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?

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

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?

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?

What’s Causing the Biggest Margin Compression in Flips?

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