Flipping houses can be an exciting and profitable venture—if you run your numbers right. Many people think that the key to a successful flip is simply buying low, fixing it up, and selling high. While that’s part of the equation, there’s much more to it. One major factor that often gets overlooked? Soft costs.
If you want to make sure your flip is a financial win, you need to analyze four major cost categories:
1. Purchase Price
This is the price you pay to acquire the property. It’s the starting point of all your calculations. The goal is to buy at a price that leaves enough room for renovations, additional costs, and, most importantly, profit.
2. Renovation Costs
This includes everything from cosmetic updates to major structural repairs. The scope of work will vary based on the home’s condition and the market you’re flipping in. Always budget for unexpected issues—because there’s always something!
3. Money Costs (Financing)
If you’re not paying in cash, you’ll likely have loan costs to factor in. This includes:
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Hard money loan interest rates (which can be high)
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Points and origination fees
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Holding costs while the home is being renovated
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Any other financing-related fees
4. Soft Costs (The Hidden Expenses)
This is where many flippers go wrong. They forget to factor in these essential costs, which can eat into profits quickly:
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Broker Fees – expect to pay around 5-6% in commission.
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Property Taxes – You’ll be responsible for taxes while you hold the property.
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Insurance – Home insurance and liability insurance are a must.
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Attorney Fees – If you need legal assistance with contracts or closing, it adds up.
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Staging & Marketing – Proper staging and marketing can make a big difference in selling price and speed.
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Miscellaneous Costs – Inspections, permits, utilities, and any unexpected expenses that pop up.
Don't Forget Capital Gains Taxes!
Once you sell the property, Uncle Sam wants his cut. Capital gains taxes can be as high as 37% of your profits, depending on how long you held the property and your tax bracket. Be sure to consult a tax professional to plan accordingly.
Need Help Running the Numbers?
Flipping houses can be highly rewarding, but it’s all about knowing your numbers before you jump in. If you’re considering a flip and want expert guidance, reach out to The Jenkins Group! We’d love to help you crunch the numbers and make sure your investment is a profitable one.
Watch below as Nate guides you through a sample Flip!
