Worked Numbers
House Flipping Calculator: What the 70% Rule Leaves Out
A house flipping calculator answers two different questions, and the 70% rule only answers the first. The rule gives a maximum offer: after-repair value times 70%, minus repairs. On an illustrative house worth $300,000 once repaired, with $45,000 of repairs, that is an offer of $165,000, which leaves $90,000 between the offer plus repairs and the sale price. That $90,000 is not profit. Once buying, financing, holding and selling costs come out of it, this example makes $42,600 - and a 10% lower sale price would cut that to $15,000.
The 70% rule formula
Maximum allowable offer = ARV × rule percentage - repairs
ARV is the after-repair value: what the house should sell for once the work is done, judged from comparable sales near it. The percentage is a rule of thumb, not a law of real estate, and it is an input you choose. Here it is on the illustrative house:
| Step | Amount |
|---|---|
| After-repair value (ARV) | $300,000 |
| ARV x 70% | $210,000 |
| Less repairs | $45,000 |
| Maximum allowable offer | $165,000 |
| Left for every other cost and the profit | $90,000 |
The rule is a screening shortcut: fast, two estimates, and it throws out deals that cannot work. It does not say what the deal makes. The $90,000 it leaves has to pay for everything between buying and selling, and the profit is what is left after that.
The full flip profit formula
Profit = sale price
- purchase price - buying closing costs - repairs
- loan points - loan interest - holding costs
- selling costs
Every term is something the 70% rule folds into one percentage without naming. For the worked example, assume (all illustrative, not quotes or market rates):
- Purchase at the rule’s ceiling, $165,000
- A $172,000 interest-only loan at 11% a year, covering the purchase and part of the repairs
- 6 months from purchase to sale
- $1,200 a month of holding costs (property tax, insurance, utilities)
- Selling costs of 8% of the sale price
| Cost | How it is figured | Amount |
|---|---|---|
| Purchase price | the offer above | $165,000 |
| Buying closing costs | 2% of the price | $3,300.00 |
| Repairs | the budget | $45,000 |
| Loan points | 2% of a $172,000 loan | $3,440.00 |
| Loan interest | 11% a year, interest-only, 6 months | $9,460.00 |
| Holding costs | $1,200 a month for 6 months | $7,200.00 |
| Selling costs | 8% of the sale price | $24,000.00 |
| Total cost | $257,400.00 | |
| Sale price | $300,000 | |
| Profit | $42,600.00 |
The costs the rule never names add up to $47,400 - more than half of the $90,000 of room. The profit is $42,600, which is 14.2% of the sale price, and 47% of what the rule appeared to leave.
The rule is not wrong; its room is a budget for costs and profit together. Selling costs alone are $24,000 here, and higher selling costs, a slower sale or a dearer loan come straight out of the profit.
Where the profit goes when things slip
The non-obvious part of a flip is how little of the profit survives small misses, because by the time you find out the sale price, almost every other cost is already spent. Starting from the same deal:
| What happens | Profit |
|---|---|
| As planned | $42,600.00 |
| ARV comes in 10% lower | $15,000.00 |
| Repairs run 20% over | $33,600.00 |
| Sale is 2 months late | $37,046.67 |
| All three together | $446.67 |
A 10% lower ARV removes more than the other two misses combined, because the purchase, repairs, interest and holding are fixed by then; only the selling costs shrink a little with the lower price. With all three misses together, $446.67 is left. The sale price at which this deal makes exactly nothing is $253,696, a drop of 15.4% from the planned ARV.
What a month of delay costs
Each extra month before the sale costs $2,776.67 in loan interest and holding costs. Counting what your $61,400 of cash in the deal could have earned elsewhere at an illustrative 5% a year ($255.83 a month), it is $3,032.50 a month. At that rate it would take 14.0 months of delay to use up the whole planned profit, before any price cut needed to sell a house that has sat on the market. The table’s 2-month delay takes $5,553 of interest and holding out of the profit, leaving $37,047.
Return on your cash
The example ties up $61,400 of your own cash for 6 months and returns $42,600, a return on cash of 69.4%. Annualized and compounded, that is 186.9% a year - but only if you could repeat the same deal back to back with no gap, which is a large assumption. The return on cash is the number you actually earned.
BRRRR: the refinance is where the math lives
A BRRRR deal (buy, rehab, rent, refinance, repeat) swaps the sale for a refinance. The question becomes: how much cash comes back, and does the rent cover the new loan? A second illustrative example:
| Step | Amount |
|---|---|
| Purchase, closing, rehab, holding (all in) | $157,000 |
| Of which your cash (purchase loan $120,000) | $37,000 |
| New loan: 75% of a $200,000 appraisal | $150,000 |
| Less payoff of the purchase loan and $4,500 of refinance costs | $124,500 |
| Cash back at the refinance | $25,500 |
| Cash left in the deal | $11,500 |
The refinance returns $25,500 of the $37,000 put in, leaving $11,500 in the deal. To get every dollar back at a 75% loan-to-value, the appraisal would have to come in at $215,333 rather than $200,000. Your lender sets the loan-to-value, any waiting period and the closing costs, so ask before counting on a number.
Then the rent has to carry the new loan. At an illustrative $1,800 a month of rent, net operating income after vacancy, tax, insurance, repairs and management is $1,052 a month. The new loan’s principal and interest payment is $997.95, which leaves $54.05 a month of cash flow - a cash-on-cash return of 5.6% on the $11,500 still in the deal. The debt coverage ratio (net operating income divided by the payment) is 1.05: positive, but thin. A lender that requires a higher coverage ratio may lend less, which leaves more of your cash in the deal.
For the rental math on its own, see the rental property cash flow calculator post.
A house flipping checklist built on the numbers
- Use the rule to screen. ARV times your percentage, minus repairs, gives a ceiling. If the seller will not go near it, move on.
- Then price the full flip. Buying costs, points, interest, holding and selling costs, line by line, from your own quotes. The profit is what is left, not the rule’s room.
- Then stress it. Lower the ARV, raise the repairs, add months. If a modest miss wipes out the deal, the offer is too high.
- For BRRRR, test the appraisal you need, not the one you hope for, and check the rent covers the new payment with room to spare.
How these were calculated
The maximum offer is ARV times the rule percentage minus repairs. Flip costs are built line by line as in the table: closing costs and selling costs as shares of the purchase and sale prices, an interest-only loan fully drawn at purchase, and holding costs charged each month. Income tax on the profit is not included. The what-if rows rebuild the whole flip with the changed input; the delay row adds 2 months of interest and holding at the planned sale price. Annualized return compounds the return on cash over a year. The BRRRR loan payment is a fixed-rate, fully amortizing 30-year loan.
Every figure on this page was computed twice: once by the code behind the calculator pack below, and once by an independent implementation written for this page (costs accumulated month by month, each what-if rebuilt from scratch, the loan payment found by trial rather than by formula). The two agree to the cent before anything is published. All prices, rents, rates and costs are illustrative examples, not market figures or quotes. This is not financial, legal or tax advice; use your own comparable sales, contractor quotes and lender terms.
If you want to run the offer, the full profit, the cost of delay, the what-ifs and the BRRRR refinance on your own deal, the spreadsheet pack below has each one as an editable sheet with the formulas visible.