Glossary
Net profit (flip profit)
Net profit on a flip is the sale price minus every cost of the deal: purchase, closing costs, rehab, loan costs, interest, holding costs and selling costs. It is what you actually keep, before income tax.
Gross spread is ARV minus purchase and rehab. It looks great and means little. Net profit is the honest number, because the costs between buying and selling often eat a third or more of the spread.
How to calculate it
Net profit = ARV - purchase - buy closing - rehab - loan costs - interest - holding - selling costs
- ARV
- $320,000
- Purchase + rehab ($190,000 + $50,000)
- -$240,000
- Gross spread
- $80,000
- Buy closing costs
- -$4,000
- Points and lender fees
- -$5,920
- Interest, about 6 months
- -$10,500
- Taxes, insurance, utilities
- -$3,600
- Commission and concessions (6.5%)
- -$20,800
$44,820 of the $80,000 spread went to the costs in between.
How to judge it
A dollar number alone does not tell you if the deal is good. Compare it to the sale price (margin on ARV), to your cash (ROI) and to time (annualized ROI). Run The Deal's flip scoring treats $30,000 as a good profit and $15,000 as marginal, alongside those ratios.
Common mistakes
- Quoting gross spread as profit.
- Leaving out the interest and holding costs of a delay.
- Forgetting partner splits or a lender profit share, which come out before your share.
- Ignoring income tax. Flip profit is often taxed as ordinary income; ask your tax pro.
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