A deal can look profitable on paper until all the extra costs start adding up.
Before buying a flip, I think it’s important to know your true break-even number, not just purchase price + rehab.
You also have to account for things like:
• Financing and interest costs • Taxes and insurance • Utilities and maintenance • Holding costs if the property sits longer than expected • Realtor commissions and closing costs • Unexpected rehab expenses
That’s why doing your own due diligence on the numbers and only leveraging what you can realistically afford is so important.
Experienced flippers what expenses do you see newer investors forget to include most often?
Flipper/Rehabber · Fresno, CA · Member since 2022 · 11 posts · 4 votes
6d
Great points, all of this is spot on. For newer investors I'd add a 15% contingency on the rehab budget. Things will pop up once you open walls, or get missed on the walkthrough, and that money has to come from somewhere. I'd also account for buyer concessions or seller credits, especially in a softer market. Buyers are asking for closing cost help and repair credits, and if you don't plan for it, it comes straight out of your profit.
Flipper/Rehabber · Fresno, CA · Member since 2022 · 11 posts · 4 votes
6d
Great points, all of this is spot on. For newer investors I'd add a 15% contingency on the rehab budget. Things will pop up once you open walls, or get missed on the walkthrough, and that money has to come from somewhere. I'd also account for buyer concessions or seller credits, especially in a softer market. Buyers are asking for closing cost help and repair credits, and if you don't plan for it, it comes straight out of your profit.
@Robert Cervantes Great addition, Robert. I especially agree with building that contingency in before the project starts. Buyer concessions, repair credits, and unexpected rehab costs can eat into the margin quickly if they weren’t accounted for upfront. Planning for them from the beginning is a lot better than trying to find the money later.
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
6d
Nicholas, I think you’re exactly right that the real number is not purchase price + rehab. The flip can look profitable right up until the “small” costs start stacking on top of each other.
The ones I see newer investors underestimate most are usually holding costs and selling costs. A project runs 60–90 days longer than planned, hard-money interest keeps accruing, utilities stay on, insurance keeps running, taxes keep accruing, and then you still have commissions, seller credits, staging, cleanup, and closing costs at the end.
I’d also separate the rehab budget from contingency. If you already know the roof, sewer, electrical, HVAC, or foundation needs attention, those are not contingency items anymore. They belong in the actual scope. Contingency should be for the things you genuinely did not know were coming.
From the tax side, I’d keep every project cost tracked cleanly because flipping is generally active business activity and many acquisition, rehab, financing, and carrying costs may need to be capitalized into the project rather than deducted immediately.
If someone is flipping consistently and profitably, I’d also evaluate whether an S-Corp makes sense based on profit level, activity volume, payroll, reasonable compensation, and the broader structure.
And if the investor is doing rentals alongside flips, there can be a strong planning opportunity. Depending on participation, depreciation, entity structure, and whether the rental losses are actually usable, those losses may sometimes offset active real estate income. In the right fact pattern, taxable income can potentially be reduced very significantly, even to zero, but it has to be planned correctly.
Feel free to DM me, I’d be happy to send over a few resources that might help with flip underwriting and downside planning.
@Ashish Acharya Excellent breakdown, Ashish. I really like the distinction you made between the actual rehab scope and a true contingency. If you already know something needs to be repaired, it should already be in the numbers. Holding costs are another big one because an extra 60–90 days can completely change the profitability of a deal. Appreciate you adding the tax and structure perspective as well.
Investor · Member since 2022 · 3k+ posts · 3k+ votes
6d
Nobody will really know cause you can't predict delays via construction and/or finance. You create some unrealistic barriers and hope they don't materialize and you finish well ahead of it.
@V.G Jason Exactly. You can’t predict every delay, so the goal is really to underwrite the deal with enough cushion that a setback doesn’t destroy the numbers. I’d rather see an investor be conservative going in and end up ahead of projections than build the deal around everything going perfectly.
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