House Flipping: A Complete Guide

House flipping involves purchasing a property, renovating it, and selling it for a profit. While it can be highly profitable, successful flipping requires careful analysis, accurate cost estimation, and good project management.

The 70% Rule Explained

The 70% rule is a popular guideline used by real estate investors to determine the maximum price they should pay for a flip property. The formula is:

Maximum Purchase Price = (ARV x 70%) - Renovation Costs

For example, if a property has an ARV of $300,000 and needs $50,000 in renovations:

Max Purchase = ($300,000 x 0.70) - $50,000 = $160,000

The 70% rule leaves 30% of the ARV to cover selling costs (typically 8-10%), holding costs, and your profit margin (usually 10-15%).

Understanding Flip Costs

Acquisition Costs

• Purchase price
• Closing costs (title insurance, attorney fees, transfer taxes)
• Loan origination fees and points
• Inspection and appraisal fees

Renovation Costs

• Materials and labor
• Permits and inspections
• Unexpected repairs (budget 10-20% contingency)
• Contractor fees or general contractor markup

Holding Costs

• Mortgage or hard money loan payments
• Property taxes
• Insurance
• Utilities
• HOA fees (if applicable)
• Property maintenance and security

Selling Costs

• Real estate agent commission (5-6%)
• Seller closing costs (1-3%)
• Staging and marketing
• Buyer concessions or credits

Common Renovation Cost Estimates

Renovation Type	Cost Range
Kitchen Remodel (full)	$25,000 - $75,000
Kitchen Remodel (cosmetic)	$5,000 - $15,000
Bathroom Remodel (full)	$10,000 - $30,000
Bathroom Remodel (cosmetic)	$3,000 - $8,000
New Roof	$8,000 - $20,000
HVAC System	$5,000 - $15,000
Flooring (per sq ft)	$3 - $12
Interior Paint (per sq ft)	$1 - $3
Windows (per window)	$300 - $1,000
Electrical Update	$3,000 - $10,000

Tips for Successful Flipping

1. Know Your Market

Understand what buyers want in your target neighborhood. Over-improving for the area is a common mistake that erodes profits.

2. Build a Reliable Team

Develop relationships with contractors, real estate agents, lenders, and inspectors. A good team can make or break your flip.

3. Accurate ARV Estimation

Use recent comparable sales (within 6 months, within 0.5 miles, similar size and features). Be conservative with your ARV estimate.

4. Budget for Contingencies

Always add 10-20% to your renovation budget for unexpected issues. Old houses especially can hide expensive surprises.

5. Time is Money

Every month of holding costs reduces your profit. Create detailed renovation timelines and hold contractors accountable.

6. Focus on High-Impact Improvements

Kitchens, bathrooms, and curb appeal provide the best ROI. Fresh paint, new flooring, and updated fixtures go a long way.

Risks to Consider

• Market timing: Property values can decline during your holding period
• Renovation overruns: Costs frequently exceed estimates
• Extended timelines: Delays increase holding costs significantly
• Selling delays: Properties may take longer to sell than expected
• Hidden problems: Foundation, mold, or structural issues can destroy profits