How to Flip a House

Want to know how to flip a house for a huge profit? Join the club! Flipping houses has been on the rise across the nation, and all you have to do is watch any popular house-flipping show to get why it’s so appealing. After all, a 30-minute episode can make it look pretty easy to flip a house and make a huge profit.

Seems simple enough, right? Well . . . maybe not. See, house flipping can be super profitable, and it’s not a bad investment strategy for people who are completely debt-free (that means no consumer debt or a mortgage) and already investing 15% of their income into tax-advantaged retirement accounts. But house flipping can also be risky, and it takes a lot of work.

If you don’t mind a little elbow grease—and you can pay cash for your flips to limit the risk involved—then welcome to the world of house flipping! Before you officially pull the trigger, let’s go over some of the basics of how to flip a house so you know exactly what you’re getting into.

Without further ado, here’s our beginner’s guide to house flipping.

What Is House Flipping?

House flipping is when a real estate investor buys houses and then sells them for a profit. For a house to be considered a flip, it must be bought with the intention of quickly reselling. The time between the purchase and the sale often ranges from a couple months up to a year.

There are two different types of house flipping:

• An investor buys a property that has potential to increase in value with the right repairs and updates. After completing the work, they make money from selling the home for a much higher price than what they purchased it for. You may have also heard this called a “fix and flip.”

• An investor buys a property in a market with rapidly rising home values. They make no updates, and after holding the property for a few months, they resell at a higher price and make a profit.

Just as a heads up: Most of the tips we’re about to go over are focused on that first definition.

Is Flipping a House Profitable?

Flipping houses may sound simple, but it’s not as easy as it looks. Let’s be real: A house flip can either be a dream or a disaster.

Done the right way, a house flip can be a great investment and incredibly profitable. In a short amount of time, you can make smart renovations and sell the house for much more than you paid for it.

But a house flip can just as easily go the opposite direction if it’s done the wrong way. We’ve all heard house-flipping horror stories—the ones where what seemed like a good deal turned into a house with a shaky foundation and a leaking roof. When it’s all said and done, a house flip may not make you money. It actually could cost you thousands more than you originally thought.

Find expert agents to help you sell your home.

If you decide to flip a house, you certainly don’t want to lose money. You want to make a wise investment and reap the rewards. That’s why a lot of people call in an appraiser to assess the value and then use something called the 70% rule to decide whether or not a fix and flip will pay out like they hope it will.

What’s the 70% rule, you ask? Great question! Let’s break it down.

What Is the 70% Rule?

The 70% rule means you should only purchase a property to flip if its price—plus the amount you expect to spend on renovations and repairs—is 70% or less of what you think the house’s value will be when you resell it. This helps you avoid overspending on a property that’ll give you little return on your investment. Here’s an example of how the rule looks:

Let’s say there’s a house you think you can resell for $300,000 after you’re done with repairs and renovations. Start by multiplying $300,000 by 70% or 0.7.

$300,000 x 0.7 = $210,000

Now, let’s assume it needs $50,000 in repairs. To figure out the max price you should pay for the house, subtract $50,000 from $210,000.

$210,000 − $50,000 = $160,000

That means the purchase price of the house needs to be no more than $160,000, which leaves you with a $90,000 profit if you end up selling the home for $300,000.

Don’t forget to factor in time and taxes, because they work hand in hand—and can have a big impact on your bottom line. Using the example above, imagine it takes two years to finish and sell the house. That’s like earning $45,000 for each year of work. When you factor in long-term capital gains taxes, house flipping probably isn’t going to be worth it.

But if it takes you six months to finish the fix and flip, you’ve made $90,000 in half a year. Now, since you owned the house for less than a year, the profit is counted as a short-term capital gain and taxed at your normal, personal income tax rate, which is higher than the long-term capital gains rate. The flip is still a sweet deal, though.

How to Flip a House in Five Steps

All right, now let’s get into the nitty-gritty. If you follow these five steps when flipping a house, you’ll give yourself the best chance at making a profit.

1. Pay for the Flip With Cash

Flipping houses always involves some level of risk, but that risk meter goes through the roof when you use debt. Let’s look at an example to see why.

Imagine this scenario: You take out a loan to purchase a house to flip with the goal of paying the loan back with your profit from reselling the home. At first, everything seems to be going great. But then, those renovations you expected to take four months wind up taking six months, and when you finally list the home to resell it, it sits on the market for a month or two without selling.

Eight months in, you haven’t made a dime—and you’ve been making monthly mortgage payments (with interest!) the whole time. You’re starting to run out of extra cash, so you’re forced to drop the price and sell the house for way less than you had planned just to get rid of the debt.

If you’d flipped the house with cash, desperation wouldn’t have forced you to sell low. With no payments to worry about, you could’ve held off on selling until the market warmed up and the price was right.

Here’s the thing about a situation like that one: It’s not some pie-in-the-sky, worst-case scenario. It’s actually pretty common, and it’s what all those “financial experts” on TikTok and YouTube advocating for zero-down real estate investing don’t think about. They also don’t consider some of the major benefits of paying cash, which include . . .

