**How Much Profit Should You Make on a Flip**

**How Much Profit Should You Make on a Flip**

__Lesson Outline:__

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.

Reality Check: 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.

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 <10% profits of the ARV.

**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

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.

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

Resale Value = $210,000

Purchase Price = $95,000

Repair Costs = $65,000

Buying Costs = $950

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

**Answer:**

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

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

Profit = $20,900

In this example, the flipper can expect to make $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.

COCR = 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.

Cash Invested = Upfront Project Costs - Funding Amount

*So what are 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.

Upfront Project Costs = Purchase Price + Repair Costs + Buying Costs + Holding Costs + Financing Costs

**Note: 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.*

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.

Cash Invested = Upfront Project Costs - Funding Amount

Let's run through a quick example of how to calculate the Upfront Project Costs for the Project, and the Cash Invested in the Deal.

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.

What is the Upfront Project Costs for the Project?

Resale Value = $210,000

Purchase Price = $95,000

Repair Costs = $65,000

Buying Costs = $950

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

**Answer:**

Upfront Project Costs = Purchase Price + Repair Costs + Buying Costs + Holding Costs + Financing Costs

Upfront Project Costs = $95,000 + $65,000 + $950 + $3,750 + $16,000

Upfront Project Costs = $180,700

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

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.

Our flipper from the previous example has $180,700 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 = $180,700

Funding Amount = $140,000

**Answer:**

Cash Invested = Upfront Project Costs - Funding Amount

Cash Invested = $180,700 - $140,000

Cash Invested = $40,700

In this example, the flipper will need **$40,700** of their own cash.

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

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 = $40,700

**Answer:**

COCR = Profit / Cash Invested

COCR = $20,900 / $40,700

COCR = 51.4%

In this example, the flipper is making a **51.4%** return on their cash that they have invested in the deal.

**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.

**Annualized COCR**= COCR / (# of Holding Months / 12)

In our previous example the flipper generated a COCR of 51.4% on a rehab project that took 5 months.

**What is the flipper's Annualized COCR?**

COCR = 51.4%

# of Holding Months = 5 Months

**Answer:**

Annualized COCR = COCR / (# of Holding Months / 12)

Annualized COCR = 51.4% / (5/12)

Annualized COCR = 85.66%

In this example, the flipper is making a **85.66%** annualized return on their cash that they have invested in the deal. In other words, if the flipper reinvested their cash into additional flips throughout the year that generated similar results they would generate an 85.6% ROI on Cash Invested.

**House Flipping Calculator**

Before you start using a software to analyze your deals, it's important to understand the fundamentals of how to calculate your Profit, Cash Invested, and COCR.

Hopefully, now that you have completed this lesson, you feel more comfortable with the calculations and formulas used in analyzing deals.

The good news is that we have built a House Flipping Calculator that does all of the number crunching for you!

Our House Flipping Calculator analyzes all of your Project Costs to calculate the project profitability, amount of cash needed and your COCR.

Checkout our House Flipping Calculator & Start Analyzing Deals Today!