How flip profit is calculated
Net profit is the sale price minus everything it took to get there:
- Purchase price and closing costs
- Rehab
- Financing: points up front and interest every month
- Holding costs: property taxes and insurance while you own it. Utilities, HOA dues and other monthly carrying costs are not included here; add them in the full analyzer
- Selling costs: agent commissions, concessions and closing costs on the way out
New flippers tend to budget the first two and discover the last three at closing. On a typical project, financing, holding and selling costs together run 10% to 15% of the sale price.
Return on cash and annualized return
Return on cash is net profit divided by the cash you actually put in. With leverage that is far less than the total project cost, which is why flip returns look high. The annualized figure scales the return to a full year so you can compare a four-month flip with an eight-month one.
Know your break-even price
The break-even sale price is the lowest price at which you walk away with nothing lost. The gap between it and your expected sale price is your cushion if the market softens or the buyer negotiates.