• No mortgage payments. House flippers who borrow money must make mortgage payments for months, which only increases the amount they have to sell the house for just to break even. Plus, they have to pay thousands of dollars in closing costs to get the loan in the first place!

• No rush to sell. Using debt to finance a flip can cause you to act out of desperation. If you can’t get the house sold, you’re likely to lower your price and cut your profit. Cash-only house flippers can wait out a slow market because they don’t have interest payments piling up against them each day it doesn’t sell.

• No debt to hold you back. Most importantly, doing any kind of “investment” with debt is a dumb plan. Period. Trying to sell a flipped house for more money than you invested in it is already a risk—even with cash. Using debt in the process skyrockets your chance of losing money if there’s a hiccup in your plans.

Bottom line: Unless you can pay cash, the financial risk of house flipping is just not worth it.

2. Stay Local

A lot of house flippers get excited about their next project and ignore this part of the business. But if you don’t have a good understanding of the market and real estate trends in your area, you could run into the following issues:

• You don’t know if you’re actually getting a good deal. The sale price needs to be low enough so you can do the renovations and still come out ahead when the house is priced at market value.

• You can’t accurately identify the home’s potential value. Your vision for the home must fit the reality of the neighborhood and the ability of the neighborhood’s residents to afford the home you create.

• You don’t know how to price the house. If you’ve bought a house in a neighborhood of mostly $430,000–450,000 homes, you’ll want to price your flip at the lower end of that range when it’s time to sell.

So, how do you make sure you have a solid understanding of the market where you’re flipping? Stay local! Doing real estate deals in neighborhoods and markets you live in (or live close to) will help you avoid costly mistakes—and it’ll make flipping a whole lot easier overall.

Think about it: You naturally know which neighborhoods in your local area are nicer and which ones, well, aren’t. You also know the “wealthy” areas of town, and where middle-class folks live. Plus, when you stay local, performing maintenance and making repairs to your property becomes much more manageable since you’ll be close enough to keep an eye on things.

3. Get Guidance From a Local Real Estate Expert

Now, staying local is only part of the equation when it comes to making sure you have a firm grasp of the housing market in the area you’re doing business in. There’s another superpower at your disposal to take your market knowledge to the next level: finding a real estate agent.

An agent with years of experience in your area can help you target your home search to the right neighborhoods based on your budget and desired profit. Plus, a great agent will know the housing market in the area they serve like the back of their hand.

For example: Let’s say you find a fixer-upper house online for $300,000 and buy it because you think it’s a steal and has great flipping potential. But just three months ago, the biggest and nicest house in the neighborhood sold for just $310,000—meaning your “steal of a deal” isn’t quite so sweet. That’s exactly the type of catastrophic mistake an agent can help you avoid.

Plus, when you’re ready to sell, your agent can use their knowledge to price the house competitively so that you get top dollar. Needless to say, working with a rock-star agent can help you make a smart investment that keeps your finances on track.

4. Make a Budget for Your House Flip

Don’t wait until after you purchase an investment property to make a budget. Know your price range for purchasing a home, making any repairs, completing renovation projects, and paying selling costs before you seal the deal.

Make a list of any cosmetic projects, as well as any expensive overhauls like plumbing or electrical problems. If you don’t have a background in construction, a contractor can tell you what needs fixing and how much it’ll cost. Surprise repairs can make or break a flip, so be sure to do your homework here.

When you’re under contract, get a home inspection and any other specific inspections you may need. It’s always better to spot problems on the front end than be surprised down the road.

5. Invest in Smart Renovations

Gleaming hardwood floors, on-trend light fixtures, and fabulous kitchens with professional-grade stoves might make you ooh and aah when watching HGTV, but they can quickly cause your renovations to get out of hand. That’s why it’s important to know your budget up front and then make sure your updates stay on track and actually boost the value of the home.

Don’t forget that big renovations don’t always equal a big payday when you resell. Take a kitchen renovation, for example. The average amount spent on a major kitchen remodel in 2024 was a little under $80,000, but the average amount regained from that cost was only around . . . $39,000.¹ Yeah, that’s not the kind of ROI you want to see when you’re flipping a house.

So, before you write a huge check for custom cabinet installations, high-end finishes, or whatever other renovations you’re thinking about, do some research. Make sure you are giving yourself the best chance of earning back your costs when you resell the house.

And while you might invest in a couple big updates on a flip, don’t underestimate the power of small tweaks. Things like a fresh coat of paint, updated household hardware and new landscaping can make a huge impact!

The Bottom Line

So, can you make money from house flipping? When it’s done the right way, you definitely can! After all, plenty of other people are doing it. In the first quarter of 2024, almost 68,000 homes were flipped in the U.S., and they sold for a median price of $312,375 with a gross profit of $72,375 for the investor.²

Those are exciting numbers, and they prove that it’s completely possible to make a great return on your investment when flipping a house. Just make sure you do it with cash, make a smart investment in the type of house you purchase, stay local, and choose renovations that make sense for your budget.

And remember: Don’t get involved with house flipping unless you’ve paid off your primary residence and you’re already investing 15% of your income into tax-advantaged retirement accounts, like a 401(k) or a Roth IRA.