How to Calculate ROI on a Fix and Flip Loan

If you’re flipping houses, knowing how to calculate ROI on a fix and flip loan is essential. ROI (Return on Investment) tells you whether a project will be profitable after accounting for purchase price, renovation costs, loan expenses, holding costs, sale costs, and taxes. This guide walks you through the math, shows concrete examples, and highlights the loan-related factors that most affect your profit.

Why ROI matters on a fix and flip

ROI is more than a number — it’s a decision tool. A strong ROI helps you justify the deal, secure funding, and set the right renovation budget and sales price. Because fix-and-flip projects are time-sensitive, you should look at both total ROI and annualized ROI to compare deals that have different timelines.

Key terms you need to know

• ARV — After Repair Value: the expected market value after renovations.
• Purchase Price — The price you pay for the property.
• Rehab / Renovation Costs — All hard and soft costs to make the home market-ready.
• Holding Costs — Costs while you own the property (taxes, insurance, utilities, security, property management, utilities, and interest expense).
• Loan Costs — Upfront fees, points, origination fees, and any lender charges plus interest paid during the loan term.
• Selling Costs — Agent commissions, closing costs on sale, staging, and marketing expenses.
• Profit — Net proceeds after all costs when you sell the property.
• ROI — (Profit / Total Cash Invested) × 100%.
• Annualized ROI — ROI adjusted to a 12-month period so you can compare deals with different timelines.
• Cash-on-Cash Return — Annual pre-tax cash flow divided by the cash actually invested.

Step-by-step: How to calculate ROI on a fix and flip loan

Follow these steps to calculate a realistic ROI for a flip funded with a loan.

1. Estimate your ARV.Research comps to determine a conservative after-repair value. Be conservative: use the lower end of reasonable comparables.
2. List all acquisition costs.Include purchase price, closing costs on purchase, inspections, and any immediate repairs required at closing.
3. Estimate total renovation costs.Include hard costs (materials and labor), soft costs (permits, design), contingency (commonly 5–15% of rehab), and any contractor holdbacks.
4. Calculate holding and carrying costs.Factor taxes, insurance, utilities, HOA fees, security, and interest expense for the loan for the expected holding period. Also include local property tax prorations and any bridge financing fees.
5. Account for loan fees and closing on sale.Include loan origination fees, points, appraisal and underwriting fees, courier fees, and any closing costs due when you sell. Also include sales commissions and buyer concessions if applicable.
6. Compute Gross Profit (before tax).Gross Profit = ARV − (Purchase Price + Renovation Costs + Selling Costs + Holding Costs + Loan Fees).
7. Compute ROI.ROI (%) = (Gross Profit / Total Cash Invested) × 100.

   Total Cash Invested includes down payment, rehab funds you pay directly, closing costs you paid at purchase, and any points or upfront loan fees you paid in cash.

8. Compute Annualized ROI.Annualized ROI = ROI × (12 / Months Held), where Months Held is the actual or projected duration of the project.

Worked example (clear, conservative)

The example below uses round numbers to show the math. This is illustrative only and not a guarantee of actual costs or results.

• Purchase Price: $150,000
• Renovation Costs (including contingency): $45,000
• Holding Costs (incl. interest paid, taxes, insurance): $8,000
• Loan Fees & Closing at Purchase: $4,500
• Selling Costs (commissions, closing): $13,500
• Expected ARV: $235,000
• Cash Invested (down payment + repairs + fees paid up front): $60,000
• Months Held: 6

Now compute profit and ROI:

Gross Profit = ARV − (Purchase Price + Renovation Costs + Holding Costs + Loan & Purchase Fees + Selling Costs)

Gross Profit = $235,000 − ($150,000 + $45,000 + $8,000 + $4,500 + $13,500) = $14,000

ROI = (Gross Profit / Total Cash Invested) × 100 = ($14,000 / $60,000) × 100 = 23.3%

Annualized ROI = ROI × (12 / Months Held) = 23.3% × (12 / 6) = 46.6% per year

This example shows that even a modest dollar profit can translate to a strong annualized return when a project is completed quickly. Conversely, longer hold times reduce annualized returns sharply.

How loan structure affects ROI

Loan terms can change your numbers in major ways. When you’re calculating ROI, ask how the following will impact costs and timing:

• Loan-to-Value (LTV) and Loan-to-Cost (LTC): Higher LTVs or LTCs reduce upfront cash but may come with higher fees or stricter covenants.
• Draw schedule: A draw-based rehab loan pays contractors as work is completed. This reduces your out-of-pocket needs but requires inspections and can delay payments to contractors unless well managed.
• Interest accrual structure: Interest-only or deferred payment features affect monthly cash flow and the total interest you pay.
• Points and origination fees: Upfront fees reduce your cash-on-cash return and should be included in Total Cash Invested.
• Extension fees and penalties: If a project runs long, extension fees or higher rates will reduce profit. Factor likely overruns into your stress tests.

Cash-on-Cash return vs. ROI

Cash-on-Cash return measures the annual pre-tax cash flow relative to the actual cash invested. For flips that last under a year, cash-on-cash and annualized ROI will be similar. For longer projects or ones with substantial financing, cash-on-cash can show a different picture because it ignores principal paydown and is focused on actual cash flow.

Break-even ARV: the quick test

Before you commit funds, calculate the minimum ARV required to break even. This helps you decide whether a deal has enough margin to withstand unexpected costs.

