House flipping profit looks simple on paper — buy low, renovate, sell high — but the actual math involves more moving parts than most beginners expect. Holding costs, selling costs, and financing costs quietly eat into margins that looked healthy at the offer stage.
The Flip Profit Formula
The 70% Rule
Most experienced flippers use the 70% rule to screen deals quickly before running a full analysis. It sets a maximum purchase price based on the property's after-repair value and estimated rehab cost.
The 30% buffer covers holding costs, selling costs, financing costs, and profit margin. In hot markets with lower risk, some flippers push toward 75–80% of ARV; in slower or riskier markets, 65% or lower is more prudent.
Costs Beginners Underestimate
- Holding costs: Property taxes, insurance, utilities, and loan interest accrue every month the property isn't sold — typically 1–2% of ARV per month on a financed flip.
- Selling costs: Real estate commissions (typically 5–6% combined), closing costs, and staging can total 7–9% of the sale price.
- Rehab overruns: Budget a 10–20% contingency on top of your contractor estimate. Surprises behind walls are the rule, not the exception.
- Financing costs: Hard money loans commonly carry rates of 9–14% plus 1–3 points, which adds up quickly on a 4–8 month hold.
Key insight: Get an independent, conservative ARV estimate — ideally from an appraiser or agent pulling true comparable sales — before finalizing your offer. Overestimating ARV is the single most common reason flips lose money.
Timeline Discipline
Every extra month a flip sits unsold erodes profit through holding costs. Build a realistic renovation timeline with buffer for permitting and inspection delays, and have your listing agent and staging plan ready before construction wraps — don't wait until the last nail is hammered to start marketing the property.