The Quick Read: Flip profit is the after-repair value minus purchase price, rehab, buying costs, holding costs, financing costs, and selling costs, so the hard money loan‘s interest, fees, and the length of your hold all come out of profit before you count a dollar of it.
- Count loan interest once, either inside financing or inside holding, never both.
- Every month of delay adds a full month of carry, so model on-time, late, and badly late versions of the same deal.
- Hard money here is priced off project cost, capped at 75% of after-repair value, with interest-only terms of 6-18 months. All of this varies by lender, property, and experience.
- The profit you calculate is pre-tax, and it assumes a sale. A refinance exit changes which numbers matter.
Most new flippers subtract the purchase price and the rehab from the resale price and call the rest profit. That number is a fantasy. Owning, borrowing against, and selling a house all cost money, and the loan is the part that grows when the schedule slips.
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This walkthrough builds the calculation start to finish, shows where hard money changes the math, and runs one deal through three timelines. It then covers where the shortcuts break and what the decision looks like when the flip is done.
The Formula, Start to Finish
Net profit equals after-repair value (ARV) minus six costs: purchase price, rehab, buying costs, holding costs, financing costs, and selling costs. Work through them in this order.
1. Set ARV conservatively. ARV is what the property should sell for once it is fixed up. Use comparable sales, and pick the lower end of the range.
2. Add purchase price, buying costs, and rehab. Include a contingency for surprises. The BiggerPockets 70% rule article lists repairs, carrying costs, monthly costs, buying costs, selling costs, and unexpected costs as the categories a flip budget has to cover.
3. Model the hold period. Multiply the monthly carry by the number of months you will own the property. Run it at several lengths.
4. Model the financing cost. This is where hard money changes the math. The next sections cover it.
5. Subtract selling costs. These include agent commission, closing costs, transfer fees, title, and any buyer concessions.
6. Compute net profit, then return on your cash.
The WeAreCalculator flip profit calculator offers rough rules of thumb as a share of ARV: holding costs of 3-5%, financing of 3-6%, and selling of 6-9%. Treat those as sanity checks on your own numbers, not as inputs.
Key Terms Defined
After-repair value (ARV): the price the property should sell for once the work is finished.
Holding costs: what you pay just to own the property during the project, such as taxes, insurance, utilities, and HOA dues.
Financing costs: what you pay to borrow, including lender fees at closing, interest, draw inspection fees, and any extension fee.
Loan-to-cost: the share of your purchase price plus rehab budget that the lender funds, as opposed to a share of the property’s value.
Draw: a release of rehab funds after a portion of the work is completed and inspected.
Carry: the total monthly cost of holding the property and servicing the loan.
Cash invested: the money you put in yourself, which is total project cost minus the loan, plus the costs you pay out of pocket along the way.
PITIA: principal, interest, taxes, insurance, and association dues, the full monthly obligation a long-term loan is measured against.
Where Does Interest Belong?
Interest belongs in exactly one line, and the line you choose matters less than choosing one. Some calculators treat holding as ownership costs only (taxes, insurance, utilities) and put loan interest under financing. Others fold interest into holding as a monthly carry figure.
Both conventions produce the same profit. The error is using one calculator’s holding line and another’s financing line, which either counts interest twice or drops it.
This article uses the first convention. Holding means taxes, insurance, utilities, and dues. Financing means everything the lender charges. Write that split at the top of your worksheet before you fill in a single cell.
How Hard Money Changes the Financing Line
A hard money loan is a short-term, interest-only loan secured by the property, and it is built around project cost, not the long-term value of a rental. Across Lendmire’s wholesale network, fix-and-flip leverage is tiered by documented completed projects. It runs about 93% of project cost at 5 or more completed projects, 90% at 2 or more, and 85% below that. Every tier is capped at 75% of ARV. Up to 100% of the rehab budget funds in draws against completed work. Terms run 6-18 months, interest-only, with no prepayment penalty. Figures like these vary by lender, property, and experience, and nothing here is a commitment to lend.
Three mechanics decide what that loan costs you.
Interest accrues on what has been funded. Acquisition funds start accruing interest at closing. Rehab funds usually accrue only as each draw is released. Early in the project you owe interest on the purchase portion only, and the balance grows as work gets done.
Dutch versus non-Dutch interest. Under a Dutch structure, sometimes called full-boat interest, you pay on the entire loan from day one, including holdback you have not drawn. Under a non-Dutch structure you pay only on the drawn balance. YieldStack’s illustrative six-draw example shows the same holdback costing about half as much under non-Dutch. Read the note before you model it, because the same loan size can carry very different interest.
