Flipping houses is a worthwhile investment in the long run, but it’s necessary to figure out how much it’ll cost to ensure you’re profiting from your efforts. The average cost of flipping a house varies depending on the property location, type, and degree of the required renovations. To answer how much does it cost to flip a house, you’ll need to add four main costs: acquisition, renovation, carrying, and selling. I’ll walk you through flipping costs so you’ll feel confident about your budget.
House Flipping Cost Breakdown & Calculations
To help you evaluate potential flip properties, gather accurate estimations of the costs. Then, with the information in this guide, calculate your potential profits and return on investment (ROI). You’ll be able to estimate how much it costs to flip a house based on these criteria:
Main Factors That Influence Flipping Cost
When considering the cost of flipping your investment property, there are a few factors that every investor should look into to achieve success. These factors—purchase, rehab, carrying, and marketing and sales costs—will affect the total return on investment earned when selling the property to a new owner. Read along to learn how much it would cost to flip a house.
1. Purchase Price of a Fix & Flip Property
Typically, the most significant expense for a house-flipping investor is the cost of buying the property, also known as property acquisition. Purchasing a home at a reasonable price point is critical for the house-flipping budget and the overall success of the flip. This is why investors must know the best ways to find houses to flip that are undervalued, like foreclosures or distressed homes.
When considering how much it costs to flip a house, you can’t make a good decision based on a property’s price alone. Whether a property is worth the price depends on factors like the local real estate market and the property’s after-repair value (ARV). To profit from your fix-and-flip project, compare the property to similar properties in the area. By doing a comparative market analysis (CMA), you’ll ensure your proposed ARV won’t price you out of the neighborhood and guarantee you’re not overpaying for the property in its current condition.
In addition, remember to apply the 70% rule. The 70% rule in house flipping states that investors should pay not more than 70% of a property’s after-repair value minus the required renovations.
Formula: After-repair Value (ARV) × .70 − Estimated Repair Costs = Maximum Buying Price
The average cost to flip a house heavily depends on the local real estate market. To decide if the area is a good market for flipping houses, look for these housing market indicators:
Closing Costs
Part of your property acquisition expenses will include closing costs and fees paid at the end of a real estate transaction. They include transfer taxes, your share of broker fees, property taxes, property insurance, legal and title company fees, and title insurance. Your real estate agent and the lender will break down your closing costs in a closing disclosure form.
Closing costs can range from 2% to 6% of the purchase price. However, a conservative rule of thumb to calculate your closing costs is to estimate about 5% of the property’s purchase price. For example, if you purchased a property for $300,000, expect to pay around 5% of $300,000, which is $15,000. So the $300,000 property has now cost you $315,000. Considering these expenses when estimating your flip cost is crucial because they will impact your budget and return on investment (ROI).
2. Rehab Costs to Fix the Property
Rehab costs are one of the most critical elements of your house flipping cost breakdown. These are the total expenses for rehabilitating or renovating the property you purchase, including building materials, appliances, and hiring contractors. Remember that calculating the average cost to flip a house will vary significantly because costs depend on the extent of the renovation, the state of the property, its size, and the labor cost in your area.
Pro Tip: Use your network to find reputable contractors. This will help you maximize the profit from your fix-and-flip and complete the project without unnecessary stress. The longer it takes to complete the rehabilitation and renovations, the longer you’ll have to pay monthly carrying expenses, reducing your budget and ROI.
Different Types of Home Repairs
Properties that require fresh paint and landscaping will be much less expensive than homes that need significant structural, plumbing, or electrical work. The key to learning how to flip a house on a budget is only making necessary renovations to increase the property’s value. Home renovations are generally categorized into cosmetic, moderate, and extensive.
- Cosmetic repairs (estimated cost of $10,000 to $15,000): Cosmetic repairs are the least expensive, but they significantly impact how potential buyers perceive the house. Although they don’t change the home’s functionality, they add significant value to the home when done correctly. Cosmetic repairs and estimated costs include replacing carpets, repainting walls and cabinets, and basic landscaping.
