Skip links

How Much Does It Cost To Flip a House?

  • Home
  • Blog
  • How Much Does It Cost To Flip a House?
a man fixing a bathroom - fix and flip

House flipping is a popular way to make money from real estate, with ATTOM reporting that US home flippers earned 30.2% gross profit in the first quarter of 2024. While house flipping can definitely be lucrative, there are a lot of costs involved. As well as financing costs and labor costs, you’ve also got to think about marketing costs and the cost of repairs.

To make a successful house flip, you need to plan effectively and have a realistic budget. Whether you’re self-financing or using money lenders to back your investment, here are some things you need to consider when working out how much it will cost to renovate and re-sell a property.

Key house flipping costs

Experienced flippers know that the first step to a successful project is putting together a realistic and comprehensive budget. This will give you an idea of how much it will cost to flip your property from its current condition, and will also help when you apply for a fix and flip loan.

There are four main areas to think about when considering cost:

  • Acquisition (buying the property)
  • Renovation
  • Carrying costs
  • Selling costs.

We’ll break these down for you more, below.

Acquisition costs

This is the first step of the flipping process. Costs at this stage include:

  • Purchase price: This is usually the largest expense. Aim to buy below market value, especially when dealing with distressed properties. We’ve previously written about using hard money loans to finance the purchase of distressed properties.
  • Closing costs: These fees include title insurance, escrow fees, attorney fees, transfer taxes, and recording fees. These typically range from 2% to 5% of the purchase price.
  • Inspection and appraisal fees: Costs incurred to assess the property’s condition and value before purchase. These help you to avoid hidden issues and potentially overpaying: which would be disastrous for your bottom line.
  • Financing fees: If the property is financed, this can include loan origination fees, underwriting fees, and mortgage points, as well as interest payments on the loan.

Renovation costs

  • Materials and labor: Your second largest expense, covers the cost of building materials (flooring, fixtures, cabinets, etc.) and labor (contractors, electricians, plumbers, etc.) for repairs and upgrades.
  • Permits and inspections: Local permits may be required for certain renovations (e.g., electrical, plumbing, or structural work). Additional costs include inspections by city officials to ensure the work complies with local codes.
  • Contingency fund: A reserve for unexpected repairs or issues that arise during the renovation process. As a rule of thumb, most house flippers allocate 10% to 15% of the renovation budget for this.
  • Landscaping and curb appeal: Costs associated with improving the outside of the property, such as lawn care, painting, and exterior fixtures, to make it more attractive to buyers.

Would you like to calculate your potential fix and flip project expenses easily and accurately? Try our Fix and Flip Calculator to estimate your total project costs and determine your potential profits.

Carrying Costs (holding costs)

Between buying and selling the property, you’re “holding” it: and that comes with carrying costs.

  • Property taxes: You’ll be responsible for property taxes during the time you’re holding the property.
  • Utilities: Costs for water, gas, electricity, and garbage services while the property is being renovated and waiting to be sold.
  • Insurance: Homeowners insurance or specialized property insurance for vacant or under-renovation homes.
  • Loan interest: If the property is financed with a loan or hard money, investors must pay interest on the loan for as long as they hold the property. This can add up if the project takes longer than anticipated.

Selling costs

  • Real estate agent commissions: Typically around 5% to 6% of the selling price, paid to the real estate agents involved in the sale (both buyer and seller agents).
  • Closing costs (seller): As the seller, you may need to cover certain closing costs like transfer taxes, attorney fees, or title insurance for the buyer. These costs generally range from 1% to 3% of the sale price.
  • Staging and marketing costs: Budget some money to stage the home for showings and marketing, such as professional photography, virtual tours, or online listings.
  • Capital gains taxes: If you sell the property for more than you paid, you may owe capital gains taxes, depending on how long you hold the property and local tax regulations.

How property condition and age affect house flipping costs

Before you buy a potential investment property, take time to fully evaluate its condition and age. This will be essential in budgeting your fix-and-flip project as it will affect the accuracy of renovation costs, the scope of work, time management, resale value, and risk mitigation.

Older properties tend to have more wear and tear and might need major repairs or replacements. You could find yourself ripping out the plumbing, replacing all of the electrical systems, adding a new roof, or even doing work on the foundations. These additional costs will really add up: especially if they’re unexpected.

