STRATEGY 02
A FLIP IS A
CONSTRUCTION JOB.
Flipping looks like a real estate strategy. It is mostly a construction management strategy with a real estate transaction on either end.
People lose money on flips for boring reasons. Not market crashes. Change orders, slipped schedules, and finishes the comparable sales do not support.
Scope, budget, schedule — in that order
Three documents decide whether a project works, and they have to exist before you close, not after.
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. If a line is not on the list, it is not in the budget, and it will still happen.
Budget is that scope priced by someone who will actually do the work, plus a contingency you decide in advance and do not touch for upgrades. Contingency is for the unknown behind the wall. It is not for the better tile.
Schedule is the sequence with dates and dependencies. Rough trades before drywall. Inspections where they belong. The schedule matters because every week of it costs money whether or not anyone showed up, which is the part first-time flippers consistently underweight.
The 70 percent rule, and what it is actually for
The common heuristic says your maximum offer is roughly seventy percent of after-repair value minus repairs. It is written as a rule and it is not one. It is a rough way to reserve room for the costs that a beginner forgets to list.
What that thirty percent is standing in for is real and itemizable: purchase closing costs, holding costs for however long you hold, selling costs including commission and seller-paid items, financing cost if you borrow, and profit. If you can itemize those for your specific project and your specific market, you should — the itemized version is the actual analysis and the heuristic is a shortcut for people who cannot do it yet.
The heuristic breaks in both directions. On a higher-value house those costs are a smaller share of the sale price, and a rigid application leaves you uncompetitive. On a slow-moving property or a long rehab, holding and financing eat far more than the shortcut assumed and the deal is worse than it looked. Use it to filter leads quickly. Never use it to make the decision.
This page is part of a larger body of work — start with Ben Lovro's main site.
Holding costs are the silent line
Every month you own the house, it bills you whether or not work happened.
- Financing cost on whatever you borrowed, which usually accrues from the day you close, not the day work starts.
- Property taxes. Note that in South Carolina, an investment property is not assessed at the owner-occupant ratio. Confirm the assessment treatment with the county before you model it.
- Insurance — and a vacant property under renovation needs a builder's risk or vacancy policy, not a standard homeowner's policy. Discovering this after a claim is a bad way to learn it.
- Utilities. Power for the trades, water for the work, and heat or air so finishes do not fail.
- Lawn, security and general upkeep, because a house that looks abandoned attracts problems.
Model these for longer than your schedule says. If your plan is three months, run the numbers at five and see whether the deal still works. If it does not, the deal depends on everything going right, and things do not.
Where flips actually lose money
Four causes, in roughly the order of frequency.
Change orders. The scope grows mid-project. Some of it is unavoidable — you open a wall and find rot, failed wiring or a plumbing repair someone did badly in 1994. Much of it is not. It is a decision to upgrade something because you are already there. Each one is small. Together they are the margin.
Schedule slip. A trade does not show up. A permit takes longer than expected. Material arrives late and the whole sequence behind it shifts. The cost is not just holding — it is also the possibility of listing into a slower season than you planned for.
Over-improving for the comp. This is the most common self-inflicted wound. You put finishes into a house that the comparable sales in that neighborhood will not pay for. A buyer in that price band is comparing your house to the other houses on the market at that number, not admiring your choices. The rule is simple and hard to follow: build to the comp, not to your taste.
A wrong after-repair value at the start. Every other error compounds on top of this one. If your ARV was optimistic by a meaningful margin, no amount of good execution recovers it.
Who should not flip
If you cannot fund the project plus a real overage without endangering your household, do not flip yet. Borrowed money on a clock plus a first project is a combination that punishes ordinary mistakes severely.
If you have no contractor relationship and no ability to judge a bid, you are not managing a project — you are hoping. The first flip is where you find out who returns calls, and finding out costs money.
If you cannot be at the property regularly, reconsider. Remote flipping works for operators with a proven crew and a system. It does not work as a way to learn.
And if you are doing it because it looks more legitimate than wholesaling, that is a bad reason. Do it because you can manage construction and you have capital that can wait.
Frequently asked
Questions people actually ask
What is the 70 percent rule?
A quick filter: maximum offer is roughly seventy percent of after-repair value minus estimated repairs. The gap is a placeholder for closing costs, holding costs, selling costs, financing and profit. It is a heuristic for screening leads fast, not a substitute for itemizing those costs on the deal in front of you.
How do I estimate repairs if I have never done it?
Walk properties with a contractor and a written checklist, and price the same categories every time: roof, HVAC, electrical, plumbing, windows, kitchen, baths, flooring, paint, exterior, and the unknowns behind the walls. Your early estimates will be wrong. They get accurate through repetition in one market, not through a national calculator.
Should I use a hard money lender on a first flip?
Understand exactly what borrowed money costs before you sign, including origination, interest accrual timing, draw procedures and what happens if you need an extension. Borrowing puts your project on a clock, which is precisely when inexperience is most expensive. Read the documents with your own attorney.
How long does a flip take?
Longer than the schedule. Permits, trade availability, material lead times and the unknowns behind the walls all push in the same direction. Model your carry at a longer timeline than you plan and see if the deal survives.
Can I live in the flip while I renovate?
People do, and it changes the math and the tax picture in ways that depend on your specific situation. That is a conversation for your CPA, not a website.
What is the single biggest mistake?
Over-improving for the comparable sales. The finishes feel like value and the market prices the house against its neighbors regardless.
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.