STRATEGY 02
A FLIP IS A
CONSTRUCTION JOB.
You have probably watched someone buy a tired house, put money into it, and walk away with a number that made it look simple. So you start looking. And somewhere between the listing photos and the contractor who will not call you back, it stops feeling simple.
Here is the part most people learn the expensive way. Flipping looks like a real estate strategy. It is mostly a construction management strategy with a real estate transaction bolted on either end. Get the construction wrong and no amount of buying right saves you.
Nobody loses money on a flip because the market crashed that quarter. They lose it to change orders, a schedule that slipped six weeks, and finishes the neighborhood will not pay for. All three are manageable. None of them are managed by accident.
Scope, budget, schedule. In that order, and before you close
Three documents decide whether a project makes money. All three have to exist before you own the house, not after you own it and the demo has started.
Scope is the written list of what gets done, room by room and system by system. Not intentions. Specific items: roof, HVAC replacement or service, electrical panel, plumbing supply lines, subfloor, cabinets, counters, flooring by area, paint, trim, fixtures, exterior, landscaping, permits. Here is the thing about a line that is not on the list: it does not disappear. It still happens. It just happens without a price next to it.
Budget is that scope priced by the person who will actually swing the hammer, plus a contingency you set in advance and then leave alone. Contingency is for the rot behind the wall. It is not for the better tile. The moment you spend it on an upgrade, you are running the project with no margin for the thing you cannot see yet.
Schedule is the sequence, with dates and dependencies. Rough trades before drywall. Inspections where they belong. Schedule matters because every week on it costs you money whether or not a single person showed up to work. That is the line first-time flippers underweight, every time.
If you cannot produce those three documents for the house you are looking at, you do not have a deal yet. You have a house you like. Those are different things, and the difference is usually five figures.
The 70 percent rule is a filter, not a decision
The common heuristic says your maximum offer is roughly seventy percent of after-repair value, minus repairs. People call it a rule. It is not one. It is a rough way to reserve room for the costs beginners forget to write down.
That missing thirty percent is not mystery money. It is specific and it is itemizable: purchase closing costs, holding costs for however long you actually hold, selling costs including commission and anything you agree to pay for the buyer, financing cost if you borrowed, and your profit. If you can itemize those for your project in your market, do it. The itemized version is the real analysis. The heuristic is a shortcut for people who cannot do it yet.
And it breaks in both directions, which is why leaning on it is dangerous. On a higher-value house those fixed costs are a smaller share of the sale price, so a rigid seventy percent leaves you uncompetitive against people doing the actual math. On a slow-moving property or a long rehab, holding and financing eat far more than the shortcut assumed, and a deal that cleared the filter loses money anyway.
Use it to sort fifty leads down to five in an afternoon. Then do the real work on the five. If you want the order those numbers come in, that is what how to analyze a deal walks through.
This page is part of a larger body of work — start with Ben Lovro's main site.
Holding costs are the line that quietly kills projects
Every month you own that house, it sends you a bill. It does not care whether work happened.
- Financing cost on whatever you borrowed, which usually starts accruing the day you close, not the day the crew starts.
- Property taxes. In South Carolina an investment property is not assessed at the owner-occupant ratio. Confirm the assessment treatment with Richland or Lexington County before you model it, because getting this wrong understates your carry for the whole project.
- Insurance. A vacant house under renovation needs builder's risk or a vacancy policy, not a standard homeowner's policy. Finding that out when you file a claim is a genuinely terrible way to learn it.
- Utilities. Power for the trades, water for the work, and heat or air so your finishes do not cup, swell or fail.
- Lawn, security and upkeep, because a house that looks abandoned in the Midlands summer attracts exactly the attention you do not want.
Now do this. Take your schedule and add two months to it. Run the carry at that longer number and see whether the deal still works. If it only works at three months and not at five, you do not have a deal with a margin. You have a deal that requires everything to go right. In construction, things do not go right. They go mostly right, eventually.
The four places the money actually goes
Roughly in order of how often I see them do the damage.
Change orders. The scope grows mid-project. Some of it you cannot avoid. You open a wall and find rot, failed wiring, or a plumbing repair someone did badly in 1994. Fine. That is what contingency is for. But much of it is a decision, not a discovery. You upgrade something because the crew is already standing there. Each one feels small. Added together they are the margin.
Schedule slip. A trade does not show. A permit takes three weeks longer than the last one did. Material arrives late and everything behind it shifts. The cost is not only carry. It is also listing into a slower season than the one you planned for, which is a different and larger problem.
Over-improving for the comp. This is the most common self-inflicted wound in the business. You put finishes into a house that the comparable sales on that street will not pay for. The buyer in that price band is comparing your house against the other houses listed at that number. They are not admiring your choices. Build to the comp, not to your taste. Simple to say. Hard to do when you are standing in the kitchen with a tile sample in your hand.
A wrong after-repair value at the start. Every other mistake compounds on top of this one. If your ARV was optimistic by a meaningful margin, there is no amount of good execution that recovers it. You will work for four months to break even on a decision you made in twenty minutes. This is what people mean when they say you make money when you buy, not when you sell.
