How to Calculate ROI on a Foreclosure Property Flip
ROI on a foreclosure property flip is calculated as ROI = (Net Profit ÷ Total Investment) × 100: subtract all your costs from the resale price, divide by your total cash invested, and multiply by 100. The critical difference with foreclosures is that your total investment must include every cost category specific to distressed properties — not just purchase price and rehab.
Count every cost category
Acquisition: purchase price plus closing costs (title, inspection, attorney) — budget 2–4% of price for closing on foreclosures. Renovation: materials, labor, permits, and a 10–20% contingency. Holding: property taxes, insurance, utilities, HOA, and loan interest while you own and renovate. Hidden foreclosure liabilities: unpaid taxes, second/judgment liens, or code violations that transfer to you — run a full title and lien search before finalizing your offer. Exit: agent commission (5–6%), sale-side closing (1–2%), and buyer concessions.
Worked example
Purchase $120,000 + buy-side closing $4,000 + unpaid taxes/liens $3,500 + renovation $45,000 + holding (6 months) $8,000 + selling commission & closing $15,000 = total investment $195,500. Resale $240,000 − $195,500 = net profit $44,500. ROI = (44,500 ÷ 195,500) × 100 = 22.8%. Model your own deal with the foreclosure ROI and house-flip calculators.
Use the 70% rule only to screen
Many investors use the 70% rule as a quick pre-purchase screen — Maximum Allowable Offer = (ARV × 70%) − Rehab Cost — but it's only a starting point. Always calculate full ROI to verify the deal meets your return threshold after all costs.
Related tools
Frequently asked questions
- How do I calculate ROI on a foreclosure property flip?
- ROI on a foreclosure property flip is calculated as: ROI = (Net Profit ÷ Total Investment) × 100. Subtract all your costs from the resale price, divide the result by your total cash invested, and multiply by 100. Total investment includes purchase price, closing costs, renovation, holding costs (taxes, insurance, utilities, loan interest), and exit costs (commission, closing). Foreclosures require careful accounting for hidden liabilities like unpaid taxes and liens that transfer to you.
- What costs do most investors forget when calculating foreclosure flip ROI?
- Holding costs (property taxes, insurance, utilities, loan interest) and hidden liabilities (unpaid taxes, liens, code violations) are the most commonly underestimated. A title and lien search before making an offer is essential, and these often add 2–5% to your total investment on foreclosures.
- Should I use the 70% rule instead of calculating full ROI?
- The 70% rule (MAO = ARV × 70% − Rehab) is a fast screening filter to identify deals worth deeper analysis, not a replacement for full ROI math. Use it to shortlist properties, then calculate actual ROI with your real numbers before committing capital.
- How do I estimate holding costs when I don't know how long the flip will take?
- Forecast the timeline realistically: inspection and title work (1–2 weeks), renovation (4–8 weeks), listing and sale (4–8 weeks). Add a buffer for delays. Multiply monthly holding costs by your projected months. For example, if monthly holding is $1,200 and you expect 5 months, budget $6,000.
- How do I account for hard money financing costs in ROI?
- Hard money loans typically cost 8–15% annual interest plus 2–5% origination fees. For a $120,000 purchase financed for 6 months at 12% with 3% origination: ($120,000 × 0.12 × 0.5) + ($120,000 × 0.03) = $7,200 + $3,600 = $10,800 in financing costs. This goes into total investment, not profit. Cash buyers skip interest but should still account for the opportunity cost of capital.