Glossary
ROI (return on investment)
ROI, or return on investment, is profit divided by the money you put in. On a flip, ROI on cash is net profit divided by all the cash that came out of your pocket.
ROI shows how hard your money worked. Two flips with the same profit can have very different ROI if one used a loan and the other was paid in cash.
How to calculate it
ROI on cash = net profit / cash invested
Cash invested is everything you paid: down payment, closing costs, points, fees, any rehab the lender did not cover, interest and holding costs paid during the project.
- Down payment (10% of $190,000)
- $19,000
- Buy closing costs
- $4,000
- Points and lender fees
- $5,920
- Interest paid during the project
- $10,500
- Taxes, insurance, utilities
- $3,600
- Total cash invested
- $43,020
- Net profit
- $35,180
ROI on total cost on the same deal is $35,180 / $284,820 = 12.4%.
ROI on cash vs ROI on cost
ROI on cost divides profit by the whole cost of the deal, loan money included. It ignores leverage, so it is useful for comparing deals financed differently. ROI on cash rewards leverage, which also adds risk.
What to watch
- High ROI on a thin margin means a small ARV miss wipes out the profit.
- ROI ignores time. A 6 month and an 18 month flip at 40% are not equal. Use annualized ROI.
- Count every dollar of cash, including interest you paid monthly. Leaving it out inflates ROI.
Run The Deal's flip scoring treats 25% ROI on cash as good and 12% as marginal. Try it in the flip calculator.
Keep going
Free tools
Run your next deal before you write the offer.
Run The Deal is in an invite-only beta. Ask for a spot and we will email you when it opens.