Fix & Flip
Fix and Flip Profit Margins: How to Calculate Your Spread
The spread is what you see on the listing. The margin is what you keep. This is how to get from one to the other before you make an offer.
Every flip is sold on its spread and lives or dies on its margin. This guide defines both, shows where the spread goes on a real deal, sets realistic margin expectations by price band, explains why the 70% rule is only a first pass, and shows how investor purchase prices turn a hopeful offer into a defensible one.
What the spread is, and what it has to cover
The spread is the difference between the after repair value and the purchase price. It is the raw material of a flip, and it is not profit. Four categories of cost come out of it before anything reaches you.
Net profit = ARV − Purchase − Rehab − Buying and selling costs − Holding and financing
Margin is net profit as a share of ARV. ROI is net profit as a share of everything you put in.
| Cost | Typical size | Notes |
|---|---|---|
| Rehab, with contingency | Deal specific | Add 10% to 20% to the contractor's number; overruns are the norm |
| Buy-side closing | 1% to 3% of purchase | Title, escrow, lender fees, inspections |
| Selling costs | 6% to 9% of ARV | Commission, seller closing costs, buyer concessions |
| Holding costs | Monthly × months held | Taxes, insurance, utilities, and interest on any loan |
| Financing points and fees | 1% to 3% of the loan | Hard money origination; zero on a cash deal |
Selling costs are the one people forget. On a $300,000 ARV they are $18,000 to $27,000 before the profit line is reached.
A worked example: from spread to margin
A three-bedroom house is under contract at $180,000 with a $300,000 ARV. The spread is $120,000. The buyer uses a hard money loan for 80% of the purchase at 12% interest and expects a six-month project.
A $300,000 ARV flip bought at $180,000
- After repair value
- $300,000
- Purchase price
- −$180,000
- Rehab, with contingency
- −$45,000
- Buy-side closing costs2% of purchase
- −$3,600
- Holding and financing$9,000 interest on a $150,000 loan for 6 months, plus $3,000 taxes, insurance and utilities
- −$12,000
- Selling costs8% of ARV
- −$24,000
- Net profit
- $35,400
Read the same deal on a screen and the sequence is identical: net profit, ROI and annualized ROI at the top, every cost that produced them itemized underneath.
Example uses public listing data for illustration. See disclaimer.
Realistic profit margins by price band
Margins scale with price in dollars and shrink with price in percentage terms. Fixed costs, a kitchen, a roof, a title fee, cost roughly the same on a $150,000 house as on a $500,000 one, so the cheaper flip needs a larger percentage spread to produce a livable profit.
| ARV band | Target net profit | As a share of ARV | Where you find it |
|---|---|---|---|
| Under $200,000 | $25,000 to $40,000 | 15% to 20% | Midwest and Southern cash flow metros |
| $200,000 to $400,000 | $30,000 to $60,000 | 10% to 15% | Most Sun Belt and secondary markets |
| $400,000 to $700,000 | $50,000 to $90,000 | 10% to 13% | Suburbs of coastal and major metros |
| Over $700,000 | $80,000 and up | 8% to 12% | Core coastal markets, long timelines |
Targets, not averages. Realized margins run lower because overruns and holding time are underestimated more often than overestimated.
Two consequences follow. In cheap markets, minimum profit in dollars is the constraint: a $12,000 profit on a $120,000 flip is a 10% margin and still not worth six months of risk. In expensive markets, holding cost is the constraint: a year of interest on a $600,000 loan erases a 10% margin by itself.
The 70% rule is a screen, not a price
The rule says the maximum purchase price is 70% of ARV minus repairs. The 30% held back has to cover selling costs, holding costs, financing and profit, which is why it is roughly right on a mid-priced six-month flip and wrong at both ends of the market.
Maximum offer = ARV × 70% − Repairs
On the $300,000 example: $210,000 − $45,000 = $165,000. The buyer above paid $180,000 and still cleared 11.8%, because a 12% loan for six months costs less than the rule assumes.
Use the rule to decide whether a listing deserves an hour of analysis. Then replace the 30% with the four real numbers it stands in for. On a cash purchase in a low-cost market the true ceiling can be 75%; on a financed purchase in a slow, expensive market it can be 62%.
Why investor price per square foot changes the offer
The strongest evidence about what a distressed house is worth is what other investors recently paid for distressed houses nearby. Retail comps tell you the exit. Investor purchases tell you the entry, and the gap between the two is the market's own view of the spread.
Express both as price per square foot. If renovated homes resell at $190 per square foot and the flips that produced them were bought at $115, the neighborhood's working discount is about 40%, and an offer at $150 per square foot is paying retail for a project.
Example uses public listing data for illustration. See disclaimer.
Smart Rental Investor flags those purchases automatically: a property bought and resold, or relisted, within twelve months at a 30% or greater gain is a flip, and its purchase price is what an investor was willing to pay. The method is covered in what investors are paying for properties.
How wholesalers use the spread
A wholesaler sells the spread itself. The end buyer's investor price is the maximum a flipper can pay and still hit a target return, and the wholesaler's assignment fee is subtracted from that price to produce the offer to the seller.
Every cost in the table above still has to fit inside the end buyer's number, or the deal does not assign.
That is why a wholesaler who understands margins gets deals closed and one who quotes 70% of ARV to everyone gets ignored. The fee has to come out of a spread that survives the end buyer's own analysis. The full method, with a worked deal, is in how to analyze a wholesale deal.
Frequently asked questions
What is a good profit margin on a fix and flip?
Net profit of 10% to 15% of the after repair value is the common working range for a retail flip, with 20% or more on the lower-priced deals where fixed costs are a smaller share. Below 10% the deal has no room for an appraisal shortfall or a rehab overrun.
What is the difference between spread and profit?
Spread is the gap between the after repair value and the purchase price. Profit is what is left after the rehab, the purchase and sale costs, and the holding costs come out of that spread. A $100,000 spread on a house that needs $50,000 of work and $30,000 of transaction and holding costs is a $20,000 profit.
How do I calculate ROI on a flip?
Divide net profit by the total money that went into the deal, purchase price plus rehab plus every closing, holding and selling cost. Annualize it by dividing by the months the deal took and multiplying by twelve, which is how a six-month flip at 13% becomes a 27% annualized return.
Is the 70% rule still accurate?
It is a starting point, not a pricing model. The 30% it holds back has to cover selling costs, holding costs, financing and your profit, and those four vary widely by price band and market. Run the actual costs; the 70% rule only tells you whether the deal is worth running.
Why does investor price per square foot matter?
It tells you what experienced buyers in that neighborhood are really paying for un-renovated houses, which is the strongest available check on your own offer. If nearby flips were bought at $95 per square foot and you are about to pay $120, you are either seeing something they missed or overpaying.
Keep reading
How to Calculate ARV (After Repair Value)
The spread starts with the ARV. Get that number right first.
Read articleWhat Are Investors Paying for Properties in Your Area?
How to find the investor purchase prices this guide relies on.
Read articleHow to Analyze a Wholesale Deal
The same spread math from the wholesaler's side of the table.
Read articleHow to Calculate IRR for Rental Properties
When a flip turns into a hold, this is the return metric that takes over.
Read articleSee the margin before you see the seller
Smart Rental Investor's fix and flip analysis itemizes every cost between purchase and sale, shows net profit, ROI and annualized ROI, and works backwards to the highest offer that still hits your target return.
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