House flipping is a property investment strategy that involves purchasing distressed real estate, refurbishing it, and selling it at a higher price than the acquisition and improvement costs for a profit. Flipping houses can be risky, owing to fluctuating home prices, increased competition for a slice of the pie, and unforeseen costs eating away at your profits.
Yet, the benefits cannot be overlooked. The demand for rehabbed properties is evergreen, with people willing to roll out hefty amounts for top-quality remodeling and locations. Moreover, if done correctly, short-term investments can often generate high profits at lightning speed. Investors can control the time, effort, and capital they want to invest in a flip. Based on 2024 data, flip transactions accounted for nearly 8% of single-income houses in the USA, with an average gross profit of 27.5%. According to experts, house flipping will remain a lucrative business in 2025 as home prices are predicted to rise approximately 4% nationally.
On the surface level, house flipping may seem like a simple game of buying low and selling high; however, the process is full of complexities, especially when you consider the costs associated with this business. Some of the main factors that affect the cost of house flipping include initial acquisition costs (purchase price, insurance, agent fees, etc.), renovation charges, and holding costs, such as property taxes and utility payments incurred till the final sale.
For third-party originators and wholesale partners, knowing these costs can help better advise your clients and structure financing solutions that align with their flipping goals.
While the purchase price accounts for a lion’s share of the acquisition cost, it is only one part of it. After considering all additional expenses, your clients may find themselves in a tough spot. Property taxes and insurance are the first expenses to consider, as these will remain liabilities until the property is sold off. For third-party originators and wholesale partners, understanding these expenses is essential when structuring financing solutions for your clients.
Title fees play a role in the cost calculation linked to examining and adjusting the title which often includes title insurance to shield investors from false property claims. As a wholesale partner, you can inform clients to expect these fees and protect their investment. Another key element is the financing fee, as investors need personal liquid cash to apply and qualify for loans. Hard money lending stands out as a common choice for property flips, but borrowers should also be sure to take higher interest rates into account. As a residential or commercial mortgage broker, offering competitive financing options can help ease these hurdles.
Finally, closing costs, including legal fees, transfer taxes, and loan pay-off fees, must also be considered when calculating overall expenses. Where the property is located will have a big impact on how much it costs to flip a house. For instance, places where people want to live and where prices are likely to go up tend to do much better. In 2024, the average price of a home went up by 4.25% across the country when compared to the year before.
Average prices also differ by location, for example, in highly urbanized metropolitan cities of California, such as San Jose, Santa Clara, and Irvine, the average costs range between $1.3 - $1.85 million, whereas for cities with smaller towns with a more suburban population, such as Cumberland and Decatur, the average costs fall between $128,000 to $157,000. As a third-party originator, guiding clients toward regions with strong appreciation potential can set them up for success.
For partners assisting their clients, here are a few tips to share for identifying and financing profitable deals:
By educating clients about these things and offering different ways to finance projects, third-party lenders and wholesale partners can show they're helpful advisors in the world of house flipping.
The scope and budget for renovations and repairs are greatly dependent on the condition and style of the property your clients are purchasing. It is crucial to guide your clients on managing these costs effectively. For instance, a higher number of bedrooms and extra amenities such as heating systems can increase the scope of the renovation.
Advising clients who are new to property investments to focus on properties requiring minimal repairs can be a smart move. Extensive renovations—such as demolition, extensive contractual work, repairing structural defects, or premium landscaping features like gardens or ponds—can quickly escalate costs. Encouraging clients to prioritize properties with fewer structural issues can mitigate their financial risks.
Some projects incur lesser material costs because of the ease of supply availability, such as farmhouses which only require simpler and low-cost upgrade materials and fixtures to give a rustic look, that can average $10 – 150 per square foot. Historical homes on the other hand can range between $100 - $200 per square foot in terms of cosmetic and structural upgrades.
To support your clients in managing repair costs efficiently, here are actionable tips you can share:
By educating your clients on these key factors and assisting them in structuring their renovation budgets, third-party originators and wholesale partners can solidify their role as trusted advisors, ensuring clients maximize their returns on property investments.
Holding and selling costs are critical expenses for your clients to consider while they still have a property in their possession. As a third-party originator or wholesale partner—it's important to provide guidance on managing these costs effectively. These costs are highly impacted by the duration of holding, as well as current market conditions. Longer holding periods mean increased costs in terms of recurring utility bills and tax payments as opposed to shorter holdings.
Additionally, prevailing market trends can impact holding and transfer costs. For instance, decreasing interest rates may lower overall expenses. Some other components of holding and selling costs include maintenance expenses, monthly mortgage payments, and agent fees, which are the commissions for real estate agents who usually help to speed up the selling time. Marketing and staging is another overlooked selling expense since advertising and marketing strategies can eat up a large portion of the budget.
To help your clients reduce and optimize these costs, consider recommending practical strategies:
Lastly, when advising clients new to property flipping, encourage them to start with low-risk investments and emphasize the importance of tracking all cash flow and down payments.
To position clients for success, wholesale partners and originators can recommend markets that offer favorable conditions for flipping. Based on current trends, some of the best cities to flip houses in 2025 are expected to include:
For brokers and lenders, aligning financing products with regional market opportunities can give your clients a competitive edge.
Are your clients seeking reliable financing solutions for their real estate projects? At RCN Capital, we specialize in partnering with third-party originators and wholesale partners, including residential mortgage brokers, commercial mortgage brokers, smaller private lenders, referral partners, and affiliate partners.
We provide tailored financing options to support your business, including short-term fix & flip financing, long-term rental financing, and new construction financing. Our competitive loan programs are designed to help your clients succeed in their real estate ventures while enhancing your value as their trusted partner.
Looking to grow your business in 2024 by offering innovative and competitive financing solutions? RCN Capital is here to help you unlock new opportunities for your clients and strengthen your partnerships.