What’s Causing the Biggest Margin Compression in Flips?

Question

Is it:
• Purchase price competition?
• Draw delays?
• Holding costs?
• Exit timing?

I’ve seen timelines become just as critical as ARV in determining profitability.

For active flippers — what’s impacting your margins most right now?

Bo Smith · Answer

It's a combination now, but the biggest killer is labor costs and timeline extension. Material prices have stabilized, but your subs aren't any cheaper than they were in 2024. And they're pickier about jobs -- they turn down projects that don't hit their minimums.

The real margin squeeze comes from timeline creep. A job that should take 12 weeks is taking 16 because subs can't commit full crews. Those four extra weeks? That's -6K in additional carrying costs, and it kills your profit margin. I've also seen buyers more cautious now, which means longer holding periods and more carry. You can control purchase price and rehab scope, but timeline is harder when you're dependent on contractors.

Purchase price competition is real, but at least you know that number going in. It's the timeline and carry costs that sneak up and compress margins after you've already committed. I've started padding rehab timelines by 3-4 weeks and adding extra buffer to my carrying cost assumptions. It's cost me some deals on the front end, but I'm actually hitting my margins when I sell.

Draw delays have been less of an issue in my markets, but I've heard stories. Are you dealing with that in your deals, or is it more the labor availability squeeze?

Nicholas Cokas · Answer

Everyone's diagnosing symptoms. The disease is that flipping has become a negative-carry trade disguised as real estate.

Great thread — Andy and Bo covered the tactical stuff well. Let me add the structural layer that's actually driving all of this at once.

The margin compression isn't one thing. It's a system failure with four interlocking parts:

1. The cost-of-capital trap. HML at 10-13% + 2-3 points means your clock starts at negative $1,500-2,000/month the day you close. That used to be fine when you could buy at 65% ARV and sell in 90 days. Now

you're buying at 75% ARV because of competition, and selling in 150+ days because buyers are pickier. You went from 90 days of carry at 65% ARV to 150 days of carry at 75% ARV. That's not a timeline problem

— that's a math problem. The trade doesn't work anymore at those inputs.

2. The contractor squeeze is a labor market problem, not a project management problem. Skilled trades labor force has been shrinking for 15 years. There are 40% fewer licensed electricians under 35 than

there were in 2010. You can't schedule your way out of that. The guys who are left have pricing power and they know it. Your GC isn't padding — they literally can't get crews committed for less.

3. Draw delays are a financing structure problem. HML shops that sit on draws for 10-14 days aren't slow — they're managing their own liquidity risk. They're lending on 100+ projects and they batch

inspections to control costs. The solution isn't finding a "faster lender" — it's structuring your financing so draws don't control your timeline. Line of credit > draw-based HML for active flippers. You

fund the work, you submit for reimbursement, you never wait.

4. The real killer nobody mentioned: insurance.

Property insurance on vacant rehab properties has doubled in many markets since 2023. Builder's risk policies that were $1,200/yr are now $2,400-3,600. That's eating $200-300/month that didn't exist in your

pro forma two years ago. Stack that with higher taxes from reassessment at purchase and you've added $400-500/month in carrying costs that have nothing to do with your contractor or your lender.

So what actually works right now?

- Stop underwriting at 70% ARV. If your all-in (purchase + rehab + carry + selling costs) isn't below 65% ARV, the risk-adjusted return doesn't justify the capital. Pass and wait.

- Model carry costs at 150 days minimum, not 90. If the deal still works at 150 days, do it. If it only works at 90, you're gambling.

- Get a line of credit or use DSCR bridge products instead of draw-based HML. The interest rate might be similar but you control the velocity.

- Build your exit into the buy. Know your buyer pool before you buy. If you're flipping in a market where median days on market is 45+, add that to your hold time model.

The flippers who are still making money in this market aren't better at rehab — they're better at underwriting reality instead of best-case scenarios.

