all sit on the same side of the ledger. The house flip calculator runs that subtraction in your browser and reports profit, margin on the sale, ROI on the cash you put in, and an annualized ROI so a six-month project can be compared with a longer one. The result is an educational estimate. It is not a bid, a lender quote, or a tax return.

When to use

Use this guide when you are sketching a buy-rehab-sell and you want the full cost stack in one place before you treat a “spread” as profit. It fits a first pass on a listing, a comparison of two rehab budgets, or a check of how many extra months of holding the deal can absorb. Change one input at a time. A cheaper purchase and a smaller rehab answer different questions, and the calculator’s second scenario exists so you can see both without overwriting the first.

It does not fit a rental hold, where cash flow and a long ownership period matter more than a single exit price. The rental property ROI calculator is the tool for that question. It also does not price a mortgage you plan to keep for decades. This model uses simple interest on the financed amount for the months you hold, not an amortizing payment schedule.

The formula in plain English

The calculator uses the same identities on every run. They match the engine on the house flip calculator:

Cash into the deal = purchase + buyer closing + rehab − financing
Financing interest = financing × (annual rate / 100) × months / 12
Holding total = monthly holding costs × months
Selling costs = selling price × (selling cost percent / 100)
All-in cost = purchase + buyer closing + rehab + interest + holding + selling costs
Profit = selling price − all-in cost
Margin = profit / selling price
ROI = profit / (cash into the deal + interest + holding)

Purchase, buyer closing, and rehab are what you spend to own and repair the property. Financing is the amount borrowed. It reduces the cash you bring to closing and is paid back out of the sale; it is not a second purchase price. Interest is simple interest on that financed principal for the holding period. It does not compound, and the model does not pay principal down during the hold. If the financed amount is zero, interest is zero. Holding is the flat monthly cost you type—utilities, insurance, taxes, maintenance, or a vacancy allowance—times the number of months. The page assumes that monthly figure stays constant. Selling costs are a percent of the expected selling price, often called ARV (after-repair value): agent commissions, transfer costs, and concessions you choose to fold into that percent. The ARV itself does not inflate during the hold.

ROI divides profit by the capital at risk: cash into the deal, plus the interest and holding costs you fund along the way. If financing is larger than purchase plus closing plus rehab, cash into the deal is treated as zero in that total, and the ROI denominator uses a small floor so the ratio stays defined. That edge case is a numerical guard, not a suggestion to borrow more than the project costs. Annualized ROI takes the project return and restates it over a year using the holding period in years, with a floor of one month, so a short flip is not lined up naively against a twelve-month one. Nothing you type is sent to a server to compute the result.

A worked example

Use the same sketch as the calculator page, with buyer closing costs set to zero so each step stays visible. The units are whatever currency you type; the arithmetic does not care.

Net proceeds are not profit. Your cash, the interest, and the holding costs still have to come out of that 150,800.

Two extra months of holding add more simple interest and 1,600 of carrying cost before the sale price moves. A rehab overrun of a few thousand does the same work in the opposite direction from a higher ARV. Rerun the sketch in the house flip calculator. Put the base case in one scenario and the cheaper purchase, or the smaller rehab, in the other.

Common mistakes

Counting the spread from purchase to ARV as profit. Selling costs, interest, and holding are not optional footnotes. On the example above they are 7,500 + 4,800 + 19,200 before you have even typed a buyer closing cost.

Leaving buyer closing costs at zero on a real deal because this example did. The zero is only so the steps match the published sketch. Permits, transfer taxes on the way in, and lender fees belong in closing or in the rehab budget.

Treating the interest line as a fully amortizing mortgage. The model is simple interest on the financed principal for the months you hold. A loan you keep for fifteen or thirty years is a different question, with a different payment formula.

Using an ARV from hope instead of recent comparable sales, then parking concessions outside the selling-cost percent. If you expect to give a credit at the closing table, it belongs in the sale price or in that percent.

Ignoring time. A strong ROI on a project that slips from six months to a year is a different deal. That is why the annualized figure is on the page.

Forgetting tax. In many places a flip is taxed as ordinary income rather than a long-term capital gain. This guide does not estimate tax, and the profit it shows is pre-tax.

FAQ

Does the profit number include tax?

No. The calculator stops at pre-tax profit. How a flip is taxed depends on the jurisdiction, the holding period, and whether the activity is treated as a trade. That is a question for a tax professional, not for this formula.

What is ARV?

After-repair value: the price you expect once the work is done. In the calculator it is the expected selling price. It should come from comparable sales, not from the rehab budget plus a round markup.

How is financing interest calculated?

Simple interest. Financed amount times the annual rate times holding months, divided by 12. There is no compounding and no principal paydown inside the hold. Enter zero financing and the interest line is zero.

What is the difference between margin and ROI?

Margin divides profit by the selling price. ROI divides profit by the cash you put in plus interest and holding costs. A deal can show a modest margin and a higher ROI when much of the purchase was financed—and the reverse when you pay cash. Read both, and remember the financed case also carries rate risk the margin line does not spell out.

Is this financial advice?

No. FinTools4U guides and calculators are for education. They do not replace contractor bids, an inspection, comparable sales, or advice about your tax and credit situation.

Related guides

• How compound interest actually works — cash locked in a flip is cash that is not compounding elsewhere for those months. The comparison is a way to read opportunity cost, not a verdict on the project.
• What your FIRE number means — if the point of a flip’s profit is to fund a long-term portfolio, the FIRE number is the spending-based target. It is a different formula from this exit math.