House Flip Calculator
Calculate potential profit, ROI, and 70% rule for house flips. Enter purchase price, repair costs, and ARV to instantly see projected returns.
Project ROI: 13.7% • Annualized ROI: 27.4% • Profit Margin: 12%
Underwriting Mechanics & The 70% Rule Formula
Mathematical anatomy of the Maximum Allowable Offer and full project capital waterfalls
In professional real estate investing, successful house flipping is governed by strict capital underwriting rather than speculative market appreciation. The foundational heuristic across residential redevelopment is the 70% Rule, designed to insulate investors against unexpected structural surprises, holding cost inflation, and market cooling:
Anatomy of the 30% Safety Margin
Novice flippers frequently mistake the 30% deduction as pure entrepreneurial profit. In institutional practice, this 30% margin is divided into mandatory cost waterfalls:
Listing agent commission (2.5% - 3.0%), buyer agent commission (2.5% - 3.0%), title insurance, transfer taxes, escrow settlement, and buyer repair concessions.
Hard money loan origination points (1% - 3%), annualized interest debt service (10% - 13%), property taxes, builder’s risk insurance, and municipal utilities.
Lender doc prep, environmental inspections, title search, legal fees, and recording fees paid upon initial wholesale or MLS closing.
The target net entrepreneurial return required to compensate the redeveloper for execution risk, contractor oversight, and capital exposure.
Total Capital Outlay & Annualized Return Equations
True profitability must evaluate capital velocity—the speed at which equity turns over. A flip generating a 15% net return in 4 months delivers an annualized return of 45%, vastly outperforming a project generating 20% net return over 14 months:
Financing Structures: All-Cash vs. Hard Money vs. Private Debt
Evaluating equity requirements, points, closing speed, and draw schedule governance
| Financing Method | Upfront Equity Required | Interest Rate Range | Origination Points | Closing Speed | Rehab Draw Governance |
|---|---|---|---|---|---|
| All-Cash Capital | 100% of purchase + rehab | 0.00% (Zero debt) | 0 Points ($0) | 3 - 7 business days | Instant; self-administered contractor payouts |
| Hard Money Lender | 10% - 20% down + rehab buffer | 10.0% - 13.5% (Interest-only) | 1.5 - 3.0 points | 7 - 14 business days | Formal third-party site inspections per milestone |
| Private Money Investor | Negotiable (0% - 15%) | 8.0% - 10.0% or profit split | 0 - 1.0 points | 2 - 5 business days | Flexible trust-based disbursement schedule |
| Conventional / DSCR Bridge | 20% - 25% down payment | 7.5% - 9.5% amortized | 1.0 - 2.0 points | 30 - 45 business days | Rigid bank documentation and appraisal guidelines |
*Leverage Dynamics: Utilizing hard money magnifies cash-on-cash ROI by minimizing personal equity required, but substantially increases risk. Every month of contractor delay under a 12% loan burns $1,500-$2,500 in non-recoverable debt service.
Frequently Asked Questions
Authoritative real estate investing answers on the 70% rule, holding drag, and renovation margins
How is the 70% Rule in real estate house flipping calculated?
The 70% Rule states that an investor should pay no more than 70% of the estimated After Repair Value (ARV) minus the total estimated repair costs: Maximum Allowable Offer (MAO) = (ARV × 0.70) - Estimated Renovation Costs. The remaining 30% margin covers acquisition fees, holding costs, financing interest, disposition commissions, and investor profit.
What are holding costs and why do they cause flippers to lose money?
Holding costs are recurring carrying expenses accumulated every month the property is owned before sale: hard money debt service, property taxes, builder's risk insurance, electricity/gas/water utilities, HOA dues, and lawn maintenance. Unanticipated contractor delays or permit backlogs extend the holding window, allowing carrying costs to rapidly erode projected margins.
How do hard money loan points and interest rates impact net flip profit?
Hard money lenders typically charge 1 to 3 upfront origination points (1% to 3% of the total loan commitment) alongside annualized interest rates of 10% to 14%. On a $200,000 renovation loan held for 6 months at 12% interest and 2 points, financing costs alone total $16,000 ($4,000 in upfront points plus $12,000 in monthly interest), significantly reducing net cash-on-cash ROI.
What size contingency reserve should be budgeted for unexpected renovation surprises?
Professional real estate investors mandate a 10% to 20% contingency line item above their base contractor bids. For pre-1980 homes with unknown plumbing (galvanized pipes), outdated electrical panels (knob-and-tube or Federal Pacific), foundation settling, or unpermitted additions, a minimum 15% to 20% contingency is essential to protect against insolvencies.
How is After Repair Value (ARV) accurately determined before making an offer?
ARV is derived through a Comparative Market Analysis (CMA) analyzing 3 to 5 recently sold homes within a 0.5-mile radius that share similar square footage, bedroom count, architectural style, and lot topography, and that have been fully renovated to the level of your planned finishes within the past 90 to 180 days.