Another thing to consider is that older homes might not meet modern building standards and codes. These renovations can be expensive and are required to make the property legally sellable.

It’s important during your evaluation to understand the difference between cosmetic and structural upgrades:

  • Cosmetic upgrades are usually quicker and less expensive, and involve things that simply improve the appearance of the property. This includes painting, flooring, and upgrading the bathroom or kitchen
  • Structural repairs are necessary to the property’s livability, and include addressing foundation issues and roof replacements.

Understanding the scale of the repairs will help you to understand your renovation timelines. Longer timelines mean more carrying costs, which will eat into your profits, so it’s important to build this into your budget too.

A thorough evaluation will help you to avoid costly mistakes, maintain project timelines, and maximize your profits. Learn more about how to evaluate a fix and flip property.

Budgeting for flipping: what is the 70% rule?

The 70% rule says that you shouldn’t pay more than 70% of the property’s After Repair Value (ARV), minus the cost of repairs, when buying a house to flip. Most real estate investors use this rule of thumb to avoid over-paying on an investment property.

Here’s how it works:

After Repair Value (ARV): This is the estimated market value of the property after all necessary repairs and renovations have been completed.

Repair Costs: These are the total costs required to renovate the property and bring it to its ARV.

Maximum Purchase Price: According to the 70% rule, you calculate this by taking 70% of the ARV and subtracting the repair costs. 

The formula looks like this:

Maximum Purchase Price = (ARV×0.70) − Repair Costs

Example:

  • ARV: $200,000
  • Repair Costs: $40,000

Using the 70% rule:

Maximum Purchase Price = (200,000×0.70) − 40,000

According to the 70% rule, the investor should not pay more than $100,000 for the property to allow room for profit.

Curious to see how the 70% rule applies to your potential flip? Use our Fix and Flip Calculator to quickly calculate the maximum purchase price based on the After Repair Value (ARV) and repair costs.

Why 70%?

The 70% rule is designed to provide a cushion for unexpected costs and holding costs (like financing, utilities, and taxes while the property is being flipped), while ensuring a healthy profit margin. This rule helps investors avoid overpaying for a property, which could reduce or cancel-out potential profits.

Unexpected expenses, and how to anticipate them

Even if you have a robust plan and budget, unexpected costs are a common part of house flipping. Sticking to the 70% rule (and having a 10-15% contingency fund) should help to protect your profits from any unforeseen expenses.

Learn to expect the unexpected. Here’s what to look out for:

Hidden structural issues

  • Foundation problems: Cracks or shifts in the foundation can be costly to repair
  • Roof damage: Roof repairs or replacements can be expensive, especially if damage is more extensive than initially thought
  • Termite or pest damage: Pest infestations can cause structural damage that requires significant repairs.

Unexpected permitting and inspection costs

  • Permits: If additional permits are needed for unexpected repairs, these can add both time and cost
  • Code Violations: Discovering that the property is not up to code might require expensive updates to comply with local regulations.

Utility upgrades

  • Electrical system upgrades: Older homes might need a complete electrical overhaul, especially if the existing system is outdated or unsafe.
  • Plumbing repairs: Unexpected leaks or the need to replace old plumbing systems can be costly
  • HVAC Repairs or replacement: If the heating, ventilation, and air conditioning systems are outdated or nonfunctional, replacement can be a significant expense.

Environmental Issues

  • Asbestos removal: Older properties might contain asbestos, requiring expensive professional removal
  • Mold remediation: Mold issues in properties with prior water damage can require professional cleanup.

Higher-than-expected labor costs

  • Contractor delays or changes: If contractors encounter issues that extend the timeline or require additional work, labor costs can increase
  • Material shortages or price increases: Fluctuations in material costs or availability can lead to higher expenses than initially planned for.

Market changes

  • Decreased property value: Market conditions can change during the renovation period, potentially lowering the property’s ARV and reducing your expected profit
  • Increased holding costs: If the property takes longer to sell, you might incur additional costs for mortgage payments, insurance, and utilities.
  • Title problems: Unresolved title issues can delay the sale and require legal intervention
  • Liens or back taxes: Unexpected liens or unpaid taxes on the property could require you to pay off these debts before selling.

