Flipping buys a property, renovates and sells it for profit. Television makes it look easy, but margins can be thin.
The 70% rule
Many flippers keep the purchase price at or below 70% of after-repair value minus rehab costs. On a $420,000 ARV with $55,000 rehab, the maximum offer is about $239,000. It builds in room for holding costs, financing and profit.
Count every cost
Purchase price, closing costs, rehab with a contingency of 10%–20%, holding costs such as insurance, utilities, taxes and loan interest, plus agent commissions and closing costs on the sale. Delays raise holding costs quickly.
Taxes and risk
Profits from short-term flips are generally taxed as ordinary income and can be subject to self-employment tax. Market shifts, permits and contractor problems are key risks, so build a team and a buffer before your first deal.
Try the numbers
Use our Fix and Flip Calculator to see this in practice. With its default example (After-repair value (ARV): $420,000; Purchase price: $270,000; Rehab cost: $55,000), it shows estimated profit: $36,800. Adjust the inputs to match your situation.
Key takeaways
- Use the 70% rule as a starting filter.
- Add a contingency for rehab overruns.
- Flip profits are generally taxed as ordinary income.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.