Cost layers stack. YieldStack’s breakdown of fix-and-flip loan costs names four: fees at closing, interest on the drawn balance, per-draw administration and inspection fees, and an extension fee if the project runs past maturity. It also notes that front-loaded fees hurt most on short holds because you spread them over months, not years.
Put each layer on its own row in your model. A single financing lump hides the part you can still negotiate or avoid.
Build the Hold Period in Three Phases
Most flip models use one blob called the hold period. Split it into three phases instead, because the last one is the phase most investors forget.
| Phase | What happens | Carry running? |
|---|---|---|
| Start-up | Permits, contractor scheduling | Yes, no progress |
| Rehab | Construction and draws | Yes, interest grows with draws |
| Sale | Listing, offers, buyer’s closing | Yes, full balance |
The sale phase carries the full loan balance and no new progress. A house that finishes on time but sits on the market still pays full carry every month.
Build the schedule from your contractor’s timeline, then add a buffer. A common planning range is 6-12 months for the whole project, and 9 months is a sensible middle case. Whichever number you pick, run the deal at a longer one as well.
A Worked Example in Index Units
The example below is a modeled deal with modeled assumptions, not market data. To keep it free of price tags, ARV is set to 100 index units, and every other line is a share of that.
| Line | Index units |
|---|---|
| ARV (sale price) | 100 |
| Purchase price | 60 |
| Rehab | 10 |
| Buying costs | 2 |
| Holding (taxes, insurance, utilities) | 4 |
| Financing (fees plus interest) | 5 |
| Selling costs | 8 |
| Net profit | 11 |
The check: 100 minus 60, 10, 2, 4, 5, and 8 leaves 11. Holding, financing, and selling each sit inside the calculator ranges above.
Leverage check. Project cost is 70 units (purchase plus rehab). At the 90% of project cost tier, the loan is 63 units, which sits under the 75-unit cap (75% of ARV).
Cash invested. The borrower covers the 7 units the loan does not fund, plus buying costs of 2, holding of 4, and financing of 5. That totals 18 units.
Return on cash. Net profit of 11 divided by 18 is about 61%. Annualized over a nine-month hold, the formula is (1 + ROI) raised to the power of 12 divided by months, minus 1. That gives roughly 89%. Annualizing flatters short holds, so use it to compare deals, not to promise yourself a result.
An 11% margin on ARV looks healthy. The next section shows how little it takes to shrink it.
Stress Test: What Late Costs
Assume 2 of the 5 financing units are one-time fees and 3 are interest over nine months. Monthly carry then equals holding (4 units over 9 months) plus interest (3 units over 9 months), or about 0.78 units a month. Here is the same deal on three timelines, excluding any extension fee.
| Scenario | Months | Net profit | Margin on ARV | Return on cash |
|---|---|---|---|---|
| On schedule | 9 | 11.0 | 11% | 61% |
| Three months late | 12 | 8.7 | 8.7% | 43% |
| Six months late | 15 | 6.3 | 6.3% | 28% |
| Six late, 3-unit price cut | 15 | 3.3 | 3.3% | 15% |
Return on cash falls faster than profit because the extra carry is also extra cash you must put in. The last row pairs a delay with a price cut, since the two often arrive together.
Break-even formula. Divide net profit by monthly carry. Here that is 11 divided by 0.78, or about 14 extra months. Don’t take comfort from that number. The loan matures first, and extension fees and price cuts arrive well before profit hits zero.
When the Loan Term Runs Out First
Terms on the current hard money program run 6-18 months, and there are no multi-year options. A flip that needs more runway has to extend or exit.
An extension adds two costs: the extension fee itself and the extra months of interest and carry. Underwrite the extension case first, before you buy. If the deal only works when nothing goes wrong, the margin is too thin for a loan with a maturity date.
In the stress test above, a project that runs to month 18 has already burned about 7 of the 11 profit units in extra carry before any extension fee. That is the practical meaning of a thin flip.
Working Backward: Max Offer and the 70% Rule
To find your maximum purchase price, start from ARV and subtract rehab, holding, financing, selling, and your minimum profit. What remains is the most you can pay.
The 70% rule is a shortcut for the same idea. Maximum offer equals 70% of ARV minus rehab, and the 30% gap is meant to cover holding, financing, closing, and profit. BiggerPockets describes the rule as built for flips with a hard money loan and an agent commission, not for buy-and-holds or all-cash deals.
The rule breaks in predictable places:
- Double-subtracting. The 30% already includes holding costs. RealEstateSkills’ fix-and-flip formula guide warns against subtracting them again. Use the quick rule to screen, then itemize every cost for the real offer.
