Key Takeaways
- The 70% Rule: Never pay more than 70% of ARV minus repair costs
- Budget 10-20% contingency for unexpected renovation costs
- Each month of holding costs directly reduces your profit
- Factor in 8-10% selling costs (agent commission + closing)
- A good flip typically yields 15-25% ROI
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.
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
Pro Tip: Know Your Market
Understand what buyers want in your target neighborhood. Over-improving for the area is a common mistake that erodes profits. Research comparable sales thoroughly before estimating your ARV.
Build a Reliable Team
Develop relationships with contractors, real estate agents, lenders, and inspectors. A good team can make or break your flip.
Budget for Contingencies
Always add 10-20% to your renovation budget for unexpected issues. Old houses especially can hide expensive surprises.
Time is Money
Every month of holding costs reduces your profit. Create detailed renovation timelines and hold contractors accountable.
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
Common Flipping Risks
- 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