Lower and The TW Team
Fix & Flip Calculator

Investment property only · business-purpose lending · not for a home you will live in

Does this flip actually make money?

The 70% rule gets you to a maximum offer and stops. This carries the deal all the way through, the contingency you will spend, the holding costs of the months you did not plan for, the two commissions that are now negotiated separately, and the difference between a return on total cost and a return on the money you actually put in. The published average flip “return” is a spread, not a profit. This is the profit.

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An estimate from your figures, not advice, and not an offer of credit.

The Deal

Budgets are quoted; costs are incurred. Ten to twenty per cent is normal and the number below is your budget plus this, because that is what you will spend.

The two figures that go wrong most often, and both are yours. Be honest about the second, every model assumes four months and reality delivers eight.

The loan

The loan is the lesser of the two. All four are example figures, not our pricing, replace them with terms you have actually been quoted.

Interest is charged on

One of the least understood and most expensive terms in this market. On the whole loan means you pay interest on rehab money still sitting with the lender.

Interest reserve

A reserve does not make it cheaper. It withholds the interest from your loan proceeds, so you get less at closing and pay nothing monthly.

Holding and selling costs

A vacant property under renovation needs builder’s risk cover, which costs materially more than a homeowner policy. Do not budget the seller’s premium.

Two figures, not one. Since August 2024 the buyer’s agent’s compensation is negotiated separately rather than published with the listing, so a single blended number no longer describes the deal.

What you will give back after their inspection. Budgeting zero here is optimism, not a plan.

Flip profit is ordinary income, and a dealer also pays self-employment tax. This is a placeholder, your CPA has the real number.

The 70% Rule

Against the ceiling
,

Maximum offer,
You are paying,

What You Actually Need In The Bank

Not the down payment. Rehab draws are reimbursed after the work is done, so you fund each stage before the money arrives.

Down payment,
Closing costs,
Points and fees,
Rehab you fund,
Carrying costs,
Cash invested,
Working capital needed,
Net advance at closing,

The Return, Four Ways

Three of these are commonly quoted and only one of them answers the question you are asking.

Measures

Profit before tax,
Return on total cost,
Cash-on-cash,
Annualised,

Tax

Estimated tax,
Profit after tax,

What Happens When It Goes Wrong

It goes wrong in two directions: the house sells for less, or it takes longer.

Sale priceProfit

Reference

What the 70% rule leaves out

And why the published average flip “return” is not a return.

This is a business loan

Credit to acquire and renovate a property for resale is extended primarily for a business purpose, and is exempt from Regulation Z under 12 CFR 1026.3(a)(1). Where the borrower is an entity rather than an individual it is independently exempt under 1026.3(a)(2).

So there is no Truth in Lending disclosure, no annual percentage rate, no ability-to-repay determination, and no right of rescission. RESPA does not apply either (12 CFR 1024.5(b)(2)), so there is no Loan Estimate and no Closing Disclosure.

That is not a loophole, it is the deal: business borrowers are presumed able to evaluate credit terms themselves. It does mean the protections you would get on a home loan are simply absent, and the arithmetic is entirely yours to do.

The exemption depends on the facts, not the paperwork

Worth being precise, because this differs from the rental-property case. The 14-day occupancy test people quote comes from Official Interpretation 3(a)-4, which is written about rental property. A property acquired to resell is analysed under the general factors test at comment 3(a)-3 instead: your occupation, how actively you manage the project, the share of your income it represents, the size of the transaction, and your stated purpose.

A genuine flip satisfies that comfortably. But the exemption is fact-driven, not form-driven, a “flip” loan on a house the borrower moves into is consumer credit whatever the note says, with all the disclosure and rescission consequences that follow. The occupancy certification is the most important document in the file.

It is still reported under HMDA

A common and expensive misunderstanding. The business-purpose exclusion at 12 CFR 1003.3(c)(10) carries an “unless” clause: it does not apply where the loan is a home purchase, a home improvement loan or a refinancing. A flip loan is normally the first two, so it is reportable.

Nor is it rescued by the temporary financing exclusion at 1003.3(c)(3). That requires the loan to be designed for replacement by permanent financing to the same borrower, and a flip is repaid out of the sale. The official commentary gives a nine-month purchase-renovate-resell loan as an express example of financing that is not temporary.

