ROI on a flip sounds simple — profit divided by what you put in — but the number is only useful if you're honest about what "what you put in" actually includes. Here's the concise version.
The Basic Formula
Return on investment (ROI) for a flip is generally calculated as:
ROI = (Net Profit ÷ Total Cash Invested) × 100
Net profit is your resale price minus every cost of the deal. Total cash invested is the actual out-of-pocket money you put into the deal — which is different depending on whether you financed the purchase or paid cash, and is why two investors on the exact same deal can report very different ROI percentages.
Every Cost That Belongs in the Calculation
- Purchase price and closing costs on the buy side
- Renovation costs, including a contingency for the unexpected items that almost always show up mid-project
- Holding costs — loan interest, property taxes, insurance, and utilities for however long you own it
- Selling costs — agent commissions, closing costs, and any concessions to the buyer
The most common way people inflate their reported ROI is by leaving out holding costs and selling costs, which on a project that runs a few months longer than planned can quietly eat a large share of the profit.
Cash-on-Cash vs. Total ROI
If you finance part of the deal with a hard money or private loan, your cash-on-cash ROI (profit divided only by the cash you personally put in) will look higher than your total ROI (profit divided by the full project cost, including borrowed funds), because leverage amplifies your return on the smaller amount of your own money at risk — it also amplifies your losses if the deal underperforms. Know which number you're looking at before comparing deals or reporting results to a lender or partner.
An Illustrative Example
This is a simplified, hypothetical example for illustration only — not a promised or typical outcome. Say you buy a property for $180,000, put $40,000 into renovations, and spend $12,000 on holding and selling costs combined, for a total cost of $232,000. If you sell it for $270,000, your net profit is $38,000. If that entire $232,000 was your own cash, your ROI is roughly 16%. If instead you only had $60,000 of your own cash in the deal (with the rest financed), your cash-on-cash ROI on that same $38,000 profit would be over 60% — the deal didn't change, but the way you measure the return did.
What Counts as a "Good" ROI
There's no single universal benchmark, since it depends on your market, your risk, and how long your capital was tied up. Many investors evaluate a flip on an annualized basis rather than a flat percentage, since a 20% ROI over three months is a very different result than a 20% ROI over eighteen months. Treat any "good ROI" number you read as a general rule of thumb to compare against, not a target guaranteed by following a formula.
Frequently Asked Questions
Q: What's the difference between ROI and profit margin?
A: Profit margin usually refers to profit as a percentage of the resale price; ROI measures profit against what you invested. They answer different questions and aren't interchangeable.
Q: Should I include my own labor as a cost when calculating ROI?
A: Many investors do, at least at a reasonable market rate, since your time has real value and skipping this step can make a marginal deal look better than it actually is.
Q: Does a higher ROI always mean a better deal?
A: Not necessarily — a high ROI achieved through heavy leverage also carries more financial risk if the sale price comes in lower or the timeline runs long. Compare ROI alongside your total dollar profit and the deal's risk profile.