Bo Smith · Answer

Andy nailed it on timeline discipline. I'd add one thing that's hitting margins hard right now: contingency math. Most flippers are bidding based on what a contractor tells them, but contractors are bidding tight. They're not padding for the curveballs that always happen. So when you find a wall cavity full of mold, or plumbing from 1950 that needs replacement, you hit change orders at inflated rates because the GC is already tight on margin themselves.

The real issue isn't just holding costs -- it's that the initial offer to purchase has to account for all the friction that gets introduced during rehab. If you're buying at 70% ARV and expecting a 20% flip margin, you don't have room for reality.

What I've learned is to be aggressive on your purchase price, not on your rehab timeline. Speed the timeline only if the market justifies it. Most deals don't. Build contingency into the purchase offer itself, not just the rehab budget.

Draw delays are definitely a thing too -- I've had lenders sit on draws for 10-14 days waiting for inspections. HML lenders usually move faster, but if you're using traditional financing, that float can add 15-20 days to your timeline, which compounds carrying costs.

Are you guys using HML or traditional financing, and what's your typical margin target on deals you're underwriting?

Bo Smith · Answer

For me it's a tie between purchase price competition and timeline. You can't control what other investors are willing to pay, but what's brutal is that every week a flip sits on the market, your holding costs eat into margins that were already thin. I used to think aggressive bidding was the edge. Now it's execution speed.

Draw delays are real too. If your lender is slow on inspections or appraisals, you're stuck carrying the project on your own dime. I've had flips where the timeline stretched from 4 months to 6 months just because of lender slowness, and that's 2 extra months of insurance, taxes, utilities, and opportunity cost. By then your 25% margin is down to 15%.

The wild part is that these factors stack. You overpay slightly because the market is hot, then execution gets delayed, then materials cost more than budgeted, and suddenly you're making less than you'd make on a boring rental. The key is being honest in underwriting about what could go wrong, not assuming everything goes perfect.

Are you adjusting your offer strategy based on timeline risk, or are you still pricing deals the same way you did a year ago?

Andy Sabisch · Answer

If you do not have a realistic timeline with a margin built in, you will be in trouble when any issues arise.  Too often we have seen flippers come up with a timeline that assumes everything lines up and base their decision to buy on that.  HML costs can kill any profits and unfortunately there are lenders that should be more intrusive in looking at the timelines and questioning the lack of margin.

Issues like items backordered (always have alternative options ready), permits and inspections (these are becoming a bigger issue as more people get into flips and quality is not always where it needs to be) and of course trade availability (the good ones are booked for a reason).  Factor all of these into the financing you take out or the additional costs will quickly eat up any profits.

Bo Smith · Answer

Hold time is killing margins more than anything else right now. I've seen flips that looked solid at purchase get crushed by 30 extra days of hold time. Every month adds 1-1.5% to your all-in cost, and if you're already on thin margins, that's game over. So the real issue isn't just one thing -- it's the cascading effect of purchase price competition pushing you to thinner margins, then any timeline slip eats the whole spread.

Draw delays are real, especially with newer lenders or smaller HML shops. I've had GCs sit on completed work waiting 2-3 weeks for draw funding. That kills momentum and adds soft costs. But honestly, if you're working with a lender who's consistently slow on draws, you're at the wrong lender. There are HML shops that will turn draws in 48-72 hours if the work is documented properly.

The thing most flippers miss is contingency architecture. You buy with margin assuming a smooth 90-120 day hold. Then you discover foundation issues (20 extra days for permits + repairs), or your buyer falls through and the property sits (60 days to relist and close). Suddenly you're at 200 days all-in. That's not a timeline issue -- that's an underwriting issue. You didn't build enough margin to absorb reality.

Are you currently putting in offers with a specific margin target in mind, or are you more driven by ARV and hoping the rehab estimate is accurate?

What’s Causing the Biggest Margin Compression in Flips?

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