The costs beginners underestimate
New flippers tend to focus on purchase price and renovation budget while overlooking two big categories. Holding costs — loan interest, property taxes, insurance, and utilities — accumulate every month you own the property, which is why speed matters so much. A rehab that runs two months over schedule can quietly erase a large slice of profit through carrying costs alone.
Selling costs are the other surprise. Agent commissions, transfer taxes, title fees, and closing concessions commonly total 7–9% of the sale price. On a $350,000 sale, that is roughly $25,000–$31,000 off the top. Financing costs add up too: hard-money loans for flips often carry high rates plus origination points. Build all of these into your model, not just the obvious purchase and rehab figures.
The 70% rule and building in margin
Experienced flippers use the 70% rule as a quick sanity check: pay no more than 70% of the after-repair value (ARV) minus estimated repair costs. On a home with a $400,000 ARV needing $50,000 in work, that caps your purchase price at roughly $230,000. The 30% cushion absorbs holding costs, selling costs, financing, and the profit that makes the risk worthwhile.
Always stress-test your deal against a pessimistic scenario. What happens if the rehab runs 20% over budget, the home takes three extra months to sell, or the ARV comes in 5% below your estimate? A deal that only works under best-case assumptions is a deal that loses money the moment reality intervenes. The margin you build in today is what keeps a bad month from becoming a bad flip.