Increased financing costs

  • Interest rate rises: If you’re using a variable-rate loan, rising interest rates can increase your financing costs
  • Loan extensions: Delays in renovation or selling might require you to extend your loan, leading to higher interest payments.

Developing a comprehensive financial strategy

Developing a comprehensive financial strategy for a fix-and-flip project involves careful planning, budgeting, and risk management to ensure that the project is profitable. Here’s a quick step-by-step to get you started.

1. Set clear goals

Define your profit margin: Determine the minimum profit you need to achieve to make the project worthwhile. This is often based on your investment criteria, market conditions, and risk tolerance.

Establish a timeline: Set a realistic timeline for completing the project, including the acquisition, renovation, and sale of the property.

2. Conduct market research

Analyze the market: Research the local real estate market to understand trends, property values, and buyer preferences. This helps you choose a property that will sell quickly and at a good price.

Comparable sales (Comps): Study recent sales of similar properties in the area to estimate the After Repair Value (ARV) of the property once renovations are complete.

3. Determine your financing options

Evaluate funding sources: Decide how you will finance the purchase and renovation of the property. Common options include cash, hard money loans, private lenders, home equity lines of credit (HELOCs), or partnerships. Find out more about the top fix and flip financing options.

Estimate financing costs: Consider the interest rates, loan fees, and other costs associated with your financing. Ensure you understand the terms and how they will impact your cash flow.

4. Create a detailed budget

Purchase price: Use the 70% rule to decide the maximum price you should pay for the property.

Renovation costs: Get detailed estimates for all repairs and renovations, including labor, materials, permits, and contingencies

Holding costs: Calculate the costs of holding the property during the renovation and sale period, including mortgage payments, insurance, property taxes, utilities, and maintenance.

Selling costs: Include costs for staging, real estate agent commissions, closing costs, and any other expenses related to the sale of the property.

5. Risk management and contingency planning

Set aside a contingency fund: Allocate funds to cover unexpected expenses that may arise during the project, around 10-20% of the total budget.

Insurance: Make sure the property is properly insured during the renovation process to protect against potential damages or liabilities.

Plan for market changes: Think about how market fluctuations could impact the sale price or time on market. Have a backup plan in case the property doesn’t sell as quickly as anticipated, such as maximizing the rentability of your property.

6. Project management and execution

  • Hire a reliable team: Work with experienced contractors, inspectors, and real estate agents who understand the fix-and-flip process
  • Track expenses: Use financial software or spreadsheets to monitor all expenses in real-time to help you stay on budget
  • Monitor progress: Regularly check in on the renovation progress to ensure timelines are being met and that any issues are addressed quickly.

7. Exit strategy

Set a selling strategy: Decide how you will market and sell the property once renovations are complete. Consider the timing of the sale to maximize your return.

Navigate house flipping costs with a fix and flip loan

Now you’ve got a firmer understanding of how much a house flip should cost, the next step is financing your fix and flip project. With Express Capital Financing, you can expect flexible loans with a fast and easy lending process.

Our fix and flip loans are designed to support your investment journey every step of the way. With us as your lending partner, you can confidently tackle unexpected expenses, stay on budget with the 70% rule, and develop a comprehensive financial strategy that sets you up for profitability. 

Enjoy the benefits of our asset-based loans, covering up to 90% of acquisition costs and 100% of renovation expenses, so you can quickly move forward with your investment plans. Coupled with our fast 24-hour approval process and personalized loan options, our dedicated team is fully committed to backing your success. Jump into your next profitable project by exploring our fix and flip loans and kickstart your application process today or get in touch with one of our team today.

Join Our Mailing List

Subscription Form (#7)
Don't miss out on the latest trends, insights, and opportunities in real estate financing. By subscribing, you'll be the first to know about new loan programs, market trends, and valuable resources that can give you a competitive edge.

Latest Posts

How to Invest In Tax Liens

Tax liens investing is a unique way to make money from real estate, as it…

How Long Does It Take To Flip A House?

On average, most fix and flip investors take 4-6 months to flip a house. This…

Is Flipping Houses Lucrative? Tips to Maximize Your Profit

House flipping is a popular form of real estate investing where people purchase distressed properties,…

This website uses cookies to improve your web experience.