Purchase, rehab, carry, sell: the full flip P&L and the 70% rule check
| Line | Amount |
|---|
| ARV vs. estimated | ARV | Net profit | ROI on cash in |
|---|
Flipping profits are made at the purchase, not the renovation — every experienced flipper says it, and this calculator shows why: by the time you subtract buying costs, a realistic rehab with overruns, months of carrying costs, financing points and 7%+ selling costs from the after-repair value, the margin left is whatever discount you extracted on day one. The tool computes the full P&L and checks your deal against the industry's blunt screening filter, the 70% rule.
A $340,000 ARV with $55,000 of rehab prices a maximum offer of $183,000. The missing 30% isn't profit — it's buying costs + carry + financing + selling costs (≈18–22%) with 8–12% left as actual margin. The rule is a screen, not a valuation: in expensive/hot markets flippers stretch to 75–80%; in slow markets 65% is safer. But any deal that fails it badly needs an explanation better than optimism.
| Cost | Reality |
|---|---|
| Rehab overruns | 15–25% over budget is the norm, not the exception — this tool bakes in 15% automatically |
| Carrying costs | Taxes, insurance, utilities every month you hold — and every project runs longer than planned |
| Hard money | 10–13% interest + 1.5–3 points; six months of an 85% loan on this deal costs ~$16,000 |
| Selling costs | Commission + closing + the buyer's inspection concessions — 7–9% of ARV all-in |
| Taxes on profit | Short-term gains at ordinary rates; frequent flippers are 'dealers' owing self-employment tax too — a third of profit is a fair planning haircut |
Everything keys off after-repair value, and it's the easiest number to fool yourself about. Discipline: 3–5 sold comps (not listings) within ~0.5 miles and 6 months, same bed/bath/size ±20%, renovated to the level you'll deliver. Zillow-style estimates on un-renovated homes systematically mislead in both directions. If your deal only works at the top comp, it doesn't work.
The calculator reports ROI on cash invested — with hard money leverage, a 12% margin on ARV can be a 40–60% cash-on-cash return in six months, which is the entire (legitimate) appeal. The symmetric truth: leverage doubles the downside too, and the financing meter runs monthly whether or not the tile guy shows up. Speed is profit; delay is the silent partner who takes half.
It's a screen, and screens age: hot coastal markets trade at effective 75–80% among pros with cheap capital and tight rehab machines; slower markets still deserve 65–70%. Use the full P&L (this tool) for the decision and the rule for triage.
Hard money (speed, ~11%+2pts, 80–90% of cost), private lenders, HELOCs on their own homes, cash partnerships. Conventional mortgages rarely work — too slow, and properties often don't qualify as habitable. The tool models hard money and cash.
Held under a year: short-term capital gains at ordinary income rates. Do it repeatedly and the IRS treats you as a dealer — inventory income subject to self-employment tax as well. A third of profit reserved for taxes is realistic planning; a CPA who knows real estate pays for themselves.
Kitchens and baths to neighborhood standard, paint, flooring, curb appeal — done fast and consistent. Over-improving past the comps is the classic rookie loss: the market pays for the neighborhood's ceiling, not your taste (see the Renovation ROI Calculator).
Your exits: price cut (each month of carry costs more than most cuts), rent it (check the numbers as a landlord via the Cap Rate Calculator — the 'accidental landlord' fallback saves many flips), or refinance and hold. Underwriting the deal at a conservative ARV is what makes these exits survivable.
Three minimum, five is better — sold within 6 months, half a mile, similar size and finish level. If you can't find them, you don't have an ARV; you have a hope.
Yes — the whole P&L computes locally in your browser.
Underwrite with the buffer, the carry and the tax haircut included — then make the offer the math supports, not the one that wins the deal. The flips that blow up were almost all lost at the closing table on day one, buying the project at retail.