How Much Does It Cost to Flip a House? 4 Factors to Consider
Gina is a licensed real estate salesperson, experienced trainer, and former high school educator of 1,000+ learners. She writes for Fit Small Business with a focus on real estate content.
Jealie is a staff writer at Fit Small Business, specializing in real estate education.
The overall cost to flip a house is the sum of the costs for purchasing the property, rehab and renovations, carrying the property over time, marketing, and sales. The average cost varies depending on the property location, type, and degree of the required renovations, but the total house flipping budget is usually around 10% of the purchase price. If you want to know how much it costs to flip a house, keep in mind that it differs from project to project.
Use our free fix-and-flip costs worksheet, which provides simple calculations on how much it will cost to flip a house, including carrying costs, rehab costs, and a breakdown of the costs involved.
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While the exact cost to fix-and-flip property will vary widely, each project typically has these four main costs to flip a house:
1. Purchase Price of a Fix & Flip Property
The cost of acquiring the property, known as property acquisition, is the most significant expense a house-flipping investor will face. It is critical for the overall success of the flip to purchase a home at a reasonable price point. Investors in house flipping frequently target properties that are undervalued for their location, such as foreclosures or distressed homes.
However, remember that the more you spend to purchase a house, the higher your after-repair value (ARV) needs to be for you to benefit from the fix and flip. Before you buy a property to flip, you should compare it to similar properties in the same area to 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, the average cost of acquiring a fix-and-flip property will largely depend on the market the home is in. You can look for several characteristics that indicate a market is good to buy into. The median household income, home value, number of realtors, cost of living, average listing and selling price, and the average days on market are some indicators of market performance and how good it will be for house flipping.
According to a study conducted by Balancing Everything, the best cities to flip houses in the United States are West Valley City, Utah, Greensboro, North Carolina, and Pittsburgh, Pennsylvania. These cities have short turnover time, high homeownership rates, low remodeling costs, solid quality of life, and a high average return on investment (ROI) for house flipping.
Apply the 70% rule in house flipping. Home flippers can benefit from applying the 70% rule when looking through real estate listings. Essentially, it states that investors should pay not more than 70% of a property’s after-repair value, minus the cost of the renovations required.
Formula: (After-repair value (ARV) x .70) − Estimated repair costs = Maximum buying price
Closing Costs
You will be accountable for some of the closing costs when purchasing a home. Closing costs are fees paid at the end of a real estate transaction, which includes transfer taxes, your share of broker fees, property taxes, property insurance, legal fees, title company fees, and title insurance. Your real estate agent and the lender will break down your closing costs in a closing disclosure form.
Example closing disclosure
(Source: Consumer Financial Protection Bureau)
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 the cost of buying a house to flip is critical because they will impact your budget and return on investment (ROI).
2. Rehab Costs to Fix the Property
Rehab costs are the costs associated with rehabilitating or renovating the property you intend to fix and flip. The materials and hiring contractors are all included in the rehab costs. Additionally, the extent of the renovation, the state of the property, its size, and how expensive labor is in the neighborhood where you bought the property all affect how much it will cost to flip a house.
Here are typical rehab costs you must consider:
- Building materials: Aluminum, lumber, drywall, concrete, brick, tiles/flooring, countertops, and hardware
- Cosmetic materials: Paint, polish, carpet, flooring, light fixtures, and cabinets
- Professional labor: General contractor, handypersons, plumber, and electrician
- Landscaping: Mowing the lawn, mulch, trimming bushes, and planting flowers or trees
- Appliances: New refrigerator, TV, air conditioning and heating, microwave, stove, dishwasher, and washer/dryer
It is critical to use your network to find reputable contractors and vendors who can complete the tasks on time and within budget. This is because 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 some fresh paint and landscaping will be much less expensive than homes that need significant structural, plumbing, or electrical work. The key to house flipping is only making necessary renovations to increase the property’s value. These home renovations are typically classified into three types: cosmetic, moderate, and extensive.
Cosmetic Repairs
Cosmetic repairs are the least expensive, but they significantly impact how potential buyers perceive the house. It includes replacing carpets, refinishing the floor, repainting and patching walls, replacing and repainting the cabinets, and basic landscaping to keep any outdoor space tidy and improve visual appeal. They add value to the property when completed correctly.
These repairs are completed in a shorter time frame, reducing carrying costs. Your material and labor costs will be lower as well, but your acquisition costs will be higher because the property is already in better condition than one that requires total rehab.
Moderate Repairs
Moderate home repairs upgrade the property and increase its value, for example, renovating the kitchen to incorporate stone countertops, new light fixtures, appliances, and new flooring. It could also be a project to update bathrooms with modern fixtures, add pavers and shrubs to increase curb appeal, or paint the property’s exterior to give a great first impression.
