House flipping is the practice of buying a property, repairing or renovating it, and reselling it—ideally within a few months—for more than the total of the purchase price, repair costs, holding expenses, and selling costs. It can be profitable, but it is a business, not a shortcut. According to ATTOM's Year-End 2024 U.S. Home Flipping Report, roughly 7% of all U.S. home sales in 2024 were flips, and the typical flip returned a gross profit near $72,000 before accounting for carrying and transaction costs. Those averages hide wide variation: some flips lose money. This guide covers the house flipping basics you need before you make an offer.
What House Flipping Actually Involves
A flip has four phases, and each one consumes time and cash:
- Acquisition: finding a distressed or underpriced property and buying it, usually below market value.
- Rehab: repairs and cosmetic updates that raise the home's market value or make it sell faster.
- Holding: paying property taxes, insurance, utilities, and loan interest while the work is done.
- Resale: listing the home, paying agent commissions, and closing with the buyer.
Profit is what remains after every one of those costs. New investors often focus only on the purchase price and the sale price; the money is usually made or lost in the rehab estimate and the holding period.
How to Find Flip-Worthy Properties
Deals rarely appear on the multiple listing service at retail prices. Common sources include:
- Foreclosures and short sales: properties sold by lenders or by owners who owe more than the home is worth.
- Probate and estate sales: homes inherited by heirs who live out of state or do not want to manage repairs.
- Direct mail and driving for dollars: contacting owners of vacant, code-violating, or visibly neglected homes.
- Wholesalers and investor networks: local real estate investment associations and cash-buyer lists.
Whatever the source, verify title, liens, and any code violations before you commit. A property with an unpaid tax lien or an open permit can stall a resale for months.
The Numbers: The 70% Rule and Your Real Budget
The most widely used screening tool in flipping is the 70% rule: your maximum offer should be about 70% of the property's after-repair value (ARV), minus the estimated repair costs. If a home will be worth $300,000 after a $40,000 rehab, the rule suggests an offer no higher than $170,000 ($300,000 × 0.70 = $210,000, minus $40,000).
The 30% cushion is meant to cover holding costs, closing costs, agent commissions, and a profit margin. It is a starting filter, not a guarantee. Build a line-item budget that includes:
- Purchase price plus closing costs (title, lender fees, transfer taxes)
- Rehab labor and materials, with a 10–20% contingency for hidden problems
- Holding costs for the expected months of ownership
- Selling costs, typically 6–10% of the sale price in agent commissions and seller concessions
- Your own time and any project management expense
If the projected profit after all of that is thin, the deal is not a deal. Experienced flippers walk away from most properties they analyze.
Financing a Flip
Traditional 30-year mortgages are poorly suited to flips because of slow underwriting and prepayment friction. Common options in the U.S. include:
- Hard money loans: short-term, asset-based loans from private lenders, often 12–18 months at higher rates, sized against ARV or purchase price.
- Fix-and-flip loans: a category of short-term financing offered by specialty lenders, sometimes with draw schedules that release rehab funds in stages.
- Home equity or cash-out refinance: using equity in your primary residence, which is cheaper but puts your home at risk.
- Cash or partnerships: the lowest-risk route, and often the only way to compete with all-cash buyers.
Expect lenders to require a down payment, proof of reserves, and a detailed scope of work. Interest rates and fees on hard money are substantially higher than on conventional mortgages, so factor them into your holding costs from day one.
Rehab Strategy and Common Mistakes
The goal of a flip rehab is to maximize resale value per dollar spent, not to build your dream home. Focus on kitchens, bathrooms, flooring, paint, lighting, and curb appeal—the items buyers notice first. Avoid over-improving for the neighborhood: a $60,000 kitchen in a $180,000 block will not return the investment.
Frequent mistakes include underestimating timelines, skipping inspections, buying in a declining market, and failing to verify contractor licenses and insurance. In many states, general contractors must be licensed, and pulling permits for structural, electrical, or plumbing work is mandatory. Unpermitted work can delay or kill a sale.
Taxes and Legal Basics
Flip profits are generally treated as ordinary business income subject to income tax and self-employment tax, not the preferential long-term capital gains rates, because the property was held for sale rather than as an investment. Short-term flips may also trigger the dealer rules, which limit the use of 1031 exchanges. Many flippers operate through an LLC for liability protection and cleaner bookkeeping; consult a CPA and a real estate attorney about your specific situation.
What to Remember
House flipping basics come down to disciplined math and execution. Buy below market value, estimate rehab costs conservatively, budget for holding and selling costs, and only proceed when the projected profit justifies the risk. Use the 70% rule as a filter, finance with short-term capital you can afford to carry, and keep your projects simple enough to finish on schedule. Most successful flippers treat the business as a numbers game: they analyze many properties and buy few.