My first flip: I had never done construction in my life
I want to tell you about the first house I rehabbed, because the useful part of it is not the outcome. It is what I did not have.
I was nervous. Up to that point I had never rehabbed a house and I had zero construction experience. What I did have was a buy I was confident in. The numbers on the purchase were solid, and one of my mentors took a bet on me and funded the deal through his self-directed IRA. That is a real thing, by the way, and most people have no idea it is available to them.
So I went through the whole cycle for the first time. Finding the deal. Negotiating it. Finding someone willing to lend on it. Finding a crew. Casting the vision for what the house could be. Then standing there watching other people's hands turn that vision into something real.
Here is what it actually took, on one house:
- A virtual assistant who found the deal through marketing
- A private lender who funded it
- A real estate attorney who closed it
- An insurance agent who covered it while it was under renovation
- A renovation crew who did the work
- A cleaning crew who got it ready to show
- A listing agent who put it on the market and lined up the buyer
Seven groups of people for one house. That is the part nobody tells you when they show you a before-and-after photo. Real estate is a team sport. Together we can do more than any of us can alone, and my first flip was a lesson in leadership disguised as a renovation.
Which is also why I do not think a lack of construction experience is the thing that should stop you. It is not what stopped me. What matters is whether you can assemble and lead the people who do have it, and whether you bought the house right in the first place. Because you make money when you buy, not when you sell.
Who should not flip yet, and why I will say so
Credibility in this business comes from telling people when something is a bad fit, not from getting everybody to try it. So here is where I would tell you to wait.
If you cannot fund the project plus a real overage without putting your household at risk, do not flip yet. Borrowed money on a clock plus a first project is a combination that punishes ordinary, forgivable mistakes severely.
If you have no contractor relationship and no ability to read a bid, you are not managing a project. You are hoping. The first flip is where you find out who returns calls and who does not, and finding out costs money. Better to find out on someone else's project if you can get near one.
If you cannot get to the property regularly, reconsider. Remote flipping works for operators who already have a proven crew and a system. It does not work as a way to learn what a proven crew looks like.
And if you are drawn to flipping because it feels more legitimate than wholesaling, that is a bad reason to take on construction risk. Do it because you can manage a build and you have capital that can afford to wait. If neither is true yet, your first deal probably should not be a flip.
What flipping is good at, and what it is not
Flipping converts your work and your capital into a lump sum. That is genuinely useful. It can fund a down payment, clear debt, or build the reserve that lets you do the next thing calmly instead of desperately.
What it does not do is build anything that pays you next year. Every flip ends with you back at zero, looking for the next house. That is not a criticism, it is just the shape of the strategy. It is a job you own, and it pays like a job that pays well and irregularly.
Which is why a lot of people use flips to fund holds. The lump sum from a project becomes the equity in something that produces income. If that is the direction you are headed, read rental property next and look at the tradeoff honestly before you commit to either one.
Real estate is a vehicle. A flip is one gear in it. The point is the life you are building with the thing, not the transaction.
Frequently asked
Questions people actually ask
What is the 70 percent rule, in plain terms?
Your maximum offer is roughly seventy percent of after-repair value minus estimated repairs. The missing thirty percent stands in for purchase closing costs, holding costs, selling costs, financing and profit. Treat it as a fast filter for screening leads, not as the analysis. On the deal you are serious about, itemize those costs instead.
How do I estimate repairs when I have never done it?
Walk properties with a contractor and the same written checklist every time: roof, HVAC, electrical, plumbing, windows, kitchen, baths, flooring, paint, exterior, and the unknowns behind the walls. Your first estimates will be wrong. They get accurate through repetition in one market, not through a national calculator. Ten walked houses in Columbia will teach you more than a hundred spreadsheets.
Should I use hard money on a first flip?
Understand exactly what the money costs before you sign anything: origination, when interest starts accruing, how draws are released, and what happens if you need an extension. Borrowing puts your project on a clock, and a clock is precisely when inexperience gets expensive. Read the documents with your own attorney, not with the lender's summary.
How long does a flip really take?
Longer than your schedule says. Permits, trade availability, material lead times and the surprises behind the walls all push the same direction. Model your carry at a longer timeline than you plan for and see whether the deal survives it. If it does not, that is the deal telling you something.
Can I live in it while I renovate?
People do, and it changes both the math and the tax picture in ways that depend entirely on your situation. That is a conversation for your CPA, not a web page.
Is the Midlands a good market to flip in?
It has a lot of older housing stock, which means real renovation work rather than cosmetic refreshes, and neighborhood price bands that can shift within a few streets. Both of those reward local knowledge and punish assumptions borrowed from another city. Learn one submarket properly before you spread out.
What is the single biggest mistake?
Over-improving for the comparable sales. The finishes feel like value while you are choosing them, and the market prices your house against its neighbors regardless of how you feel about the backsplash.
Make your next move
A year from now, what will you be glad you started today?
You don't need another promise that everything will be easy. You need something useful to learn — and a next step you're willing to take.