What is the 70% rule in house flipping?

The 70% rule states that investors should not pay more than 70% of the ARV (After Repair Value) minus renovation costs. Formula: MAO = (ARV × 0.70) − Renovation Costs. This rule ensures enough margin to cover all costs and generate a profit.

What is ARV in real estate?

ARV stands for After Repair Value — the estimated market value of the property after all renovations are completed. ARV is determined by comparable sales (comps) in the same neighborhood.

How long does a typical house flip take?

A typical house flip takes 3–6 months from purchase to closing. Light cosmetic flips may close in 2–3 months; full gut rehabs can take 6–12 months or more. Longer hold times increase holding costs and reduce annualized ROI.

Flip Profit Calculator — House Flipping ROI & 70% Rule

Deal Analyzer

70% Rule Calculator

Enter ARV

Enter Renovation

Max Allowable Offer

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= (ARV × 70%) − Renovation

Reverse Calculator — Min ARV Needed

Purchase Price

Target ROI %

Min ARV for 20% ROI

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After-Tax Profit Estimate

Flip profits held less than 1 year are taxed as ordinary income (short-term capital gains).

Your Tax Bracket

Flip Timeline

How to Use This Calculator

Enter Purchase & ARV

Input your purchase price and estimated After Repair Value based on comparable sales in the neighborhood. The 70% rule automatically calculates your maximum allowable offer.

Enter Renovation Budget

Be realistic and add a 10–20% contingency buffer. Overruns are the #1 reason flips lose money. Use the scenario analysis to test what happens if renovations run over.

Set Financing & Hold Time

Select your financing type. Hard money loans are common for flips: high rates (10–15%) but no income documentation required. Longer hold times increase interest costs dramatically.

Review All Costs

The waterfall chart shows every dollar from ARV down to net profit. Agent commissions (5–6%), closing costs (1–2%), holding costs, and financing fees often surprise new investors.

Key Terms

ARV

After Repair Value — the estimated market value of the property after all planned renovations are complete. Determined by comparable sales (comps).

70% Rule

A common investor heuristic: don't pay more than 70% of ARV minus renovation costs. MAO = (ARV × 0.70) − Renovation. Leaves enough room for all costs and profit.

MAO

Maximum Allowable Offer — the highest price you should pay for a flip property to hit your target return. Calculated using the 70% rule or your specific cost assumptions.

Hard Money Loan

Short-term, asset-based financing used for fix-and-flip projects. Typical terms: 10–15% interest, 1–3 points, 6–24 month term. No income verification required.

Holding Costs

Ongoing monthly expenses while you own the property: property taxes, insurance, utilities, HOA, and loan interest. Holding costs are one of the most underestimated flip expenses.

Annualized ROI

ROI adjusted for time, expressed as an annual rate. Two flips with the same dollar profit are not equal if one took 3 months and the other took 12. Annualized ROI enables fair comparison.

Origination Points

Upfront fees charged by lenders, equal to 1% of the loan per "point." 2 points on a $120,000 loan = $2,400 due at closing.

Break-Even ARV

The minimum sale price at which the flip breaks even (zero profit). If actual sale price falls below this level, the investor loses money.

House Flipping Profitability: What the Numbers Really Show

House flipping looks deceptively simple on HGTV: buy cheap, renovate, sell high. The reality involves dozens of cost categories, financing complexity, market timing, and execution risk. Understanding every line item before you make an offer is the difference between professional flippers who build wealth and weekend warriors who hand their profit to contractors.

The 70% Rule — and Its Limitations

The 70% rule is the industry's most widely used quick-underwriting tool: Maximum Allowable Offer = (ARV × 70%) − Renovation Costs. The 30% buffer is meant to cover selling costs (~8% in commissions and closing costs), holding costs (~3–5%), financing costs (~3–5%), and profit (~15%). In expensive markets with lower cap rates, many investors adjust to 75%; in higher-risk markets, some require 65%.

