How this calculation works
The House Flipping & 70% Rule Calculator models fix-and-flip profitability, calculates the Maximum Allowable Offer (MAO), accounts for holding carrying costs and closing commissions, and computes cash-on-cash ROI.
Mathematical formula and logic
Total Expenses = Purchase Price + Rehab Costs + (Holding Costs × Months) + Buying Closing Costs (2%) + Selling Closing Costs (6% of ARV). Net Profit = ARV - Total Expenses. ROI = (Net Profit / Total Capital Invested) × 100.
Worked example
Buying at $180,000 with $45,000 rehab, $10,800 holding costs (6 mos × $1,800), and $21,300 total closing fees selling at $295,000 ARV yields a Net Flip Profit of $37,900 (15.9% ROI).
Calculation assumptions
- Selling costs estimated at 6% of ARV (realtor commissions and transfer taxes).
- Buying closing costs estimated at 2% of purchase price.
Frequently asked questions
What is the 70% Rule in house flipping?
The 70% Rule states that an investor should pay no more than 70% of the After Repair Value (ARV) minus estimated repair costs: MAO = (ARV × 0.70) - Repairs.
What are holding costs in a fix-and-flip?
Holding costs (carrying costs) are monthly expenses incurred while owning the property during renovation: hard money loan interest, property taxes, builder's risk insurance, utilities, and HOA dues.
How much contingency buffer should I add to a rehab budget?
Always include a 15% to 20% contingency budget for unforeseen structural, plumbing, or electrical issues uncovered behind drywall.
What is hard money financing in real estate flips?
Hard money loans are short-term asset-based loans from private lenders (typically 10-13% interest and 2-3 points) used to quickly purchase and renovate distressed properties that traditional banks will not finance.
Are house flip profits subject to capital gains or ordinary income tax?
Because most flips are completed in under 12 months, profits are treated as short-term capital gains and taxed at ordinary income rates (plus self-employment tax if operating as an active business).