Furthermore, moderate repairs are more likely to require an experienced contractor since their projects are more extensive in scale compared to cosmetic repairs. As a result, your acquisition cost will be lower, but your timeline, labor, and material costs will increase, which will also increase your carrying costs.
Extensive Repairs
Extensive home repairs are required when a house is structurally unsound, such as hazardous materials and outdated construction principles, or when it needs a complete renovation to bring it up to date. These repairs reduce acquisition costs while increasing material and labor costs. They will extend your timeline and increase your carrying costs because they require contractors and building permits.
Extensive home repairs include fixing a structural issue, adding a room to increase square footage, adding another bathroom to increase the property value, and adding a garage if it is an expected feature in the neighborhood.
3. Carrying Costs to Hold the Property During Rehab
Carrying costs are the ongoing expenses incurred from purchasing an investment property until it is sold. These expenses are typically paid monthly for the duration of your property ownership. Carrying costs include financing, utilities, homeowners association fees (HOA), insurance, and property taxes. Also, these costs depend upon the timeline of the project because the longer you are working on the property, the higher your carrying costs will be.
Financing
Financing costs are the fees associated with borrowing money to buy and renovate a home. The financing costs may be expressed as points, closing, or interest payments. For instance, a flipper might buy the property with a private money loan and float the renovation costs on a credit card. But most investors look for different financing options, such as hard money loans or paying in all cash.
A hard money lender can provide short-term funding, even for high-risk house flipping deals. In May 2022, the average interest rate on a conventional 30-year fixed-rate mortgage was 5.09%. Hard money loans usually have much higher interest rates, often around 8% to 15%. Their underwriting standards are typically less rigorous than a conventional mortgage, but they will charge a higher interest rate for borrowing the capital.
The general rule for your down payment is 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.
On the other hand, using all cash is also 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. Carrying costs, such as utility, insurance, and property tax payments, will be another out-of-pocket expense.
Moreover, typical fix-and-flip lenders provide high interest rates and short-term loan products. A mortgage calculator is an excellent and helpful tool for performing preliminary calculations. There are several good fix-and-flip lenders, and comparing them is a great way to find the best lender and terms for your fix-and-flip project.
Here is an example where we compare two financing options and isolate the cost of financing a fix-and-flip project. These numbers below are only estimates and do not represent the project’s total cost:
Costs | All Cash | Hard Money Loan |
|---|---|---|
Purchase Price | $100,000 | $100,000 |
Rehab Costs | $25,000 | $20,000 |
Down Payment | $100,000 | $24,000 |
Loan Amount | $0 | $96,000 |
Interest Rate | 0% | 12% |
Financing-related Closing Costs | $0 | $2,880 |
Monthly Mortgage Payment | $0 | $960 |
Out-of-pocket Rehab Costs | $20,000 | $0 |
Total Costs for First 30 Days | $120,000 | $123,840 |
Property Taxes
Property taxes have two effects on the cost of flipping a house. First, you might need to prepay the remaining taxes for the remainder of the year at settlement. Second, you may be required to pay monthly property taxes, which will be included in your carrying costs.
Property tax rates differ significantly across the country because states and municipalities set their property taxes. According to World Population Review, the top five states with the lowest and highest property taxes are as follows.
Table 1: Top 5 States With Lowest Property Tax
Rank | State | Property Tax Rate | Average Median Home Value | Annual Property Tax |
|---|---|---|---|---|
1 | Hawaii | 0.27% | $587,700 | $1,607 |
2 | Alabama | 0.42% | $137,200 | $572 |
3 | Colorado | 0.53% | $313,600 | $1,647 |
4 | Louisiana | 0.53% | $157,800 | $840 |
5 | District of Columbia | 0.55% | $568,400 | $3,113 |
Table 2: Top 5 States With Highest Property Tax
Rank | State | Property Tax Rate | Average Median Home Value | Annual Property Tax |
|---|---|---|---|---|
1 | New Jersey | 2.47% | $327,900 | $8,104 |
2 | Illinois | 2.30% | $187,200 | $4,299 |
3 | New Hampshire | 2.20% | $252,800 | $5,550 |
4 | Connecticut | 2.11% | $275,400 | $5,746 |
5 | Vermont | 1.90% | $217,500 | $4,135 |
For homebuyers, excessively high property taxes can be a turnoff. Property taxes should be considered when doing a fix and flip because you want the most qualified buyers to see your renovated property. The faster you sell your property, the lower your carrying costs, and the higher your return on investment (ROI).
