EXAMPLE
Why contingency is not profit
If the protected rehab allowance is not used, the unused amount improves the outcome. It should remain in the underwriting until bids and field conditions justify releasing it.
Real Estate
Fix and Flip Return Calculator
Underwrite purchase, renovation contingency, holding, financing, resale friction, project profit, cash ROI, and break-even value for a fix-and-flip.
Deal underwriting workspace
Follow acquisition cash through renovation, holding, and resale
This model separates property cost, protected renovation budget, financing carry, and disposition friction so the projected profit is not confused with the sale-price spread.Protected rehab budget$53,760
Total project cost$273,638
Projected profit$17,737
Return on invested cash13.8%
Annualized project return24.8%
Break-even resale price$295,825
PROJECT VALUE BRIDGE
Where the resale proceeds go
The bridge begins at expected resale value and deducts each cost layer until only project profit remains.
Cash invested$128,638
Financing carry$9,729
Profit margin on resale5.6%
DETAILED CALCULATION PROCESS
Detailed fix-and-flip return calculation
The calculation first protects the renovation budget, then prices time and financing, and finally removes selling friction from resale proceeds.
General formulas
Protected rehab = Base rehab x (1 + Contingency rate) Interest carry = Average financed balance x Annual rate x Months / 12 Total cost = Purchase + Closing + Protected rehab + Holding + Interest carry Net sale proceeds = Resale price x (1 - Selling-cost rate) Profit = Net sale proceeds - Total cost Cash invested = Total cost - Average financed balance Cash ROI = Profit / Cash invested Annualized return = (1 + Cash ROI)^(12 / Months) - 1 Break-even resale = Total cost / (1 - Selling-cost rate) What each symbol means
Ppurchase price, dollars
Cacquisition closing costs, dollars
Rbase renovation budget, dollars
qrenovation contingency rate, decimal
Hmonthly holding cost, dollars/month
mproject duration, months
Daverage financed balance, dollars
iannual financing rate, decimal/year
Sexpected resale price, dollars
sselling-cost rate, decimal
Worked substitution with the current inputs
- Protected rehab = $48,000 x (1 + 0.12) = $53,760.
- Holding = $1,850 x 7 = $12,950; interest = $145,000 x 0.115 x 7 / 12 = $9,729.
- Total cost = $185,000 + $4,200 + $53,760 + $12,950 + $9,729 = $265,639.
- Net sale proceeds = $315,000 x (1 - 0.075) = $291,375; profit = $25,736.
- Cash invested = total cost - financing; cash ROI and annualized return are reconciled from that equity base.
DEAL REVIEW
Interpret the return, not just the spread
A positive profit can still be unattractive when the project absorbs substantial equity or remains exposed for many months. Compare the annualized return with an appropriate risk-adjusted alternative, but do not treat it as guaranteed.
Practical workflow
- Use a contractor-backed scope and include permit and utility costs in rehab or holding.
- Use the expected average drawn balance, not the maximum loan commitment, for simple interest carry.
- Stress-test both resale price and schedule because they usually drive the largest downside.
SCENARIO TABLE
Resale-price sensitivity
| Resale scenario | Net proceeds | Profit | Cash ROI | Margin |
|---|
LIMITATIONS
What this estimate omits
The model does not calculate taxes, lender points, draw fees, depreciation, capital-gains treatment, staged loan balances, or probabilistic overruns. Enter those items in the closest cost field or use a full project cash-flow model.
FAQ
Common questions
Is ROI based on purchase price?
No. It uses projected profit divided by cash invested after subtracting the average financed balance from total project cost.
Why is break-even higher than total cost?
Because selling costs are charged as a percentage of the resale price, so the sale must cover both project cost and its own disposition friction.
How does a longer holding period change the deal?
Each added month increases entered carrying cost and simple financing carry, so profit, cash ROI, annualized return, and break-even resale price must all be recalculated.
Can the contingency allowance be removed after receiving bids?
Only documented scope reduction or firm pricing supports releasing it. Until then, the allowance protects the underwriting from unpriced work rather than representing available profit.