- Moderate repairs (estimated cost of $20,000 to $35,000): Moderate home repairs can include cosmetic changes but require more planning and expertise. Some real estate investors with home improvement experience may be able to make moderate repairs, but they’re likely to hire out many of the jobs because of the time and expertise required to do them well. A few examples of moderate home repairs include renovating the kitchen, installing new light fixtures, and adding pavers or shrubs to increase curb appeal.
- Extensive repairs (estimated cost of $35,000+): Extensive home repairs, sometimes known as “gutting,” are required when a house has major problems that must be removed entirely, replaced, and renovated. Homes that need extensive repairs typically have the lowest acquisition costs but the highest material and labor costs. These fix-and-flip projects also have the most prolonged timeline, increasing carrying costs because they require contractors and building permits. Extensive home repairs include replacing the roof, major plumbing upgrades, and foundation repairs.
3. Carrying Costs to Hold the Property During Rehab
Anyone considering investing in real estate should learn how to calculate and plan for carrying costs, which are the ongoing expenses of owning a property. These expenses are typically paid monthly, so your total carrying costs will depend on how long it takes to complete all necessary repairs and sell the property. The longer you work on the property, the higher your carrying costs will be. Carrying costs typically include financing, utilities, homeowner’s association fees (HOA), insurance, and property taxes.
Financing
Financing costs are the fees associated with borrowing money to buy and renovate a home, which depend on which type of investment property financing you choose. As a general rule, your down payment will be about 20% to 25% of the purchase price. Aside from this, a first-time investor must cover loan origination fees of approximately 3% to 4% of the loan amount and standard closing costs of another 1.5% of the purchase price.
Plus, interest rates on different types of financing can vary drastically. For example, as of November 2024, the average interest rate on a conventional 30-year fixed-rate mortgage is 6.78%. Hard money loans usually have much higher interest rates, often around 10% to 18%. Moreover, typical fix-and-flip lenders provide high interest rates and short-term loan products.
On the other hand, using cash is a great alternative to financing a property. This saves you money in the short term because you don’t have any lending fees, interest, or points. However, this will deplete your funds because you’ll need the cash to purchase and rehab the property. You will also need to have money set aside for unanticipated expenses.
Here is an example comparing two financing options, isolating the cost of financing a fix-and-flip project:
These numbers are estimates and do not represent the project’s total cost.
Property Taxes
Considering how taxes on flipping houses impact your profits and budgeting strategy is essential. Property taxes have two effects on the cost of flipping a house. First, you should prepay the taxes for the remainder of the year at settlement. Second, you may be required to pay monthly or quarterly property taxes, which will be included in your carrying costs. Property taxes are essential in determining the cost of flipping a house. Excessively high property taxes can be a turnoff for homebuyers and increase carrying costs.
Insurance
Property insurance protects homeowners from damage or loss if their flip is vandalized, broken into, or suffers storm damage. Many financing options require an insurance policy, especially those with a loan-to-value ratio (LTV) over 80%. When selecting an insurance package, ensure it includes full coverage, including flood and fire damage coverage, depending on the property’s location.
You will likely need vacant or unoccupied property insurance for a fix-and-flip property. The average cost of this insurance is about 50% to 60% more than the average home insurance policy, even for a smaller home. It is expensive because there’s a greater chance of property damage since no one is on the property to protect it. Generally, there are three ways to pay for a policy: upfront, at or before settlement, or monthly.
Utilities
Utility costs are a large part of your monthly carrying costs, including water, electricity, gas, and oil. Some utility companies also demand upfront payments, mainly if you own an apartment complex or the previous owner had significant monthly expenses.
Utility bills vary depending on usage, property size, and condition. You can get a monthly cost estimate from the utility providers or the previous owner. Ensure you plan for your utilities ahead of time because it can take a week or more for utility companies to start providing services after you buy a property. Without water and electricity, you won’t be able to start work on the property, which will incur additional costs and extend your timeline.