Break-even ARV = Purchase Price + Renovation Costs + Holding Costs + Loan & Purchase Fees + Selling Costs

If your comps show ARV is likely below your break-even number, the project is risky unless you can cut costs or negotiate the purchase price.

Common mistakes that kill ROI (and how to avoid them)

• Underestimating rehab costs. Always add a contingency. Get multiple contractor bids and price out materials.
• Ignoring holding costs. Count property taxes, utilities, and insurance. Slow sales seasons add costs quickly.
• Using optimistic ARV estimates. Use conservative comps and a margin for safety.
• Not accounting for loan fees and closing costs. Include all fees in your Total Cash Invested calculation.
• Poor project management. Delays increase holding costs and can reduce buyer interest; manage contractors tightly.
• Lack of stress testing. Model scenarios with cost overruns, lower ARV, and longer hold times.

Scenario and sensitivity testing

Run at least three scenarios before you bid:

• Base case: Your best estimate for ARV, rehab, and timeline.
• Conservative case: Lower ARV, +10–20% on rehab, +30% on holding costs.
• Upside case: Faster timeline, lower rehab than estimated, strong ARV.

Compare ROI and annualized ROI across scenarios. If the conservative case produces a weak or negative return, the deal isn’t worth the risk.

Practical checklist before you pull the trigger

• Confirm comps and vet ARV with an agent familiar with the neighborhood.
• Get detailed contractor bids and allow for a contingency fund.
• Ask the lender for a clear schedule of fees, draw requirements, and what triggers additional charges.
• Model a 20–30% cost overrun and an additional 30–60 days of holding time as a stress test.
• Plan an exit strategy: resale, refinance, or hold as rental if market conditions change.

Typical fix & flip loan features to watch for

Fix-and-flip loan programs are designed to move quickly and cover both purchase and rehab costs. Common features you may see include:

• Fast approval so you can move quickly on deals.
• Flexible terms that let you match repayment to your project timeline.
• Financing that covers both purchase and renovation costs under a single loan.
• Minimum credit score requirements and minimum loan sizes for some programs.
• Requirements that the property be non-owner-occupied and that you show a renovation plan and proof of ability to repay.

Approval speed, eligibility, and loan length

Approval times vary, but many applicants receive loan approval within 7–10 business days so they can start their project as soon as possible. Typical fix-and-flip loan terms range from 6 to 18 months, giving you time to complete renovations and sell the property. If you don’t sell within the loan term, extension options are often available if you contact the lender in advance.

How to get a personalized quote

Rates are competitive and vary based on your credit score, experience, and project specifics. Reach out for a personalized quote today. If you want to explore or start an application, you can apply here: Apply for a Fix & Flip loan.

Taxes and after-sale considerations

Net profit is subject to tax. Short-term capital gains or ordinary income treatment may apply depending on how you structured the deal and how long you held the property. Consult a tax professional familiar with real estate flips to estimate tax liabilities and plan for after-tax proceeds in your ROI analysis.

When to walk away

Walk away if your conservative scenario shows weak or negative returns, if contractors cannot commit to a timeline, or if your break-even ARV is above realistic market comps. Good discipline preserves capital and reputation; it’s better to pass on a marginal deal than to over-leverage on a risky one.

Summary checklist for calculating ROI

• Estimate ARV using conservative comps.
• List every cost: purchase, rehab, holding, loan fees, and selling costs.
• Compute Gross Profit and ROI, then annualize ROI for comparability.
• Stress test with conservative scenarios.
• Factor loan structure, draw schedules, and potential extensions into costs.
• Confirm tax implications with a professional.

Frequently Asked Questions (FAQs)

How fast can I get approved for a Fix & Flip loan?

Approval times vary, but many applicants receive loan approval within 7–10 business days, so you can start your project as soon as possible.

What’s included when calculating ROI on a fix and flip?

Include purchase price, renovation costs, loan fees and interest paid, holding costs (taxes, insurance, utilities), selling costs (commissions, closing costs), and any other fees. Taxes on profit should be considered when planning after-tax ROI.

How do I calculate annualized ROI?

Annualized ROI = (Profit / Total Cash Invested) × (12 / Months Held) × 100%. This tells you the equivalent yearly return so you can compare projects of different lengths.

Can I finance both the purchase and the renovation costs?

Yes! Many fix and flip loan programs are designed to cover both the property purchase and the renovation expenses, streamlining your financing needs.

How long is a typical fix & flip loan term?

Typical fix & flip loan terms range from 6 to 18 months, giving you time to complete renovations and sell the property. If you need more time, extension options are often available—contact the lender in advance to discuss the options and avoid penalties.

Do loan fees reduce my ROI?

Yes. Upfront fees, points, and origination costs reduce your initial cash position and therefore lower cash-on-cash returns. Include all fees in your Total Cash Invested figure when calculating ROI.

What if the market shifts and ARV drops?

Model conservative ARV scenarios and include contingencies. If the market drops significantly, you may need to hold longer, accept a lower price, or convert to a rental strategy. Have an exit plan and enough liquidity for a downside scenario.

Are there minimum credit or experience requirements?

Some programs have eligibility requirements such as a minimum credit score, proof of financial stability, and no recent bankruptcies. Experience in real estate is often preferred but not always required. Ask the lender for specific eligibility details for the program you’re considering.

How do I get a personalized quote?

Rates are competitive and vary based on your credit score, experience, and project specifics. Reach out for a personalized quote today. You can start an application or get more information here: Apply for a Fix & Flip loan.