House Flipping: How to Buy, Renovate, and Sell Properties for Profit

The 70% Rule: Your First Deal Screen

The 70% rule is the most commonly used formula in house flipping. It states that your maximum purchase price for a property should be the After Repair Value (ARV) multiplied by 70%, minus the cost of repairs. This built-in margin accounts for carrying costs, closing costs, and your profit. For a $300,000 ARV with $50,000 in repairs: maximum offer = ($300,000 × 70%) − $50,000 = $160,000. The 70% rule is a starting point, not an absolute — in hot markets you may need to stretch to 75% or 80%, but every percentage point reduces your margin for error.

Financing Options for Flippers

How you finance a flip determines your profit more than any other factor. Cash offers the lowest cost and fastest closings — over 50% of flips are cash buys. Hard money loans are the most common alternative: 8% to 15% interest, 2 to 4 points upfront, 60% to 70% loan-to-value, and 6 to 12 month terms. Private money from individuals at 8% to 12% offers more flexible terms. A HELOC on your primary residence charges 7% to 10% interest but puts your home at risk. The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is a different strategy — it keeps the property as a rental rather than selling. Everything about hard money loans →

Renovation Budgeting and Carrying Costs

Renovation costs vary significantly by market and property condition. Typical ranges: kitchens ($20,000 to $40,000), bathrooms ($10,000 to $25,000), flooring ($5,000 to $15,000), paint ($3,000 to $5,000), roof ($8,000 to $15,000), HVAC ($5,000 to $12,000), electrical and plumbing ($3,000 to $10,000). Always add a 15% to 20% contingency for unexpected issues like mold, structural damage, or outdated wiring. Carrying costs are the silent profit killer: mortgage interest ($1,000 to $3,000/month), insurance ($100 to $300/month), utilities ($200 to $500/month), property taxes ($200 to $500/month), and HOA fees ($100 to $500/month). Every month the property sits, your margin erodes. What to check before buying a flip →

Selling Costs and Tax Implications

When you sell your flip, transaction costs consume a significant portion of your profit. Real estate commissions typically run 5% to 6% of the sale price, and closing costs add another 2% to 3%. On a $300,000 sale, that is $24,000 to $27,000 in selling costs. Capital gains tax treatment depends on holding period: flips held less than one year are taxed as short-term capital gains at ordinary income rates (up to 37% federal). Properties held longer than one year qualify for long-term rates (0%, 15%, or 20%). If you use a self-directed IRA or Solo 401(k) to flip, gains grow tax-deferred or tax-free depending on the account type. How appraisals affect your flip →

How much money do I need to start flipping houses?

The amount depends on your market and financing strategy. For a typical $200,000 flip, you need $40,000 to $60,000 for a 20% to 30% down payment, plus $30,000 to $50,000 for renovations and $10,000 to $15,000 for carrying costs and reserves. Total cash required: $80,000 to $125,000 per flip. Cash buyers need the full purchase price plus renovation budget. Hard money lenders typically require 30% to 40% equity, reducing your cash requirement but increasing monthly interest costs. Start with a less expensive market or partner with an experienced flipper if capital is limited.

What is the 70% rule in house flipping?

The 70% rule says your maximum purchase price should be no more than 70% of the after-repair value minus repair costs. This built-in margin covers your holding costs, transaction fees, and profit. For a property with a $300,000 ARV and $50,000 in repairs, the max offer is $160,000. If you pay more, you are betting on price appreciation or extreme cost savings to make a profit. The 70% rule is a guideline, not a law — experienced flippers adjust it based on local market conditions and their specific cost structure.

Should I flip or use the BRRRR method?

Flipping generates quick lump-sum profits but incurs high transaction costs and short-term capital gains taxes. The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) builds long-term wealth through rental cash flow and property appreciation while deferring taxes through refinancing rather than selling. Flipping is better if you need immediate income and have strong construction and market timing skills. BRRRR is better if you want to build a rental portfolio and can manage tenants long-term. Many investors start with flips to build capital, then transition to BRRRR for wealth accumulation.

What renovations add the most value?

The renovations with the highest return on investment are kitchen updates (minor remodel: 70% to 80% ROI), bathroom remodels (60% to 70% ROI), new flooring (hardwood or luxury vinyl plank: 70% to 80% ROI), fresh paint (interior and exterior: 50% to 100% ROI depending on property), and curb appeal improvements (landscaping, front door, garage door: 50% to 100% ROI). Avoid over-improving for the neighborhood — the most common mistake flippers make is installing luxury finishes in a working-class area where buyers won't pay a premium. Match your renovation scope to the comparable sales in the area.

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