On paper, a flip looks simple: buy a property, renovate it, sell it for more. The profit, though, lives in the details between those steps. Purchase closing costs, the rehab, months of holding costs, financing fees and the cost of selling can easily add up to tens of thousands of dollars — and every one of them comes out of the spread between purchase price and resale price.
This guide lists each cost category and runs a complete example.
The flip profit formula
Profit = Resale price − All-in cost
1. Purchase and buy-side closing costs
The purchase price is the starting point. Buy-side closing costs — title, recording, inspections, attorney or escrow fees, and any transfer taxes the buyer pays — are added on top. They’re often estimated as a small percentage of price until actual figures are available.
2. Rehab budget and contingency
The rehab budget covers materials, labor and permits. Because renovations often uncover surprises (wiring, plumbing, structural issues), many budgets include a contingency, frequently 10–20% of the rehab estimate. If it’s not needed, it becomes profit; if it is, the plan already accounted for it.
3. Financing costs
Many flips use short-term loans such as hard money. Two costs matter:
- Points: an upfront fee, expressed as a percentage of the loan.
- Interest: often charged monthly on the outstanding balance at a higher rate than a conventional mortgage.
Financing costs scale with time. A project that runs two months long pays two more months of interest.
4. Holding costs
While the property is being renovated and marketed, someone still pays property taxes, insurance (often a builder’s risk or vacant property policy) and utilities. These are easy to overlook because they’re small each month, but they accumulate.
5. Selling costs
Selling a property isn’t free. Typical seller-side costs include agent commissions, the seller’s share of closing costs and transfer taxes, and any concessions offered to the buyer (such as a credit toward their closing costs). Together, they can be a sizable share of the sale price.
A full example
A cosmetic-plus renovation held for 6 months
The property is purchased for $185,000, renovated with a $52,000 budget, and sold at an after-repair value of $315,000. A hard money loan covers 85% of the purchase and rehab at 11% interest plus 2 points.
| Cost | Amount |
|---|---|
| Purchase price | $185,000 |
| Buy-side closing (2%) | $3,700 |
| Rehab | $52,000 |
| Contingency (10% of rehab) | $5,200 |
| Loan points (2% of $201,450) | $4,029 |
| Loan interest (6 months) | $11,080 |
| Taxes & insurance (6 months) | $1,560 |
| Utilities (6 months) | $1,080 |
| Agent commissions (5%) | $15,750 |
| Seller closing costs (1.5%) | $4,725 |
| Buyer concession | $3,000 |
| All-in cost | $287,124 |
| Resale price | $315,000 |
| Profit | $27,876 |
Hypothetical numbers for illustration. Income taxes on the profit are not included.
The headline spread between purchase and resale is $130,000. After everything else, the profit is $27,876. That’s 8.8% of the sale price.
Return on cash vs. profit margin
Two ratios are commonly used to describe a flip’s result:
- Profit margin (profit ÷ sale price): 8.8% in the example.
- Return on cash invested (profit ÷ cash the investor put in): the investor contributed the 15% of purchase and rehab not covered by the loan, plus closing costs, contingency, points, interest and holding costs — about $62,199. Profit divided by that cash is 44.8%.
The two can tell different stories. A high return on a small amount of cash can come from heavy leverage, which also magnifies losses if the sale disappoints.
What happens when things move
Two of the most common surprises in flipping are timing and price.
A longer project. If the same flip takes eight months instead of six, two extra months of loan interest, taxes, insurance and utilities reduce profit to about $23,303.
A lower sale price. If the property sells for 5% less ($299,250), profit falls to about $13,150 — the lost sale price plus a slightly smaller reduction in commission and closing costs.
Running these variations before a project starts shows how much room there is between the expected outcome and break-even.
The 70% rule as a quick screen
A common shortcut is the 70% rule: the maximum purchase price is 70% of ARV minus the rehab cost. In this example, that’s 70% × $315,000 − $52,000 = $168,500. The rule is a rough filter built to leave room for the cost categories above; a detailed budget like the one in this example is more precise.
Flip or hold?
Once a property is renovated, there are two broad paths: sell it, or rent it. Selling turns the value created into cash now (minus selling costs and taxes). Holding keeps the property as a rental, often refinanced — the path described in the BRRRR method. Comparing the two side by side, with the same rehab numbers, shows the trade-off between a one-time profit and ongoing cash flow.
Taxes on flip profits
The profit figures above are before income taxes. Because flips are usually held for a short period, profits may be taxed differently from long-term investment gains, and frequent flipping can be treated as business income. The specifics depend on the individual and the jurisdiction, so after-tax figures are best worked out with a tax professional.
The takeaway
Flip profit is the resale price minus a long list of costs: purchase, closing, rehab, contingency, financing, holding and selling. The spread between purchase and resale price is only the starting point. Totaling every category — and testing a longer timeline and a lower sale price — shows how much of that spread actually remains.