How to Calculate Profit on a House Flip

When you buy a property with the intention of fixing it up and selling it quickly, the headline number that catches your eye is the after‑repair value (ARV). Yet the ARV alone tells you nothing about whether the deal will actually make money. The real question is: after you pay for the purchase, the rehab, the financing, the holding period, and the selling expenses, what is left in your pocket?

In this guide we walk through the exact arithmetic that turns an ARV of $265,000 into a profit of $19,725. Every line of cost is spelled out, every ratio is recomputed, and you’ll see how the same numbers look in a spreadsheet that you can copy and adapt for any deal.

The formula: profit = ARV − all‑in costs

The core calculation is simple enough to fit on a post‑it:

What makes the exercise useful is defining “All‑in Costs” precisely. In the flip world there are six distinct buckets that together capture every dollar you will actually spend before the property changes hands.

The six cost lines

Each cost line appears in most professional flip‑analysis spreadsheets. Below is a quick definition of each, followed by a sample table that mirrors the numbers we will use throughout the guide.

Yellow = inputs · Green = calculated

Worked example — line by line

Let’s run the numbers exactly as they appear in the table above. The property is bought all‑cash to keep the holding‑cost line simple, but the same structure works with a loan.

Step 1 – Purchase price

The buyer pays $170,000 up front. This is the first cash outflow.

Step 2 – Rehab budget

All renovation work, including permits and a modest contingency, is budgeted at $45,000.

Step 3 – Buying closing costs

Title insurance, escrow fees, and recording charges total $5,000.

Step 4 – Holding costs

The property sits for six months while work is completed. At $1,562.50 per month (taxes, insurance, utilities, and a nominal interest charge), the holding expense is $9,375.

Step 5 – Selling costs

The market commission is 6 % of the expected sale price. Six percent of $265,000 equals $15,900.

Step 6 – Total all‑in costs

Yellow = inputs · Green = calculated

Step 7 – Profit

Applying the core formula:

The flip leaves $19,725 on the table after every dollar outlay is accounted for.

Profit vs ROI on cash invested

Profit tells you the dollar amount, but investors often want to know the return on the cash actually tied up in the project. Cash invested excludes the selling‑cost line because that expense is deducted from the sale price, not from the cash you have already spent.

Yellow = inputs · Green = calculated

ROI on cash is then:

An 8.6 % return over roughly six months translates to an annualized rate of about 17 %, which may be acceptable depending on your risk tolerance and alternative opportunities.

Break‑even sale price

The break‑even price is the lowest ARV that still covers every out‑of‑pocket cost, including the selling commission. Because the commission is a percentage of the final sale, we solve for the price (P) where:

Plugging the numbers:

At $244,016 the 6 % commission is $14,641, and the total cash outlay plus commission equals the sale price. Any sale below roughly $244 k will generate a loss.

Where flips actually lose money

Even when the ARV looks healthy, two common pitfalls can push the result below the break‑even line:

• Under‑estimating holding costs—taxes, insurance, utilities, or interest can creep higher than the $1,562.50/month used here.
• Over‑budgeting the rehab—unexpected structural repairs or code upgrades can quickly turn a $45,000 budget into $55,000 or more.

If either of those line items rises by just $5,000, total costs become $250,275 and profit falls to $14,725 ($265,000 – $250,275) — still positive, but $5,000 thinner. The ROI drops to about 6.3% and the break‑even price climbs to $249,335 ($234,375 ÷ 0.94), narrowing the margin dramatically.

The verdict

Our sample flip clears the profit line but does so with a modest margin. The $19,725 profit represents an 8.6 % cash‑on‑cash return for a six‑month effort. For many investors that is acceptable, but the narrow cushion means any cost overrun or market dip will erase the upside.

Profit per month: annualizing the flip

When the flip closes, the net profit sits at $19,725. Because the typical timeline runs about 6 months, that translates to roughly $3,287.50 of profit each month. In other words, the cash you put in—$229,375—produces an 8.6% return over the half‑year period. The break‑even sale price of $244,016 shows the point at which all costs are covered, while the after‑repair value of $265,000 provides the upside that generates the $19,725 profit.

If you simply double the half‑year ROI, the figure looks like a 17.2% annual return. That number can be eye‑catching because it suggests the flip is moving money at a brisk pace. However, the calculation assumes you can immediately redeploy the entire cash stake into another identical project, which rarely happens in practice.

The reality is that each flip includes inevitable downtime—time spent searching for the next property, securing financing, and closing the purchase. Those gaps erode the effective annualized rate. Moreover, the profit is subject to ordinary income tax, which reduces the after‑tax yield. So while the simple annualized 17.2% figure gives a useful benchmark, the true annual return will be lower once you factor in idle periods and taxes.

Run your own numbers

This exact walkthrough is the sample pre‑loaded in our House Flip Analyzer spreadsheet. The free Lite version runs the full first pass on one sheet — profit, cash invested, ROI, break‑even price and the 70% rule verdict. The Full version adds the sensitivity grid, the category rehab budget with live actuals from an expense log, contractor quote comparison, change orders, payments tracking and a project dashboard — 17 sheets that carry the deal from screening through the sale.

This guide is an educational calculation aid, not financial, tax, or legal advice. Verify all figures against local data and consult licensed professionals before purchasing any property.