Homeowners Association Fees (HOA)
Not all properties have a homeowners association (HOA), but you will be responsible for the fees if your fix-and-flip property does. HOA fees can be paid monthly or annually, and they cover municipal services, association insurance, maintenance and repairs, amenities and services, and reserve funds. HOA fees vary widely depending on where you live, what type of home you’re in, and what your HOA offers.
Timeline
As we’ve discussed, the longer you hold on to a fix-and-flip property, the higher your carrying costs will be. For this reason, thoroughly planning the timeline for your property is essential for determining the cost to flip a house. For instance, your timetable might be 60 days from buying the property to when you plan to list it on the market. The timeline must take into account:
- The amount of rehabilitation and renovation projects on the property
- The property’s size
- Yours and contractors’ availability and schedule
- Marketing and selling the property
4. Marketing & Sales Costs to Sell a Flipped House
Once the renovations are complete, the remaining house flipping costs are marketing and sales, which are used when selling your newly flipped property. To calculate these costs and maximize your profits, you must decide whether to work with a real estate agent or sell the property yourself (For Sale By Owner or FSBO). Depending on your path, the cost of marketing tools and strategies you use will differ.
Sales Costs
Real estate agent commissions are generally 2% to 6% of the property’s sales price. For instance, if the subject property sells for $300,000, the real estate agent fees will be $6,000 to $18,000. By listing the house yourself, you can theoretically pocket that money, which appeals to most home flippers.
However, selling the house will require extensive work, time, and added expenses. You will have to market the house without access to the Multiple Listing Service (MLS), and if you don’t already have a network of homebuyers or a broad local audience on social media, that can be a challenge.
Marketing Costs
If you sell the property yourself, you’ll spend money to spread the word. You could use thousands of real estate marketing ideas, so evaluating each strategy’s costs and potential reach will be essential. Unless you are a seasoned marketer or have a sizable network to help spread the word and provide assistance and resources, learning how to market your flip properties successfully can take months.
According to the National Association of Realtors (NAR), FSBO homes sell for an average of $380,000, while homes listed by an agent sell for an average of $435,000. If you’re an investor looking to maximize your profits, partnering with a real estate agent to list your flip properties on Zillow can be a game-changer. An agent can use Zillow Premier Agent’s tools to attract more buyers, claim listings, and ensure your flip properties get maximum visibility on the platform.
Frequently Asked Questions (FAQs)
How much does it cost to flip a house?
Although the average gross profit of flipped houses in early 2024 is $73,500, the cost of flipping a house varies based on your location. To determine how much money is needed to start flipping houses, you need to find under-valued properties in your area and calculate rehab, financing, and selling costs.
Is it cheaper to build or flip?
According to Homelight, the average cost to build a house is $300,000, although it can range across the U.S. from $30,000 to millions. This breaks down to about $150 per square foot, although luxury homes can cost up to $500 per square foot. On the other hand, Angi estimates the average cost of flipping a house at $49,236. Ultimately, many factors impact building prices and flipping, so you must start by determining the location, target price, and type of home you want.
How much should I budget for flipping a house?
The average cost of flipping a house is about 10% of the purchase price. To determine your house flipping budget, calculate the cost of acquiring a property in your area and the ARV, rehab, carrying, and selling costs.
Is house flipping high risk?
Of course, flipping houses can be one of the most risky investments you can make. However, the level of risk depends on your decision-making and market conditions. With thorough research and a solid understanding of the local market, you can minimize risks and make house flipping a good investment.
Bringing It All Together
Finding the answer to the question, “How much does it cost to flip a house?” depends on several variables. The average cost of flipping a house is about 10% of the purchase price, depending on the price of buying the property, the cost of renovating it, and the cost of financing the property. After considering these factors, you should be well on your way to determining how much money you need to start flipping houses.
Got any questions on how much would it cost to flip a house? Let us know in the comments!
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