# How Much Profit Should You Make on a Flip?

## How Much Profit Should You Make On A Flip?

On average, a rehabber shoots for a 10 to 20% profit of the After Repair Value, but it varies depending on the market and the specific project risks.

A 10% profit would be on the lower end, and a 20% profit would be considered a 'home-run' by most rehabber's standards.

So for example, if a property's After Repair Value (Resale Value) is \$250,000 a rehabber should expect to make \$25,000 on the lower end to \$50,000. on the higher end.

<span class="lesson-quote--tag orange">REALITY CHECK</span>
<p style="margin-bottom:10px;">The House Flipping TV Shows Always Give The Illusion That They Are Making Hundreds Of Thousands Of Dollars On Each Flip, But Honestly A Lot Of The Numbers Are Fake & They Don't Take Into Account All Of The Project Costs It Truly Takes To Flip A House.</p>
<p style="margin-bottom:0px;">Right Now The Market Is Very Competitive, So Profit Margins Are Being Compressed. In Expensive Markets On The East & West Coasts, Some Flippers Are Making Less Than 10% Profits Of The ARV.</p>

## How To Calculate Your Profit

Your profit is calculated by simply taking the Project Revenues (Resale Value) and subtracting all of your Project Expenses.

Profit = Project Revenues - Project Expenses

Profit = Resale Value - Purchase Price - Repair Costs - Buying Costs - Holding Costs -Financing Costs - Selling Costs

#### Profit Calculation Example:

A flipper purchases a property for \$95,000 that has a resale value of \$210,000, and needs \$65,000 in repairs, 1% Buying Costs of Purchase, \$750 per Month in Holding costs, & 8% in Selling Costs.  The flipper is using a Hard Money Lender that is providing a loan for 70% of the ARV (\$140,000 Loan Amount), and charges 12% Interest for 6 months.

• Resale Value = \$210,000
• Purchase Price = \$95,000
• Repair Costs = \$65,000
• Holding Costs (\$750 / month * 5 months) = \$3,750
• Selling Costs (8% of Sales Price) = \$16,000
• Financing Costs ((12%*\$140,000)/12)*6 Months = \$8,400

How much profit can the flipper expect to make on this project?

In this example, the flipper can expect to make \$20,900

Profit = \$210,000 - \$95,000 - \$65,000 - \$950 - \$3,750 - \$16,000 - \$8,400
Profit = \$20,900

## How To Calculate Your COCR

The COCR Return is a ratio used to measure your return on the money you have invested in the deal.  COCR (Cash-on-Cash Return) is calculated by dividing your Profit by the Cash Invested into the deal.

<span class="lesson-quote--tag blue" style="margin-right:6px;">COCR</span> = Profit / Cash Invested

### Calculating Your Cash Invested In The Deal

We previously learned how to calculate your profit, but in order to calculate your COCR you need to also know the amount of Cash Invested into the deal.

To calculate the Cash Invested, you need to know how much Upfront Project Capital is required for the project and then subtract the amount of Funding you are receiving from your lenders.

<span class="lesson-quote--tag blue" style="margin-right:6px;">Cash Invested</span> = Upfront Project Costs - Funding Amount

### Upfront Project Costs

Upfront Project Costs are costs incurred when you purchase the property and costs incurred during the rehab.  Upfront costs include your Purchase Amount and Buying Costs when you purchase the property, and the on-going costs such as your Repair Costs, Holding Costs, & Financing Costs that you incur during the rehab.

<span class="lesson-quote--tag blue" style="margin-right: 6px;">Upfront Project Costs</span> = Purchase Price + Repair Costs + Buying Costs + Holding Costs + Financing Costs

<span class="lesson-quote--tag orange">NOTE</span>
<p>Upfront Project Costs calculation doesn't include Selling Costs because Selling Costs are generally paid for out of the proceeds of the sale when you sell the property.</p>

Once you have calculated your Upfront Project Costs you deduct your outside Funding Amount to calculate the amount of cash you need to invest in the deal.

<span class="lesson-quote--tag blue" style="margin-right: 6px;">Cash Invested</span> = Upfront Project Costs - Funding Amount

#### Upfront Project Costs Example:

A flipper purchases a property for \$95,000 that needs \$65,000 in repairs, 1% Buying Costs (of Purchase), \$750 per Month in Holding Costs (for 5 months), & 8% in Selling Costs (of the ARV).  The investor is using a Hard Money Lender that is providing a loan for 70% of the ARV (\$140,000 Loan Amount), and charges 12% Interest for 6 months.

• Resale Value = \$210,000
• Purchase Price = \$95,000
• Repair Costs = \$65,000
• Holding Costs (\$750 / month * 5 months) = \$3,750
• Selling Costs (8% of Sales Price) = \$16,000
• Financing Costs ((12%*\$140,000)/12)*6 Months = \$8,400

What is the Upfront Project Costs for the Project?

In this example, there is \$180,700 in Upfront Project Costs.

Upfront Project Costs = \$95,000 + \$65,000 + \$950 + \$3,750 + \$8,400
Upfront Project Costs = \$173,100

Okay, now that we have calculated our Upfront Project Costs we can calculate our Cash Invested in the Deal.  Let's use the Example above to calculate our Cash Invested in the Deal.

#### Cash Invested Example:

Our flipper from the previous example has \$173,100 in Upfront Project Costs and is using a Hard Money Lender that is providing a loan for 70% of the ARV (\$140,000 Loan Amount).

How much cash will the flipper need for this project?

• Upfront Project Costs = \$173,100
• Funding Amount = \$140,000

In this example, the flipper will need \$33,100 of their own cash.

Cash Invested = \$173,100 - \$140,000
Cash Invested = \$33,100

### Finally, Let's Calculate The COCR!

Okay, now that we have all of the variables we need, we can finally calculate the COCR for the property.

#### COCR Example:

Our flipper from the previous examples has a Calculated Profit of \$20,900 with and needs \$40,700 in Cash.

What is the flipper's COCR?

• Calculated Profit = \$20,900
• Cash Invested = \$33,100

In this example, the flipper is making a 63.1% return on their cash that they have invested in the deal.

COCR = \$20,900 / \$33,100
COCR = 63.1%

## How To Calculate Your Annualized COCR

The COCR calculates your return on investment without considering the time it takes to generate that return.  The annualized COCR takes into account how much your return would be on annualized basis.

Once you have calculated your COCR for a property, you can easily calculate your annualized COCR.  The Annualized COCR is calculated by dividing your COCR by the number of months it takes to rehab the property.

<span class="lesson-quote--tag blue" style="margin-right: 6px;">Annualized COCR</span> = COCR / (# of Holding Months / 12)

### Annualized COCR Example:

In our previous example the flipper generated a COCR of 63.1% on a rehab project that took 5 months.

What is the flipper's Annualized COCR?

• COCR = 63.1%
• # of Holding Months = 5 Months

In this example, the flipper is making a 151.4% annualized return on their cash that they have invested in the deal.

Annualized COCR = 63.% / (5/12)
COCR = 151.4%

## House Flipping Calculator

To analyze your deals efficiently and systematically you may want to consider building your own deal analysis spreadsheet or utilizing a pre-built software like our Flipper Force software.

Our Flipper Force software has a House Flipping Calculator tool that is pre-built with a step-by-step process to help you can calculate your Buying Costs, Holding Costs, Selling Costs & Financing Costs for your projects.

Having a system in place will ensure that you don't miss any costly items in your analysis so you make the right offer for your property!