How Much Profit Should You Require Per Flip?

Required profit is the last subtraction in the maximum allowable offer formula, and it is the only input that is entirely your decision. ARV comes from the market. Rehab comes from the scope. Carry comes from the calendar and your lender. Required profit comes from you — which is why it is the input people quietly shave when they want a deal to work.

There are three defensible ways to set it. Each is wrong somewhere, and knowing where is most of the skill.

Method 1 — A fixed dollar floor

Pick a number below which the deal is not worth your time. "I do not do a flip for less than $35,000."

It is simple, it is honest about opportunity cost, and it resists the temptation to talk yourself into thin deals with impressive-sounding percentages.

Where it lies: at both ends of the price range.

• On a $150,000-ARV house, $35,000 is 23.3% of ARV ($35,000 ÷ $150,000) — a very large ask that will price you out of most cheap markets
• On a $900,000-ARV house, $35,000 is 3.9% — nowhere near enough compensation for the risk you just took on, because everything that can go wrong is bigger too

A fixed floor systematically overprices cheap deals and underprices expensive ones.

Method 2 — A percentage of ARV

"I require 12% of ARV." On a $320,000 flip that is $38,400 ($320,000 × 12%).

This scales with the size of the bet, which is the right instinct — bigger houses carry bigger absolute risk. It is also easy to compare across deals and easy to explain to a partner.

Where it lies: on cheap houses. 12% of a $120,000 ARV is $14,400. But the fixed costs of doing a deal at all — your time, the analysis, the closing costs, the lender fees, the trips — do not shrink with the house. A percentage rule will hand you deals where the percentage looks fine and the dollars do not justify four months of your attention.

Method 3 — A return on capital deployed

Ask what the cash you actually put in has to earn.

Worked example (hypothetical). You deploy $95,000 of your own cash across down payment, closing costs, carry and the rehab you float ahead of draws, over a six-month hold. If you require a 20% annualized return on deployed capital, six months is half of that:

$95,000 × 10% = $9,500

This is the method that respects leverage, and it is the right frame when you are choosing between deploying capital here versus somewhere else.

Where it lies: exactly when leverage is high. That $9,500 is a fine return and a terrible reason to do a flip. You still signed for the loan, still own the construction risk, still spend four months managing it. A high-leverage deal makes almost any profit look like a strong return on capital, because the denominator is small — while the thing that can go wrong is unchanged.

What to actually do

Take the higher of a dollar floor and a percentage of ARV, then use return on capital as a screen, not a target.

• The dollar floor protects your time on small deals
• The percentage protects your risk on large ones
• The return on capital tells you whether this deal beats your alternative use of the same money

Written as a rule: required profit = max(floor, ARV × pct) — and if the resulting return on deployed capital is worse than your alternative, pass even though both other tests passed.

Then check it survives being wrong

A required profit is only real if it is still there when your inputs are not perfect. Run the deal with ARV 5% low and rehab 15% over — both routine — and look at what is left.

Worked example (hypothetical). $320,000 ARV, $60,000 rehab, required profit $38,400.

• ARV comes in 5% low: −$16,000
• Rehab runs 15% over: −$9,000
• Remaining profit: $38,400 − $16,000 − $9,000 = $13,400

Still positive, so the deal survives a bad-but-normal outcome — which is the actual question. If that arithmetic goes negative, your required profit was not a cushion. It was the entire margin, and you were betting on being right.

Frequently asked questions

What is a good profit margin on a house flip?

There is no portable answer, because it depends on your price band, your capital cost and your hold period. Set it from your own floor, your own percentage and your own alternative use of capital, then confirm it survives a 5% ARV miss and a 15% rehab overrun.

Should required profit be a percentage or a dollar amount?

Use both — take whichever is higher on a given deal. A percentage alone underpays you on cheap houses; a dollar floor alone underprices risk on expensive ones.

Does required profit go in the MAO formula?

Yes. Maximum allowable offer is ARV minus rehab, holding, buying, selling and financing costs, minus your required profit. Lowering the required profit raises the offer you can make — which is exactly why it should be set before you see the house.

Is profit the same as return?

No. Profit is dollars. Return is dollars relative to the cash you deployed and the time you deployed it for. A deal can have a good return and a profit too small to be worth doing.

How do I stop myself shaving the number to make a deal work?

Write it down before you analyze the house, and treat a deal that only works at a lower required profit as a deal that does not work. If you find yourself editing that input, you are no longer analyzing — you are negotiating with yourself.