Insurance
Property insurance is a policy that reimburses the homeowner financially for the property structure and its contents in time of damage or loss. It protects the property during the flip if it is vandalized, broken into, or suffers storm damage. When selecting an insurance package, ensure it includes full coverage, including flood and fire damage coverage, depending on the property’s location.
Typically, you will need vacant or unoccupied property insurance. The average cost of this insurance is more than $1,800, 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
Water, electricity, gas, and oil are utility costs relevant to a property flipper. These costs must be accounted for in your monthly carrying costs. Some utility companies also demand upfront payments, mainly if you are the owner of an apartment complex or the previous owner had significant monthly expenses.
Moreover, utility bills vary depending on usage, property size, and condition. You can get a monthly cost estimate from the previous owner. Plan them as soon as possible because it could take a week or more for utility companies to start providing services after you buy a property. Water and electricity are essential for contractors to work. You will incur additional costs and extend your timeline if they become stalled.
Homeowners Association (HOA) Fees
A homeowners association (HOA) fee is money that can be paid monthly or annually by homeowners living within the HOA community to help maintain all properties, amenities, and common areas within the association. HOA fee payments 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. On average, in the U.S., for single-family homes, HOA fees are $250 monthly.
Timeline
A timeline indicates how long you anticipate the fix-and-flip process will take. Along with the budget, it will be decided upon at the start of the project. The time frame begins when you buy the property and concludes when you sell it.
For instance, your timetable might be 60 days from buying the property to the time you plan to sell it. The timeline must take into account:
- The amount of rehabilitation and renovation projects on the property
- The property’s size
- Your and contractors’ availability and schedule
- The property’s marketing and selling
Keep in mind that your carrying costs decrease as the timeline gets shorter. As a result, your profit will be higher, and your expected ROI will be on target. But if the timeline exceeds the plan, your carrying costs and ROI will decrease.
4. Marketing & Sales Costs to Flip a House
After completing all the renovations that have been made to the property, you will need to decide on the best marketing strategy. This will account for a sizable portion of the house-flipping expense.
First, choose whether to hire a real estate agent to market and sell your property, or you’ll need to invest in tools to market the house yourself. Real estate agent commissions are generally 6% of the property’s sale price. These fees are usually deducted from the seller at closing. For instance, if the subject property sells for $300,000, the real estate agent fees will be $18,000.
On the other hand, if you plan to sell the house yourself, known as for sale by owner (FSBO), consider various factors such as staging, marketing materials, and advertising on top listing websites like Zillow or ForsalebyOwner.com.
Additionally, you’ll need to spend money on your marketing tools, such as flyers, open houses, online or print listing fees, for sale signs, and open house expenses. Unless you are a seasoned marketer or have a sizable network to help spread the word and provide assistance and resources, selling a property on your own may take longer than selling it with a real estate agent.
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Example practice test from Real Estate Express
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Fix & Flip Calculations Based on Money Estimates
To keep all four significant costs in check, start with the potential after-repair value (ARV) and work backward from there. Knowing the property’s future value before you buy it will help you determine how much money you need to flip a house, your budget for renovations, and your budget for carrying costs, marketing, and sales.
Based on the following, you can estimate how much it costs to flip a house:
- Total spend: The total amount of money you will spend fixing the property before it is flipped
- Profits: The expected amount of money you’ll make after you’ve fixed and flipped the property
- Return on investment (ROI): A measurement, as a percentage, of the profitability and efficiency of the fix-and-flip property after selling
To determine these calculations, use the free calculator in our article Free House Flipping Calculator: Analyze Your Fix & Flip Property.
House Flipping Statistics
If you’re wondering how house flipping fared in the real estate market, we compiled a list of vital statistics from Attom Data. These statistics will guide you in deciding whether to invest in house flipping and which strategies to use when buying and marketing your fix-and-flip home.
- By the first quarter of 2022, 9.6% of all home sales were flipped.
- 323,465 homes were flipped in 2021, which is the most homes flipped in a single year since 2006 and a 26% increase from 2020.
- 114,706 homes were flipped in the first quarter of 2022, up nearly 7% from the previous quarter.
- Gross house flipping profit rose to $67,000 in the first quarter of 2022, but ROI declined to 25.8%.
- In the first quarter of 2021, 37% of house flips were purchased with financing, and 63% were purchased with all cash.
- The average fix-and-flip investor in Pennsylvania (78.9%) came in with the most significant gross ROI in the first quarter of 2022.
- Idaho home-flip investors had it the worst, with a mere 10.1% ROI in the first quarter of 2022.
Bottom Line
Knowing “how much does it cost to flip a house?” depends on several variables, such as the price of buying the property, the cost of renovating it, and the cost of financing the property. The average cost of flipping a house is about 10% of the purchase price. After considering each of these factors, you should be well on your way to determining how much money you need to start flipping houses.
