Here is how to calculate house flip profit: take your after-repair value and subtract every cost the project incurred. Net profit = ARV − purchase costs − rehab costs − holding costs − financing costs − selling costs.
Ask two flippers what a deal made and you often get two different numbers. One quotes the spread between purchase and resale. The other subtracts every cost that touched the project. Only the second number is profit. This guide walks each term, then runs a full $340,000 deal from offer to payout so you can see where the money goes.
Key Takeaways
- Net flip profit is ARV minus five cost buckets: purchase, rehab, holding, financing, and selling.
- Gross profit, the purchase-to-resale spread, ignores rehab and holding costs and badly overstates what you keep.
- In a worked $340,000 deal, a $125,000 gross spread nets about $22,650 after all costs.
- Return on investment is net profit divided by the cash you actually put in, not divided by ARV.
- The formula only stays accurate if you feed it real numbers, so track actual spend as the rehab runs.
The house flip profit formula
The formula has one output and six inputs:
Net profit = ARV − purchase costs − rehab costs − holding costs − financing costs − selling costs
Each input is a category, not a single line. Break every one into its parts, because that is where estimates go wrong.
ARV (after-repair value)
ARV is the price the finished house should sell for, based on recent comparable sales of similar renovated homes nearby. It is the ceiling on the whole deal. If your ARV is off by $15,000, every downstream number inherits that error. Re-pull comps at least once during the rehab rather than trusting the figure from your offer. For the full method, see how to calculate ARV and pull comps that hold up.
Purchase costs
Everything to acquire the property: the purchase price, plus closing costs, title, escrow, inspection, and any transfer tax you pay as buyer. These lock at closing and do not move afterward.
Rehab costs
Labor, materials, permits, and the contingency you set aside for surprises. This is the input that drifts most during a project, which is why tracking it by category matters. See labor versus material cost tracking.
Holding costs
What it costs to own the house while you work on it: property taxes, insurance, utilities, lawn and security, and HOA dues. These accrue every month, so a longer rehab means a bigger number. See estimating house flip holding costs.
Financing costs
If you borrow, this is loan points, origination fees, and interest for the months you hold the loan. Cash buyers skip this bucket, but they still carry an opportunity cost on the tied-up money.
Selling costs
Agent commission, seller-paid closing costs, title and escrow on the sale, staging, and any concessions a buyer negotiates after inspection. These scale with the sale price.
Gross profit vs net profit
Gross flipping profit is only ARV minus the purchase price. It is the number industry reports headline. ATTOM, for example, put the typical gross flipping profit at $66,000 on a 25.4% gross return in its Q1 2026 U.S. Home Flipping Report (ATTOM, June 2026).
That figure leaves out rehab and every other project cost. ATTOM notes this itself: its reports state that gross profit excludes renovation and other expenses. Those expenses, ATTOM adds, run 20% to 33% of a property’s after-repair value by flipping veterans’ estimates (ATTOM, March 2026).
On a $340,000 ARV, that 20% to 33% is $68,000 to $112,200 in costs the gross number ignores. Net profit is what remains after all of it. That is the only figure that funds your next deal.
Worked example: a $340,000 flip
Here is the formula applied to one realistic deal. Numbers are illustrative but sized to a typical light-to-medium cosmetic rehab in a mid-priced market.
Start with ARV, then subtract each cost bucket:
- ARV (finished sale price): $340,000
- Purchase price: −$215,000
- Purchase costs (closing, title, inspection): −$4,500
- Rehab (labor, materials, permits, contingency): −$58,000
- Holding costs, 5 months (taxes, insurance, utilities): −$5,000
- Financing (2 points on a $200,000 loan + 5 months interest): −$12,750
- Selling costs (5% commission + seller closing + concessions): −$22,100
- Net profit: $22,650
The gross spread here is $340,000 − $215,000 = $125,000. After every real cost, the flipper keeps $22,650. The other roughly $102,000 went to the work, the carry, the loan, and the sale.
How to calculate flip ROI
Profit in dollars is only half the picture. Return on investment tells you how hard your cash worked.
ROI = net profit ÷ cash invested
Cash invested is what you actually funded out of pocket, not the ARV and not the purchase price. In the worked deal, that is roughly the down payment plus purchase costs plus rehab plus holding plus loan points and interest:
- Down payment ($15,000) + purchase costs ($4,500) + rehab ($58,000) + holding ($5,000) + financing ($12,750) = about $95,250
This is total cash outlay across the whole project, not the peak amount tied up at any one moment. Your largest single exposure is usually lower, since rehab and holding costs are spent over months.
ROI = $22,650 ÷ $95,250 ≈ 23.8% over five months. Annualized, that is stronger, but the five-month figure is what you compare against the deal’s risk. For benchmarks, see the 70% rule and what good flip ROI looks like.
Why the formula only works with real inputs
The math is simple. The accuracy is not. Every term except purchase price is an estimate until the project is done, and estimates drift:
- Rehab grows with change orders and “while we’re in there” additions.
- Holding costs grow with every week the timeline slips.
- Financing costs grow with the holding period.
- ARV can fall if comparable sales soften mid-project.
Run the formula once at underwriting and you get a guess. Run it every week against actual spend and you get a live profit number you can act on. That is the difference between analysis and tracking. See house flip profit tracking, stage by stage and budget versus actual on a house flip.
Frequently asked questions
What is a good profit on a house flip?
There is no single benchmark. As a common rule of thumb, many flippers underwrite to a minimum net profit of $25,000 to $50,000 per deal, or a net margin near 10% to 15% of ARV. The right floor depends on your market, your capital, and how much risk the deal carries. Compare the net figure and the ROI, not the gross spread.
Does flip profit include my own labor?
If you do work yourself, you save cash but not time. Some flippers book a labor cost for their own hours so the deal’s profitability is not flattered by unpaid work. Others track it separately. Be consistent so deals compare fairly.
How do I calculate ROI if I pay all cash?
Divide net profit by total cash in: purchase price, purchase costs, rehab, holding, and selling costs. With no loan, there are no points or interest to pay. But the ROI denominator is much larger, so the percentage usually lands lower than a financed deal with the same net profit.
Is gross profit ever a useful number?
It is a fast screen. If the gross spread cannot cover a realistic 20% to 33% of ARV in costs plus your target profit, the deal fails before you run the full formula. It is a filter, not a result.
Run the number that matters
House flip profit is ARV minus purchase, rehab, holding, financing, and selling costs. Gross profit skips most of that and overstates what you keep. Build the formula from itemized inputs, run it against actual spend as the rehab moves, and judge the deal on net profit and ROI together.
Next, tighten the biggest swing factor: see house flip holding costs and how to estimate them.
This article is for education, not financial or investment advice.
About the author — Albert Chui. Albert Chui is a real estate investor in the San Gabriel Valley, California, who has flipped roughly 80 houses in the area since 2021. He ran those projects on spreadsheets at first, and learned firsthand how contractor changes, delays, and mid-rehab overruns quietly turn a profitable deal into a thin one. He founded FlipMargin so flippers can see current costs and projected profit throughout a rehab, not just at closing.