Which is why you will still be asked for demographic information on a business loan. The Equal Credit Opportunity Act applies to business credit too, and the Fair Housing Act applies to any loan secured by residential property.

Where the 70% rule comes from

Nowhere, is the honest answer. It is industry folklore with no regulatory or academic source, and the specific number is arbitrary, nearer 65% in a thin market, 75% or more in a hot one.

What makes it durable is that the arithmetic is roughly right. The missing 30% is not profit. It is selling costs (6–8% of value), financing costs (3–6% of the loan), holding costs, a margin for error on the rehab, and only then the profit. Buy at exactly 70% with an accurate rehab number and you roughly break even.

So it is a solvency ceiling, not a profit target. Anyone treating 70% as the goal rather than the limit is underwriting to zero. Notice also that a lender's own ARV cap sits in the same 70–75% band, they are applying the same test to protect themselves.

The published averages are not returns

You will see headlines reporting flips at a gross return around 25%. Read the methodology: gross flipping profit is defined as resale price minus purchase price, explicitly not including rehab costs and other expenses incurred, divided by the purchase price.

That is a spread, not a profit. The same reporting notes that rehab and other expenses typically run 20% to 33% of the after-repair value. Subtract those and the real net return is dramatically lower, and can be negative on the same deal that produced the headline.

This is the single best reason to run the whole thing rather than a rule of thumb.

What naive models leave out

In rough order of damage:

  1. Holding costs past the planned exit. The hold period is the most abused input in flipping. Assume four months, get eight, and every carrying line doubles at once.
  2. The rehab contingency. Budgets are quoted; costs are incurred.
  3. Selling costs beyond commission, transfer tax, concessions, post-inspection repair credits.
  4. Financing costs other than the rate. On a six-month loan, points and fees are a large share of the true cost and are invisible in a rate quote.
  5. Both commissions. Since August 2024 the buyer’s side is negotiated separately and can no longer be published on the listing service.
  6. Idle time between projects, which destroys annualised returns without touching any single deal’s arithmetic.

How interest is charged, and why it matters

Two conventions, and the difference is real money.

As disbursed, interest accrues only on funds actually drawn, so it ramps upward as rehab draws release. On the full commitment, interest accrues on the entire loan from day one, including the rehab holdback still sitting with the lender.

On a $250,000 commitment at 8%, month one costs about $1,667 as disbursed against $2,083 on the full amount. Over a six-month hold with a large rehab holdback the gap runs to thousands. It is rarely volunteered. Ask.

Draws, and the cash they hide

Rehab money is held back and released in arrears against completed work: you pay the contractor, request a draw, an inspector verifies what was done, and then the funds release. Inspection fees run roughly $150 to $250 a draw.

The consequence is the one that catches first-time flippers: you fund every stage before you are reimbursed. The working capital you need is well above the down payment, and running out mid-project is how deals die, not because the numbers were wrong, but because the timing was.

An interest reserve is money withheld from your loan proceeds at closing to cover the monthly interest. It does not reduce the cost; it converts a monthly cash need into a smaller net advance. Useful for cash flow, neutral on price, and it reduces what you receive at the closing table.

Which return number to believe

Net profit is the only unambiguous figure: sale price minus everything.

Return on total cost divides profit by the whole project cost. It ignores leverage, so it answers a question you are not asking, most of that cost is the lender’s money.

Cash-on-cash divides profit by the money you actually had at risk: down payment, closing costs, points and fees, rehab you funded before reimbursement, and carrying costs. This is the honest one, and its denominator is bigger than people expect.

Annualised extrapolates the hold to twelve months. It is legitimate arithmetic and it assumes something that is rarely true: that the capital is working all year. Two six-month projects with two months of searching between them is 75% utilisation, not 100%.

Tax: it is ordinary income

A property bought to resell is inventory, not a capital asset, IRC 1221(a)(1) excludes “property held primarily for sale to customers in the ordinary course”. So the profit is taxed as ordinary income at ordinary rates, however long you held it. There is no long-term capital gain treatment at twelve months and one day.

There is also no 1031 exchange: section 1031(a)(2) says the provision “shall not apply to any exchange of real property held primarily for sale”. A dealer’s profit is subject to self-employment tax under 1402(a)(3). There is no installment method for a dealer disposition, and nothing is depreciable, because inventory is not depreciable property.