- Low ARV. On a $50,000 ARV, 30% is only $15,000 for all costs and profit, as BiggerPockets’ maximum allowable offer article shows. Fixed costs eat that gap.
- Fast, low-carry markets and slow ones. The same percentage can be too tight in one market and too loose in another, because carry depends on how long houses sit.
- Expensive properties. A thin dollar margin on a very large purchase leaves little room for a delay.
What the Decision Looks Like After the Flip
The profit calculation assumes you sell. Sometimes the better move is to keep the property as a rental, and then profit is the wrong measure. Total cost basis, rent, and refinance proceeds matter instead.
Hold-period interest and fees still reduce the equity left for the refinance, so carry is a cost on both exits. For a longer look at the sequencing, see Lendmire’s piece How to Time a Two-Step DSCR Cash-Out After a Hard Money Flip.
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path through its hard money exit refinance program. A DSCR loan is a long-term investor loan that qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Here is what the exit looks like across the network:
- Cash-out. A DSCR cash-out refinance on an investment property tops out at 75% LTV (loan-to-value, the loan as a share of the property’s value). It typically needs about 6 months of ownership, called seasoning, measured from title recording.
- Rate-and-term. A DSCR rate-and-term refinance on an investment property can go up to 85% LTV, with no cash back at closing.
- Coverage. Select DSCR programs start at 1.00, meaning rent used for lender review equals PITIA. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
- Credit and reserves. A DSCR loan has a 620 credit floor in parts of the network, and reserves of about 6 months of PITIA, about 9 months above $1,500,000.
Clearing 1.00 on a DSCR loan is not the same as positive cash flow. Repairs, vacancy, management, utilities, and capital expenses sit outside the DSCR calculation. Equity available depends on rent used for lender review, reserves, and the LTV ceiling, so it is never a guaranteed cash figure. Manufactured homes, log homes, and barndominiums fall outside these DSCR programs. For the full picture, read the complete DSCR loans guide.
The profit above is also before tax.
Common Calculation Mistakes
- Profit equals resale minus purchase. Everything after ARV is a cost.
- Skipping holding costs. This is the error that sinks first deals.
- Counting interest twice, or not at all. Pick one convention.
- Assuming interest on the full loan, or only the drawn balance. Read the note. The difference is material.
- Using one timeline. A single schedule is a forecast, not an underwrite.
- Ignoring the sale phase. The finished house still carries the full balance until it closes.
- Treating the 70% rule as a law. It is a screen, not a budget.
Copy-and-Use Worksheet
| Line | Where the number comes from |
|---|---|
| ARV | Comparable sales, low end |
| Purchase and buying costs | Contract and title estimate |
| Rehab plus contingency | Contractor bid |
| Holding per month times months | Tax, insurance, utility bills |
| Financing layers, one row each | Loan terms and draw schedule |
| Selling costs | Agent and title quotes |
| Net profit and return on cash | Totals from the rows above |
Run it three times: on schedule, late, and badly late. Then compare the lender’s payoff figure and the settlement statement with the model, and carry the gaps into the next deal.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals.
Frequently Asked Questions
Are holding costs and financing costs the same thing?
Not in most models. Holding costs are what you pay to own the property, such as taxes, insurance, utilities, and dues. Financing costs are what you pay to borrow. Some calculators combine them, so pick one convention and keep it consistent.
How long should I assume a flip will take?
A common planning range is 6-12 months, with 9 months as a sensible middle case. Hard money terms on the current program run 6-18 months, so model a longer case that still fits inside the loan term.
Does the hard money lender charge interest on the whole loan?
It depends on the note. Under Dutch interest you pay on the full amount from the start. Under non-Dutch you pay only on funds drawn. Ask which structure applies before you compare loans.
Is the 70% rule enough to decide whether to buy?
It is enough to screen, not to decide. It already includes holding costs, and it breaks at low ARVs and in unusual markets. Itemize every cost for the final offer.
What if I want to keep the property instead of selling?
Then profit stops being the right measure. Focus on total cost basis, rent, and what a DSCR refinance on an investment property could return, subject to lender guidelines and the LTV ceiling.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. BiggerPockets – The 70% Rule
2. WeAreCalculator – Flipping Profit Calculator
3. YieldStack – Fix and Flip Loan Draw Schedules
4. YieldStack – How Fix and Flip Loans Work and What They Cost
5. RealEstateSkills – Fix and Flip Formula
6. BiggerPockets – Maximum Allowable Offer
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Should a First Rental Use Hard Money Bridge or a Profit and Loss Loan? · Should You Use Hard Money for a Rental Then Refinance to DSCR? · Can You Get a Hard Money Loan to Fix and Flip a Triplex?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.