Flipping Property Finance Costs: $4,776 vs $22,168

Rocket Mortgage argues that the 70% rule misses out "on the cost of getting a loan." This is the difference that this article will cover. Through a hypothetical single purchase price, four different financing options will be used to highlight the costs.

In Flipping Property, the Purchase Price Is a Headline, Not a Cost

In 2026, the cost analysis for Amerisave uses a median purchase price of $259,000 with a median sale price of $325,000 for a gross spread of $66,000. The aforementioned report also assumes an average holding period of 163 days (about 5 months).

Is the price paid for the property only? The purchase price is for the property only and does not take into consideration any of the costs involved in obtaining a loan. The amount of a down payment as a percentage of the purchase price is 15% to 25% which is approximately $52,000 for this property, plus buyer closing costs of around $6,000.

Imagine what you need to overcome with this spread: rehabilitate, marketing expenses, holding expenses and funding. Funding is most frequently the last piece that financiers cost, but it is also the most variable one.

Four Ways to Pay for a $259,000 Purchase Price When Flipping Property

Below is the range of each method of financing. Traditional mortgage interest rates are between 3% and 5%. Fees typically are 2,000-5,000.

Hard money interest rates are between 10% and 15%, with a fee of 2%-4% of the loan.

Private lender interest rates are between 6% and 12%, with a negotiable fee.

If these ranges are applied to the median property, a loan of $207,200, interest only, for 163 days, would be used at 80% loan. Please note these assumptions are for demonstration only, as actual terms will vary by lender and borrower.

STATEMENT OF FUNDS: $259,000 PURCHASE PRICE

Loan at 80% of price: $207,200. Hold period: 163 days (interest only).

Same house. Same hold. The total cost of money runs from zero to $22,168.

Buyers who are able to negotiate a deal may suffer more losses to the lender than to the vendor.

How Much of the $66,000 Spread the Lender Takes in Flipping Property

The total number of financings must be judged against the gross spread of $66,000.

Mortgage – about $4,776 at the low end which is 7.2% of the spread; at the high end a mortgage is $9,627, which is 14.6%. Hard Money – about $13,397 at the low end which is 20.3% of the spread; at the high end a hard money loan is $22,168, which is 33.6%.

These costs don't apply to cash buyers. Fairfigure says 63% of flips in ATTOM's Q2 2024 data were funded with cash, while 37% were financed. There is a cost to cash as the investor's money is tied up, but there is no money to cover the portion for the lender in the spread.

The balance of 66% – 93% of the spread is needed to cover these other costs. This highlights the significance of including your finance costs in the original calculation (not as an after thought).

The Clock Multiplies the Rate in Flipping Property

Interest is the part of the financing cost that adds up over time. Points are fixed and interest rates fluctuate.

Using that 12.5% interest rate on 207,200, the hard money interest is about 2,160/month, a 2 month delay costs 4,320 more, same delay with a 4% mortgage equals a cost of about 1,380. The points of a hard money loan are $6,216 at 3% whether you finish in four months or eight.

Amerisave approximates that total monthly carrying costs -interest, taxes, insurance, utilities- to be roughly $2,500. Fairfigure states the average holding period at 166 days (from ATTOM data). They both show the same thing: every week out costs money, and the interest rate determines how much.

This is why each day of delay in the approval of a permit adversely affects a hard money borrower. They are purchasing the same amount of debt, but three times the daily expense.

Fold the Loan Into the Maximum Purchase Price

Here's how to think about it: framing the financing expense as a price discount for which you and the vendor will need to negotiate.

For example, let's take a look at the midpoints: For a 4% mortgage with $3,500 in fees, expect to pay roughly $7,201. For a 12.5% hard money loan with 3% points, expect to pay roughly $17,782. That difference is $10,581, which is 4.1% of the $259,000 purchase price.

Maximum purchase price to produce equal profit margins on either loan. The hard money deal requires a $10,581 lower purchase price to obtain the same profit margins. The seller will have no idea, and the agent probably will not say anything about this! The maximum purchase price has to reflect this!

Rocket Mortgage's equation starts with the post-repair value, multiplied by 0.70, less the costs of repairs, which yields the ceiling of an offer. The loan term sheet then determines how far below this ceiling the offer should begin.

A Quick Look at What the Spread Must Cover

Constructelements lists cost brackets which the spread should cover: Agent commissions upon the sale are 5-6% of the sale price. Closing costs, title, escrow, and inspection fees total a few thousand dollars. Holding costs per month will include mortgage, taxes, insurance, and utilities.

Lender Fees – These are not hidden. They might not be noticed by investors because they're so consumed with the value of the purchase price. Amerisave states precisely: Upgrading, funding, holding and selling a property is able to eat simply in regards to a third of the overall value.

How FlipSync IQ Prices the Money Before the Offer

Flip Sync IQs Flip versus BRRRR' calculator features include gap financing points and interest, holding costs (taxes & ins.), flip net profit & ROI. Enter the purchase price once, so you can see the maximum purchase price based on the ultimate loan you are applying for. The maximum purchase price line lowers when the type of loan is changed from a mortgage to hard money, by the amount of money difference between the two. This is the main point of the calculator.

Price the Loan Before You Price the Offer in Flipping Property

Property flippers who buy with the idea that the purchase price consists of two prices will see the first price set by the vendor and the second set by the lender. A property priced at $259,000 could require funding cost up to $22,168 in the same 163 days, well over one-third of a $66,000 spread! Perform the loan quote before you actually offer to buy.

Subtract out the financing cost from the maximum purchase price in order to negotiate from that lower purchasing ceiling.