Whether you are a “dealer” is a facts-and-circumstances test, the frequency and continuity of your sales, how much you improve, whether this is your occupation. It can differ property by property for the same taxpayer. This is a CPA question and the answer changes what you keep by a lot.

If you might live in it

Then this is the wrong page and, more importantly, the wrong loan. A loan on a property you will occupy is consumer credit: Truth in Lending applies, you get an annual percentage rate, a Loan Estimate and a Closing Disclosure, an ability-to-repay determination, and in most cases a right to rescind.

Signing a business-purpose certification for a property you intend to occupy is not a technicality. It is a misrepresentation on which the loan was made, and it is normally an event of default permitting acceleration.

If you are buying a house to fix up and live in, use the payment calculator instead, and ask about renovation financing designed for owner-occupants.

What this page does not publish

No maximum loan-to-cost, no minimum credit score, no rate sheet, no experience requirement, no maximum loan amount. Those are set by the lender and by underwriting, and they vary enormously across this market.

Every figure in the loan section of this calculator is an assumption you enter, defaulted to something plausible so the page has arithmetic to do. Replace them with terms you have actually been quoted. Nothing here is an offer, and nothing here describes any particular lender’s guidelines.

Questions

What people actually ask

What is the 70% rule in house flipping?

Do not pay more than 70% of the after-repair value minus the rehab budget. It is a rule of thumb with no official source, and the missing 30% is not profit, it is selling costs, financing costs, holding costs and a margin for error. Buy at exactly 70% with an accurate rehab number and you roughly break even, which makes it a ceiling rather than a target.

How much cash do I need to flip a house?

Considerably more than the down payment. Rehab draws are reimbursed after the work is inspected, so you fund each stage first. Add closing costs, points and fees, and the carrying costs for however long you hold it. This page computes the working capital including the unreimbursed draw you will be carrying at the worst point.

Is a fix and flip loan a mortgage?

It is secured by real property, but it is business-purpose credit and exempt from the Truth in Lending Act under 12 CFR 1026.3(a). So there is no APR, no Loan Estimate, no Closing Disclosure, no ability-to-repay rule and no right of rescission. The consumer protections you would get on a home loan are not there.

Why is there no APR on this page?

Because a business-purpose loan is exempt from Regulation Z, which is what requires an APR. Rather than invent one, this page shows the cost of the money as what it actually is: origination points, lender fees and interest over the months you hold the property. On a six-month loan the points and fees matter more than the rate does.

Do I pay capital gains tax on a flip?

Normally no, and that is worse news than it sounds. A property bought to resell is inventory rather than a capital asset, so the profit is ordinary income at ordinary rates however long you held it. There is no 1031 exchange, and if you are treated as a dealer you also owe self-employment tax. Talk to your CPA before the deal, not after.

What is a good profit on a flip?

Look at cash-on-cash return over the actual hold, not at gross profit and not at the headline figures in industry reports, which measure resale price minus purchase price and exclude rehab entirely. Then ask how much room you have on the sale price before it goes to zero. A deal with a large profit and 2% of room is a worse deal than a smaller one with 10%.

What does an interest reserve do?

It withholds the projected interest from your loan proceeds at closing so you make no monthly payments. It does not make the loan cheaper, it moves the cost from your bank account into your loan and reduces what you receive at closing. Useful if cash flow during the project is tight, neutral on price.

Should interest be charged on the whole loan or just what I draw?

Just what you draw, if you can get it. Charging interest on the entire commitment from day one means paying for rehab money still sitting with the lender, and over a six-month hold with a large holdback that runs to thousands. It is rarely volunteered, so ask which basis applies before you sign.

How long should I budget for the project?

Longer than the contractor says. The hold period is the most abused input in flipping, models assume four months, reality delivers eight, and every carrying line doubles at once. This page shows what each extra month costs you, which is usually the most sobering number on it.

Is a flip loan reported to the credit bureaus or under HMDA?

Business-purpose loans are generally still reportable under the Home Mortgage Disclosure Act, because the exclusion at 12 CFR 1003.3(c)(10) does not apply to home purchase or home improvement loans, and a flip is normally both. That is why you will still be asked for demographic information on a business loan.

Can I live in the property I am flipping?

Not on this kind of loan. Occupancy is what makes credit consumer credit, and a loan made on a business-purpose certification for a property you intend to occupy is a misrepresentation and normally an event of default. If you want to renovate and live in it, ask about renovation financing built for owner-occupants instead.

