Successful fix-and-flip investing requires precise math before ever making an offer. The profit calculator has five core components that determine whether a deal works.
The Maximum Allowable Offer (MAO) formula is the starting point: MAO = (After-Repair Value × 70%) – Rehab Costs – Holding Costs – Desired Profit – Selling Costs. The 70 percent rule is a guideline, not gospel—strong markets support 75–80 percent, while weaker ones demand 65 percent or less.
After-Repair Value (ARV) is the most critical input and the easiest to get wrong. Use recent comparable sales of renovated homes within half a mile, similar square footage, bed/bath count, and lot size. Adjust conservatively—buyers rarely pay full premium for every upgrade. Online estimators like Zillow Zestimates are useful for ballparking but never for final underwriting.
Rehab costs require detailed scoping. Walk the property with experienced contractors and create line-item estimates for every trade: foundation, roofing, HVAC, electrical, plumbing, drywall, flooring, kitchen, bathrooms, paint, landscaping. Add 15–20 percent contingency for surprises (asbestos, mold, structural issues). Soft costs—permits, architect fees, utility reconnection—often add another 5–8 percent.
Holding costs include loan interest, property taxes, insurance, and utilities during renovation and marketing. Hard-money loans typically charge 10–15 percent interest plus 2–4 points upfront. A six-month flip carrying a $400,000 loan at 12 percent costs roughly $24,000 in interest alone.
Selling costs eat 7–9 percent of the final sales price: 5–6 percent real estate commissions, 1–2 percent closing costs, and staging/warranty expenses. In many states, transfer taxes add another 1–2 percent.
Desired profit should be expressed both as dollar amount and return on investment. Most professional flippers target minimum $35,000–$50,000 gross profit after all expenses, which translates to 20–30 percent annualized ROI on capital deployed.
Example calculation: A distressed house purchased for $250,000 needs $120,000 renovation. Comps support $550,000 ARV. Rehab takes five months, hard-money interest totals $18,000, holding costs $5,000, selling costs at 8 percent of $550,000 = $44,000. Total investment = $250,000 purchase + $120,000 rehab + $18,000 interest + $5,000 holding = $393,000. Sale at $550,000 minus $44,000 selling costs = $506,000 net proceeds. Profit = $506,000 – $393,000 = $113,000 or 28.7 percent return over five months (roughly 70 percent annualized).
Risk factors that blow up deals include ARV overestimation, rehab cost overruns, longer-than-expected holding periods, and market downturns during the flip. Stress-test every assumption: What if ARV is 10 percent lower? What if rehab costs 20 percent more? What if it takes nine months instead of six?
Seasoned investors track actual versus projected numbers on every deal to refine future estimates. The difference between breaking even and making six figures often comes down to accurately predicting repair scope and timeline.
Fix-and-flip is a business, not a gamble. Master the calculator and you master the game.