The Anatomy of a Flip
Every fix-and-flip deal has four cost phases. Miss any one of them and your profit projection is wrong.
1.Acquisition Costs — purchase price, closing costs, inspection, appraisal
2.Rehab Costs — materials, labor, permits, contingency
3.Holding Costs — loan interest, insurance, taxes, utilities, lawn care
4.Selling Costs — agent commission, closing costs, staging, photography
Your profit is simply: ARV - (Acquisition + Rehab + Holding + Selling) = Profit
Phase 1: Acquisition
Purchase Price
This is your offer price — ideally calculated using the 70% rule (see our guide: The 70% Rule Explained). For a typical Texas flip:
•Pre-foreclosure: 10-30% below market value
•Auction: 20-40% below market value
•Tax delinquent: 15-35% below market value
Closing Costs (Buy Side)
Budget 1-2% of purchase price for:
•Title insurance: ~$1,500-2,500
•Escrow fees: ~$500-1,000
•Recording fees: ~$100-300
•Wire fees: ~$25-50
•Inspection: ~$350-500
Hard Money Loan Costs
Most flippers use hard money lending for acquisition:
•Loan-to-Value: 70-85% of purchase price (some lend on ARV)
•Interest Rate: 10-14% (interest-only monthly payments)
•Points: 1-3 points upfront (1 point = 1% of loan amount)
•Example: $150K purchase at 80% LTV = $120K loan. At 2 points = $2,400 origination fee. At 12% = $1,200/month interest.
Your cash needed at closing: Down payment ($30K) + closing costs ($2,500) + points ($2,400) = $34,900
Phase 2: Rehab
Getting Accurate Estimates
The rehab budget is where most new flippers go wrong. Here are benchmarks for Texas markets:
Cosmetic Rehab ($10-25/sqft):
•Interior paint: $2-4/sqft
•Flooring (LVP): $3-5/sqft installed
•Kitchen update (no layout change): $8,000-15,000
•Bathroom update: $3,000-6,000 each
•Fixtures and hardware: $1,000-3,000
•Landscaping cleanup: $1,000-3,000
Moderate Rehab ($25-50/sqft):
•Everything above, plus:
•Kitchen remodel (new cabinets, counters, appliances): $15,000-30,000
•Bathroom remodel: $6,000-12,000 each
•HVAC replacement: $4,000-8,000
•Water heater: $1,000-2,000
•Roof repair (not replacement): $2,000-5,000
Heavy Rehab ($50-100/sqft):
•Everything above, plus:
•Roof replacement: $8,000-15,000
•Foundation repair: $5,000-20,000
•Plumbing replumb: $5,000-12,000
•Electrical rewire: $8,000-15,000
•Structural modifications: $5,000-25,000
Permits
Texas permitting requirements vary by city and scope of work. Most cosmetic rehabs do not require permits. Structural, electrical, plumbing, and HVAC work typically does. Budget $500-2,000 for permits and plan for 1-4 weeks of processing time.
Phase 3: Holding Costs
This is the "silent killer" of flip profits. Every month you hold the property, these costs accumulate:
Monthly Holding Costs (Typical Texas Flip):
•Hard money interest: $800-1,500/month (depending on loan amount and rate)
•Property taxes: $200-500/month (property tax amount / 12)
•Insurance: $100-200/month (builder's risk policy)
•Utilities: $150-300/month (electricity, water, gas — yes, you pay these during rehab)
•Lawn/HOA: $50-200/month
Total: $1,300-2,700/month
Timeline Matters Enormously
A 5-month flip vs an 8-month flip can mean $3,900-8,100 in extra holding costs. This is pure profit lost to delays.
Typical Timeline:
•Closing + contractor mobilization: 2-3 weeks
•Rehab (cosmetic): 4-8 weeks
•Rehab (moderate): 8-14 weeks
•Rehab (heavy): 14-24 weeks
•Listing, marketing, showings: 2-4 weeks
•Under contract to close: 3-5 weeks
A realistic cosmetic flip takes 4-5 months. A moderate rehab takes 5-7 months. A heavy rehab takes 7-10+ months.
