House Flipping Calculator — ARV, Rehab & Profit

A fix-and-flip pro forma works backward from the after-repair value (ARV), the price the finished property should fetch based on comparable sales. Net profit is ARV minus purchase price, renovation budget, buy-side closing costs of roughly 2 to 4 percent, sell-side costs of about 5 to 8 percent once agent commissions and transfer taxes are counted, monthly carrying costs for taxes, insurance, and utilities, and interest on the acquisition loan. Return on investment is measured against cash actually at risk rather than total project cost, which is why the down payment percentage matters: leverage shrinks the denominator and inflates ROI while raising the interest line. Annualizing that return by raising one plus ROI to the power of twelve divided by holding months makes a six-month project comparable to a twelve-month one, and it is the honest way to compare flips against other investments. The embedded benchmark is the 70 percent rule: maximum offer equals 0.7 times ARV minus repair costs. The 30 percent haircut is a crude allowance for transaction costs, carry, financing, and profit margin. Investors commonly target a profit margin of 10 to 20 percent of ARV and hold periods of four to eight months, with hard money financing at roughly 9 to 12 percent plus origination points. The dominant risks are ARV error and schedule slip, since carrying and interest costs accrue monthly, and renovation overruns of 20 percent or more are routine. The model also omits income tax; flips held under a year are ordinary income, often with self-employment tax if the activity is a trade or business.

Buying distressed property, improving it, and reselling is as old as urban real estate, but the modern flip as a standardized retail strategy is a product of late twentieth century American finance. Speculative rehab activity grew after the savings and loan crisis of the late 1980s, when the Resolution Trust Corporation, created in 1989, liquidated enormous portfolios of foreclosed and defaulted property at auction and taught a generation of investors to buy below market. Private hard money lending expanded alongside it, offering short-term, asset-backed loans priced on the value of the collateral rather than the borrower's income, which is what makes a rapid rehab-and-resale cycle financeable. The vocabulary of the field, ARV, holding costs, and the 70 percent rule, spread through investor education and, from 2005, cable television, when A and E's Flip This House and TLC's Flip That House turned the practice into mass entertainment. The 70 percent rule has no documented single author; it circulated as a rule of thumb through real estate investment associations and later through online forums, notably BiggerPockets, founded by Joshua Dorkin in 2004. Systematic measurement arrived with data vendors: RealtyTrac, and later ATTOM Data Solutions, began publishing quarterly US home flipping reports that track flip counts and gross margins, showing activity peaking before the 2007 crash, collapsing with it, and rebounding on cheap foreclosure inventory after 2011.