The 70% rule is a starting point, not a final answer. Sophisticated flippers use detailed cost models — exactly what this calculator provides — to determine their specific MAO based on their financing terms, local carrying costs, and target return.

The Real Cost Categories

New investors typically account for purchase price and renovation but underestimate four other cost categories. Financing costs on a $120,000 hard money loan at 12% over 6 months = $7,200 in interest alone, plus 2 origination points = $2,400, totaling $9,600 — before a single nail is driven. Holding costs (property tax, insurance, utilities) add another $3,000–6,000 over 6 months. Selling costs (agent commissions + closing costs) on a $220,000 sale at 7.5% = $16,500. These three categories alone can consume $25,000–30,000 of what looked like a $60,000 profit spread.

ROI vs Annualized ROI

Most beginning flippers measure success in dollar profit or simple ROI. Professional flippers measure annualized ROI because it allows fair comparison across deals of different durations and enables comparison with passive investments. A $20,000 profit on a $100,000 investment = 20% ROI. If the flip took 6 months, the annualized ROI = ((1 + 0.20)^(12/6) − 1) = 44%. If it took 12 months, annualized ROI = 20%. The 6-month flip is objectively the better deal — despite having the same absolute profit.

Renovation Budget Reality

Experienced flippers budget renovation overruns by adding 10–20% contingency to every estimate. Cosmetic flips (paint, flooring, fixtures, landscaping) run $15–30/sq ft. Mid-level flips with kitchen and bath updates run $30–60/sq ft. Full gut rehabs with structural, mechanical, and finish work run $60–150/sq ft. Unexpected issues — foundation problems, plumbing surprises, permit delays, contractor no-shows — are the norm, not the exception.

Frequently Asked Questions

What is a good profit margin for a house flip?

Most investors target a minimum of $20,000 to $30,000 in net profit on a flip, or 15–20% ROI on total invested capital. In competitive markets, 10–15% is common. Below 10% ROI, the risk-adjusted return may not justify the capital and effort compared to passive investments.

What is the average return on a house flip?

According to ATTOM Data, the average gross flip return (spread between purchase and sale price, before costs) is 27–30%. After accounting for all costs, net returns to investors average 15–20% of the purchase price, but this varies enormously by market, skill, and market conditions.

Is house flipping considered a business?

If you flip multiple properties per year, the IRS may classify you as a dealer in real estate rather than an investor. This matters because dealers pay self-employment tax (15.3%) on profits in addition to ordinary income tax, effectively increasing your tax rate significantly. Consult a tax professional if you plan to flip more than 1–2 properties per year.

What are the tax implications of a house flip?

Properties held less than 12 months are taxed as short-term capital gains at your ordinary income tax rate (up to 37% federal). Properties held over 12 months qualify for long-term capital gains rates (0%, 15%, or 20%). Most flips close in under 12 months, making the short-term rate the relevant benchmark.

How much money do I need to flip a house?

With a hard money loan, you typically need 20–25% down payment plus renovation costs plus holding costs upfront. On a $150,000 purchase, that might be $30,000 down + $35,000 renovation + $5,000 carrying costs = $70,000 cash needed. Using private money or partnerships can reduce the cash requirement, but always maintain a reserve for surprises.

What does ARV stand for and how is it calculated?

ARV = After Repair Value. It's the estimated market value of the property after all planned renovations. ARV is determined by analyzing comparable sales (comps) — recently sold properties in the same neighborhood with similar size, condition, and features. Your ARV is only as good as your comps analysis.

What is the 70% rule and does it always work?

The 70% rule (MAO = ARV × 0.70 − Renovation) is a quick filter to identify deals worth further analysis. It works best for single-family homes in median price ranges. It may be too conservative in expensive markets (investors use 75–80%) and too aggressive in slow markets. Always back-test with actual cost assumptions for your specific deal.

How do I find properties to flip?

Professional flippers source deals through: direct mail to distressed owners, driving for dollars (finding neglected properties), foreclosure and probate auctions, working with wholesalers, MLS listings (rare — most profitable deals are off-market), and building relationships with estate attorneys and real estate agents who specialize in distressed properties.

