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Fix and Flip Calculator: Every Cost Line Investors Forget

Gross spread is not profit. It is the number before roughly $60,000 of cost on a typical Central Texas resale.

Most losing flips were modeled correctly at the top and incompletely at the bottom. The purchase price was right, the rehab estimate was close, the ARV was reasonable — and six cost categories never made it into the spreadsheet.

Here is the complete stack.

Run it live: Deal calculator · Fix and flip programs

Start with the 70% rule, then stop using it

Maximum offer = (ARV × 0.70) − Rehab

At a $400,000 ARV and $70,000 rehab: ($400,000 × 0.70) − $70,000 = $210,000.

This is a screening tool. It exists so you can reject deals at a glance without building a model. The 30% haircut is a rough allowance for financing, holding, selling and profit all at once.

Where it misleads:

• It ignores your actual cost of capital. A cash buyer and a borrower at 3 points have very different economics, and the rule treats them identically.
• It assumes a standard timeline. A four-month cosmetic refresh and a eleven-month gut are not the same deal.
• It does not scale. At a $900,000 ARV the 30% allowance is generous. At $180,000 it is thin, because fixed costs do not shrink proportionally.

Use it to decide what to underwrite. Never use it to decide what to buy.

The complete cost stack

Six categories. Most investors model two.

1. Acquisition

• Purchase price
• Closing costs, title, escrow — roughly 1-2% of purchase
• Inspection, survey
• Lender origination points — 1.5-3% of the loan

2. Rehab

• Line-item scope by trade
• Contingency, 10-20%. Not optional. Rehabs on older stock routinely uncover something.
• Permits and plan review
• Dumpsters, portable toilet, temporary utilities
• Materials price movement if the project runs long

3. Financing

• Interest on the drawn balance over the real timeline, not the optimistic one
• Draw inspection fees, $150-$500 each
• Extension fees if the term runs over
• Exit fee, 0-1 point — routinely forgotten

4. Holding

Runs from closing to the day it funds, not to the day you list.

• Property taxes, prorated
• Builder's risk or vacant dwelling insurance
• Utilities — on throughout the rehab
• Lawn and basic maintenance
• HOA dues

5. Selling

The biggest single category, and the most underestimated.

• Agent commissions, 5-6%
• Seller-paid closing costs, 1-2%
• Buyer concessions — increasingly common, and frequently 1-3%
• Repairs negotiated after the buyer's inspection
• Staging and photography
• Final cleaning

6. Taxes

• A flip held under a year is generally ordinary income, not long-term capital gains
• Self-employment tax may apply depending on structure and volume
• Talk to your CPA before assuming a rate

A complete worked model

$390,000 ARV, $225,000 purchase, $70,000 rehab, seven months.

Gross spread was $95,000. Pre-tax profit is $21,987. The stack consumed 77% of it.

Cash in: roughly $47,000 down plus $12,000 closing plus draw float. Call it $70,000 working capital for seven months to make $22,000 pre-tax. That is a real return — but it is not the $95,000 the gross spread implied, and an investor who planned on $95,000 made different decisions along the way.

Illustrative. Costs vary substantially by market, lender and project.

The six lines most often missing

From reviewing investor spreadsheets, in order of frequency:

1. Exit fee. Not in the rate, not in the points, sitting in the loan documents.
2. Draw float. Cash needed between paying contractors and reimbursement. Not a cost, but a capital requirement that strands money.
3. Buyer concessions. Modeled at zero. Rarely zero.
4. Holding costs past listing. The model stops at "list," the meter stops at "fund."
5. Contingency actually spent. Budgeted, then quietly removed to make the deal work.
6. Taxes. Profit modeled pre-tax and spent post-tax.

Sensitivity: the only test that matters

One projection is a guess. Move three inputs and see what survives.

The stressed case loses $18,600 on a deal that modeled $22,000 of profit — and the stress applied is ordinary: a 5% ARV miss, a 20% rehab overrun, three extra months. None of that is catastrophe.

If the stressed case is deeply negative, the base case is not a margin, it is a hope. Deals that survive stress are the ones worth funding.

What a good deal looks like

Rules of thumb that hold up better than the 70% rule:

• Profit at least 15-20% of ARV in the base case
• Stressed case still positive, or at worst a small loss
• Rehab under 25% of ARV — beyond that, execution risk rises sharply
• Timeline under nine months, including sale
• At least two comparable sales supporting the ARV within the last six months and half a mile

A deal failing two or more of these is not necessarily bad, but it needs a specific reason to proceed.

Cash-in versus return, the comparison that decides repeat business

Profit in dollars is one question. Return on the cash you actually tied up is another, and it is the one that tells you whether flipping beats your alternatives.

On the worked model above: roughly $70,000 of working capital committed for seven months to produce $21,987 pre-tax.

That is about 31% on cash over seven months, or roughly 54% annualized — before tax. After ordinary income treatment and possible self-employment tax, call it substantially less. Why flips are taxed as ordinary income.

Worth comparing honestly against the alternative use of that $70,000:

• A DSCR rental down payment. Lower return, but it recurs annually and compounds through appreciation and amortization rather than ending at sale.
• A BRRRR. Similar work, and the capital comes back while you keep the asset. The strategy compared.
• Doing nothing. Zero risk, zero return, and no seven months of contractor management.

Flipping wins on velocity and loses on compounding. An investor who completes three flips a year at this return does very well. One who completes one flip a year, taxed as ordinary income, has spent a great deal of effort for something a rental portfolio would have produced passively.

That comparison is worth making before the first project rather than after the third.

Frequently asked questions

What is the 70% rule? Maximum offer equals ARV times 0.70, minus rehab. It is a screening heuristic, not a financial model — it ignores your actual cost of capital and timeline.

How much profit should a flip make? 15-20% of ARV in the base case is a common target, with the stressed case still workable.

What costs do investors forget most? Exit fees, buyer concessions, holding costs after listing, and the contingency they budgeted then deleted.

How do I calculate holding costs? Taxes, insurance, utilities and HOA divided by twelve, times your realistic timeline including sale — not just the rehab.

Are flip profits taxed as capital gains? Generally not. Property held under a year is usually ordinary income, and self-employment tax may apply. Confirm with your CPA.

How much working capital do I need beyond the down payment? Enough to float draws — typically 3-10 days between paying contractors and reimbursement — plus contingency and carry.

What if my numbers only work in the best case? It is not a deal. Model a 5% ARV miss, a 20% rehab overrun and three extra months. If that is deeply negative, pass.

Next steps

Build the full stack before you offer, then stress it. The 70% rule tells you what to look at; the model tells you what to buy.

• Run the deal calculator
• Fix and flip financing
• How leverage caps work

Related Reading

Educational content, not a commitment to lend or an offer of credit. DSCR and fix-and-flip loans are business-purpose loans secured by non-owner-occupied property. Program parameters vary by lender and change over time. Figures are illustrative.