Phase 4: Selling
Agent Commission
The biggest selling expense. Standard in Texas is 5-6% of sale price, split between listing and buyer's agent.
•On a $250,000 sale: $12,500-15,000
Some flippers list FSBO (For Sale By Owner) to save the listing side (2.5-3%). But experienced investors know that agent exposure often gets a higher sale price that more than offsets the commission.
Closing Costs (Sell Side)
Budget 1.5-2.5% of sale price for:
•Title insurance (owner's policy for buyer): $1,500-3,000
•Escrow fees: $500-1,000
•Survey: $400-600
•Home warranty (often offered to buyers): $400-600
•Transfer taxes / recording: $100-300
Staging and Photography
Professional staging: $1,500-3,000/month. Professional photography: $200-500. Virtual staging: $100-300. These costs are often worth it — staged homes sell faster and for more.
Case Study: Real Texas Flip Numbers
Property: 3BR/2BA Ranch in New Braunfels, TX (Comal County)
Acquisition:
•Purchase Price: $180,000 (pre-foreclosure, found on Texas Signals)
•Hard Money: 80% LTV = $144,000 loan at 12%, 2 points
•Down Payment: $36,000
•Closing Costs: $3,200
•Origination Points: $2,880
•Cash to Close: $42,080
Rehab ($35/sqft on 1,400 sqft = $49,000):
•Kitchen remodel: $18,000
•Two bathroom remodels: $10,000
•Flooring throughout: $7,000
•Paint interior/exterior: $5,000
•Fixtures, hardware, landscaping: $4,000
•Contingency (10%): $4,900
•Total Rehab: $48,900
Holding (6 months):
•Hard money interest: $1,440/month x 6 = $8,640
•Taxes: $375/month x 6 = $2,250
•Insurance: $150/month x 6 = $900
•Utilities: $200/month x 6 = $1,200
•Total Holding: $12,990
Selling (ARV: $285,000):
•Agent commission (6%): $17,100
•Closing costs (2%): $5,700
•Staging + photos: $2,000
•Total Selling: $24,800
Results:
•Total Costs: $180,000 + $48,900 + $12,990 + $24,800 + $3,200 + $2,880 = $272,770
•Sale Price: $285,000
•Net Profit: $12,230
•Cash Invested: $42,080 + $48,900 = $90,980
•Cash ROI: 13.4%
•Annualized ROI: 26.9% (6-month hold)
Is $12,230 profit worth 6 months of work? For many investors, the answer depends on volume. If you can run 3-4 of these simultaneously, that is $36,000-48,000 in profit over 6 months. Scale is the key.
When to Walk Away
Not every deal is a good deal. Walk away when:
•The MAO does not work at 70% — you cannot force a deal to work by raising the percentage
•Repair estimates are uncertain — if you cannot get a contractor to commit to a number, the risk is too high
•The market is softening — check days on market for recent sales in the area. If DOM is increasing, your ARV may be optimistic
•Holding costs will eat the profit — a 12-month hold on hard money can turn a $20K profit into a $5K profit
•You do not have enough reserves — always keep 3-6 months of holding costs in reserve beyond your rehab budget
Your Flip Analysis Checklist
1.Get 3 recent comps (closed within 90 days) to establish ARV
2.Walk the property with a contractor and get a written bid
3.Add 10-15% contingency to the rehab budget
4.Calculate MAO using the 70% rule
5.Verify your hard money terms (rate, points, LTV)
6.Estimate holding period realistically (add 1-2 months to your best guess)
7.Account for ALL selling costs (commission + closing + staging)
8.Run the full analysis in the Texas Signals Fix & Flip Analyzer
9.If profit is less than $15,000 on a single-family flip — seriously consider passing
10.If ROI is less than 15% — the risk may not be worth the reward
Head to Investment Calculators to run your next deal through the analyzer, or browse Texas Signals' pre-foreclosure and auction listings to find properties below market value.