Flipping Houses: How It Works, Where to Start, and 5 Mistakes To Avoid

House flipping involves buying properties to renovate and resell quickly, and it requires more than just binge-watching HGTV and picking up a paintbrush. The real estate strategy generated median profits of about $73,500 per property in 2024—though novices are among those who consistently earned below that.

"As interest rates remain double what they were a few years ago and inflation keeps raising renovation costs, investors continue to have a tough time," said Rob Barber, CEO of ATTOM, the real estate data analytics company. "It's not as if profits have shot through the roof and investors are riding a new wave of good times. Far from it."

This makes it all the more important that those flipping homes avoid the costly errors that can be ruinous for many in the mid-2020s. There are substantial risks many house-flipping shows skip over, from unexpected renovation costs to market downturns. Understanding these challenges—and how to avoid common pitfalls—can mean the difference between a profitable flip and a mistake so costly that it takes you out of the game entirely.

How Flipping Houses Works

Unlike traditional real estate investing where investors buy properties to rent them out, flippers aim to buy, renovate, and resell properties as quickly as possible to maximize profits and minimize holding costs.

Success in flipping comes from two main sources: market appreciation in rapidly growing neighborhoods and adding value through improvements to a property. For instance, a flipper might buy a dated home in an up-and-coming area for $300,000, spend $50,000 on strategic renovations, and sell it for $400,000—earning a $50,000 profit before accounting for holding costs and taxes.

However, every day a property sits unsold costs money in mortgage payments, utilities, property taxes, and insurance. This is why experienced flippers often focus on speed rather than squeezing out maximum profit. Carrying costs can quickly overtake potential profits.

Where To Start

Successful flipping begins with getting a reasonable purchase price. Professional flippers often use the "70% rule": Never pay more than 70% of a property's after-repair value minus renovation costs.

For example, if a house is worth $300,000 after renovations and needs $50,000 in repairs, the maximum purchase price would be as follows:

$300,000 x 0.70 = $210,000 - $50,000 = $160,000

The formula builds in a margin for unexpected costs, market shifts, and profit. But you'll need accurate estimates of both the after-repair value and renovation costs, and that takes skills that only come with experience and greater market knowledge.

Like any other small business, flipping requires time, money, planning, patience, skill, and effort. It will likely wind up being harder and more expensive than you ever imagined. Take it lightly at your peril. If you’re just looking to get rich quickly by flipping a home, you could end up in the poorhouse.

Below are the five mistakes to avoid if you get into the business of flipping homes.

1. Not Enough Money

Investing in real estate is expensive. The first and most obvious cost is the amount needed to buy the property. If you’re financing the acquisition, you'll probably need to come up with a downpayment, and you'll need to make mortgage payments, including interest. Interest on mortgages and home equity lines of credit (HELOCs) is deductible. The principal, taxes, and insurance portions of your payment are not.

Research your financing options to determine the best choice for your needs and to find the right lender. Use a mortgage calculator to compare rates that various lenders offer. Paying cash certainly eliminates the cost of interest, but even then, there are holding costs and opportunity costs for tying up your cash. In the flipping business, the sale price must be higher than the cost of acquisition, renovation costs, and holding costs combined.

Making a profit is more challenging than before, as the median return on investment (ROI) in recent years has dipped under 30%, down from over 50% a decade ago. This doesn't mean you can't make money. It's just that you'll need to be more careful to ensure you do.

2. Not Enough Time

Flipping houses is time-consuming. It can take months to find the right property. Then you’ll need time to renovate, often the biggest time sink. Those with day jobs face a difficult choice: either sacrifice evenings and weekends to handle renovations personally or hire contractors and still spend significant time managing the project.

Even with contractors, investors must coordinate inspections, handle permits, and ensure work meets local building codes. If it doesn’t, you’ll need to spend more time and money to bring it up to par.

Selling the property also requires a great deal of time. If you show it to prospective buyers yourself, you may spend a good deal of time commuting to and from the property and in meetings. If you use a real estate agent, you'll have to pay a commission.

For many, it might make more sense to stick with a day job, without taking on the financial risk and a major time commitment.

3. Not Enough Skill

Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses to earn income on the side. They have the knowledge, skills, and experience. Some also have union jobs that may provide unemployment checks all winter long while they work on their side projects.

The real money in house flipping comes from sweat equity. So even if it's not otherwise related to your employment, if you’re handy with a hammer, enjoy laying carpet, can hang drywall, roof a house, and install a kitchen sink, then you have important skills that save money when flipping a house.

But if you don’t know a Phillips-head screwdriver from a flat one, you will need to pay a professional to do the renovations and repairs. And that will cut the odds of making a substantial profit on your investment.

4. Not Enough Knowledge

You must know how to pick the right property, in the right location, at the right price. In a neighborhood of $400,000 homes, do you really expect to buy at $200,000 and sell at $300,000? That simply won't happen regularly.

Even if you get the deal of a lifetime—for example, you snap up a house in foreclosure for a song—knowing which renovations to make and which to skip is key. You also need to understand the applicable tax laws and zoning laws and know when to cut your losses and get out before your project becomes a money pit.

Major lenders and private equity companies have also started to seek profits in the flip-loan marketplace, with global investment firm KKR joining other private investment firms seeking a piece of the action.

5. Not Enough Patience

Professionals take their time and wait for the right property. Novices rush out and buy the first house that they see. Then they hire the first contractor who makes a bid to address work that they can’t do themselves. Professionals either do the work themselves or rely on a network of prearranged, reliable contractors.

Novices hire real estate agents to help sell the house. Their commissions eat into profits (even after changes arising from the National Association of Realtors, which will eliminate advertising buyers' agent commissions on the MLS). Many professionals sell the properties themselves to minimize costs and maximize profits. Novices expect to rush through the process, slap on a coat of paint, and earn a fortune. Professionals understand that buying and selling houses takes time and that the profit margins are sometimes slim.

The Bottom Line

At any given time, at least a half-dozen shows are available to stream featuring amiable, well-dressed investors who make the flipping process look fast, fun, and profitable. But making a nice profit quickly by flipping a home is not as easy as these shows often make it appear.

Novice flippers can underestimate the time or money required and overestimate their skills and knowledge. If you are thinking about flipping a house, make sure you understand what it takes and the risks involved.