What are hard money loans and when should I use them?

Hard money loans are short-term (6–24 month), asset-based financing from private lenders. They're based on property value rather than borrower income — making them ideal for flippers who need fast closing or can't document income. Typical terms: 10–15% interest, 1–3 origination points, 65–75% LTV. The higher cost is the tradeoff for speed and flexibility.

What if my renovation goes over budget?

Renovation overruns are the most common reason flips fail to meet projections. Professional investors add a 10–20% contingency to every estimate, refuse to start work without fixed-price contracts, and perform thorough due diligence including licensed inspections before purchase. Use the Scenario Analysis tab to model the impact of a 20% renovation overrun on your profitability.

How does hold time affect profitability?

Every additional month of holding increases costs on two fronts: ongoing holding costs (taxes, insurance, utilities) and interest on your hard money loan. On a $120k loan at 12%, each extra month costs $1,200 in interest. A renovation that runs 2 months over schedule can easily cost $5,000–7,000 in additional unplanned costs — converting a $25,000 profit into a $17,000 profit.

Can I flip a house with no money down?

Technically possible through partnerships, seller financing, or deal structures like transactional funding. However, most no-money-down strategies require significant experience, established relationships with private money lenders, or taking on a partner who provides capital in exchange for a profit share. New investors should plan to have significant capital reserves.

What is the difference between a fix-and-flip and BRRRR?

A fix-and-flip involves buying, renovating, and selling for profit. BRRRR (Buy, Rehab, Rent, Refinance, Repeat) involves buying, renovating, renting out the property, refinancing to pull out equity, and repeating. BRRRR builds a rental portfolio while recycling capital; flipping generates immediate cash. Many investors do both depending on market conditions.

What are the biggest mistakes first-time house flippers make?

The most common mistakes: overestimating ARV (using too few or wrong comps), underestimating renovation costs (not getting detailed contractor bids), forgetting to account for holding and financing costs, not having a cash reserve for emergencies, underestimating timeline (most first flips take 2x longer than planned), and over-improving for the neighborhood (installing $50k kitchens in $150k neighborhoods).

How do I calculate return on investment for a flip?

ROI = Net Profit / Total Cash Invested × 100. Where Net Profit = ARV − Purchase − Renovation − Holding Costs − Selling Costs − Financing Costs. Total Cash Invested = your down payment + renovation budget + other out-of-pocket costs (not borrowed amounts). For a 6-month flip, also calculate Annualized ROI = ((1 + ROI/100)^(12/6) − 1) × 100 to understand your true capital efficiency.

Flip Profit Calculator

Deal Details

Financing

Holding Costs

Selling Costs

Scenario Analysis

Profit Sensitivity: ARV × Renovation Cost

Goal Analysis

Deal Analyzer

70% Rule Calculator

Reverse Calculator — Min ARV Needed

After-Tax Profit Estimate

Flip Timeline

How to Use This Calculator

Enter Purchase & ARV

Enter Renovation Budget

Set Financing & Hold Time

Review All Costs

Key Terms

House Flipping Profitability: What the Numbers Really Show

The 70% Rule — and Its Limitations

The Real Cost Categories

ROI vs Annualized ROI

Renovation Budget Reality

Frequently Asked Questions

Deal Details

Financing

Holding Costs

Selling Costs

Scenario Analysis

Profit Sensitivity: ARV × Renovation Cost

Goal Analysis

Deal Analyzer

70% Rule Calculator

Reverse Calculator — Min ARV Needed

After-Tax Profit Estimate

Flip Timeline

How to Use This Calculator

Enter Purchase & ARV

Enter Renovation Budget

Set Financing & Hold Time

Review All Costs

Key Terms

House Flipping Profitability: What the Numbers Really Show

The 70% Rule — and Its Limitations

The Real Cost Categories

ROI vs Annualized ROI

Renovation Budget Reality

Frequently Asked Questions

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