What is the difference between ROI and cash-on-cash?

Return on total cost divides profit by everything spent, most of which is the lender’s money, so it understates what you earned on your own capital. Cash-on-cash divides it by the money you actually had at risk. For a leveraged deal those two numbers are very different, and cash-on-cash is the one that answers what you are asking.

Important disclosures

Taylor Weiner, mortgage loan originator, NMLS #263090  ·  Lower, LLC, NMLS #1124061  ·  5950 Symphony Woods Road, Suite 312, Columbia, MD 21044  ·  (714) 658-4912  ·  tweiner@twteam.com  ·  Verify licensing at nmlsconsumeraccess.org. Licensed to originate residential mortgage loans in California.

Not a government agency. The TW Team at Lower is not affiliated with, acting on behalf of, or endorsed by HUD, the FHA, the VA, the USDA, the FHFA, Fannie Mae, Freddie Mac or any other government agency. This page is not a government publication and has not been reviewed or approved by HUD, by the FHA, by the VA, by the USDA or by any other government agency. FHA loans are insured by the Federal Housing Administration and VA loans are guaranteed by the Department of Veterans Affairs; both are originated by approved lenders, not by the agencies themselves.

This page is about business-purpose lending on investment property. It is not for a home you will live in. If you intend to occupy the property, this is the wrong loan and the wrong page, use the payment calculator instead.

This calculator is an educational estimate based on figures you enter. It is not a rate quote, an offer of credit, or a commitment to lend. No rate on this page is offered or available; every rate and term field opens on an example figure you are expected to replace, and nothing on the page adjusts one. This page publishes no lender’s guidelines, no maximum loan-to-cost, no minimum credit score, no experience requirement, no maximum loan amount.

No annual percentage rate is shown, and that is deliberate. Credit extended primarily for a business or commercial purpose is exempt from the Truth in Lending Act and Regulation Z under 12 CFR 1026.3(a)(1); where the borrower is an entity rather than a natural person the exemption at 1026.3(a)(2) applies independently. Because Regulation Z does not apply there is no Loan Estimate, no Closing Disclosure, no ability-to-repay determination under 12 CFR 1026.43, and no right of rescission. RESPA does not apply either (12 CFR 1024.5(b)(2)). The cost of the money is shown as points, fees and interest instead.

What still applies to a business-purpose loan

The Home Mortgage Disclosure Act generally still applies. The business-purpose exclusion at 12 CFR 1003.3(c)(10) does not reach a loan that is a home purchase, home improvement or refinancing, and a fix-and-flip loan on a dwelling is normally the first two. It is also not excluded as temporary financing under 1003.3(c)(3), because that requires replacement by permanent financing to the same borrower, the official commentary gives a nine-month purchase, renovate and resell loan as an express example of financing that is not temporary. That is why demographic information is still collected.

The Equal Credit Opportunity Act and Regulation B apply to business credit. The Fair Housing Act applies to any loan secured by residential real estate. Equal Housing Opportunity appears on this page for that reason.

The business-purpose exemption is determined on the facts, not the paperwork. The general factors test at Official Interpretation 3(a)-3 governs property acquired for resale, the 14-day occupancy test at 3(a)-4 is written for rental property. Borrowers certify occupancy and business purpose at closing; misrepresenting either is normally an event of default permitting acceleration and foreclosure, and may be prosecuted as mortgage fraud.

Scope and limits of this calculator

This page models a single acquisition, renovation and sale over a stated number of months, with interest charged either on funds as disbursed or on the full commitment. It approximates the disbursed case with a straight-line release of the rehab holdback. It does not model an actual draw schedule, draw and inspection fees, extension fees, prepayment penalties, a partial-year property tax proration, a wholesale assignment, a refinance into a rental loan at the end, or holding the property and renting it instead.

Tax treatment is general information and not tax advice. Whether a taxpayer is a dealer is a facts-and-circumstances determination that can differ property by property, and it changes the rate, the self-employment tax exposure and the availability of the installment method. The tax rate on this page is a placeholder. Talk to your CPA before the deal.

Regulatory citations current as of September 2026.

⌂ Equal Housing Opportunity. Lower, LLC is an Equal Housing Lender. We do business in accordance with the Federal Fair Housing Act and the Equal Credit Opportunity Act.