Residential Real Estate Broker · Poway, CA · Member since 2017 · 73 posts · 23 votes
Hello Everyone!
Flippers are navigating rising rehab costs from tariffs (up 10-15%) by focusing on local materials and eco-friendly upgrades that boost ARV by 8-12%. Median gross profits hold at ~$73,500 per deal, with hot markets like Fayetteville, AR offering 25%+ spreads and quick sales under 30 days. Demand stays strong for millennial/Gen Z features—move-in ready kitchens with large-format tiles, custom vanities, and energy-efficient tech—while private lending fills the gap from tight bank credit.
89% of flippers plan at least one deal this year, but competition varies (high in CA, low in TX). Many are shifting some flips to rentals amid stabilizing FFMI at 57.
What's your 2025 strategy? Q4 cost-saving tips? Best markets or design hacks? Drop your thoughts below—let's share intel!
I do not think it's the rehab costs that make or break these deals these days. It is buying right.. the costs for rehab have been about the same in my experience for about the past 18-24 months with inflation on everything. The things that are getting fix and flippers in to trouble are long days on market where holding costs create a smaller profit or something less than expected.. The other issue for flippers is not really being tight on their initial numbers and comps. People might think of the 70% rule when you talk about this.. So if we are going off this as a baseline, you really need to be only buying stuff at a 50% rule or 55% rule max.. This will help you with holding costs that are higher than normal (not rehab costs), and a smaller out price compared to the next guy that sold for $5-$10K over that last comp.. The old way to go about it was, John sold for $350,000, and well ours is fully remodeled and we can sell for $355,000 or $360,000.. Now it is; John sold for $350,000 let's list for $340,000 or $345,000 max.
As Peter said, you make money on the BUY and not on the SALE. If you do not buy right, ensure your estimates are solid, have solid exit strategy defined, understand where the local market is going and have a contingency in your plans, you will come up short on the back end. There have been multiple posts here recently from investors that missed one of these and are now up against the wall with HMLs coming due and no equity to work with. Over the years we have held to this formula and at the end, we may have left some money on the table but we have gone under contract within 2 weeks of putting it on the market. Much better to be in this case and make money than be sitting there biting our nails as loans come due and no buyers are in the wings.
Fascinating facts. The main lesson I am drawing is that significant flips today are based on a solid buying strategy and less on relying on price appreciation. The increasing rehab costs reinforce the need to be accurate with budgeting and factor in contingencies while targeting changes buyers want to see such as kitchens, bathrooms, and energy efficiency items to increase resale value. Private lending can be useful but only if the deal remains sound even with conservative estimates.
You make your money when it hits your bank account after you sell, not when you buy. Everything else is guru speak.
The reason, as @Peter Mckernan correctly pointed out, is simple: you can think you bought well and still completely miss the rehab costs, which only become real after you own the property. After the purchase price, rehab is the largest expense, followed by HML costs and then sales commissions.
In our experience, before Covid, rehab costs were typically 10% to 15% of ARV. Today, they are roughly 15% to 20%. On higher-dollar deals, you can use 75% instead of 70% in the traditional rule of thumb. That means you can't pay more than roughly 55% to 60% of ARV.
So, Peter and I actually aren’t far apart.
And this is exactly the wrong market in which to ignore these numbers. ARVs are dropping, days on market are increasing which means holding costs are going up. Overpaying for the property and then taking too long to sell it is how you lose your profit, and potentially a lot more.
@Andy Gonzales, you cited numbers without any attribution. I’m guessing they came from ATTOM. If so, there’s a pretty fundamental problem with using those numbers to measure a flipper’s profit: ATTOM doesn’t know the rehab costs.
Calculating “profit” as the sales price minus the purchase price, as ATTOM does, isn’t a measure of a house flipper’s profit. It’s a measure of the gross spread between the purchase and sale prices prices – an irrelevant number.
The McKernan Group4.957 Reviews