What it means
The term is most common in property, where a flipper buys a house, makes improvements and sells it within a few months. It is also used in the share market for investors who apply for shares in a hot IPO (the first public sale of a company's shares) and sell them as soon as trading starts.
In both cases, the flipper treats the asset as stock to be turned over rather than something to keep. A professional flipper behaves like a small trading business.
They track the cost of every deal, measure the return on the cash tied up and move on to the next opportunity as soon as possible. Skills such as estimating repair costs, negotiating with sellers and understanding local demand are central to making money.
Flippers often use borrowed money, which raises both the potential return and the risk. A short-term loan, sometimes called a bridging loan, lets the flipper buy and renovate without tying up all their own cash.
The interest and fees on that loan are a holding cost, and each extra month on the market costs more. How a flipper's profit is judged depends on speed as well as size.
A $20,000 gain in three months is a better annual rate of return than the same gain in twelve months, because the cash can be reused. Experienced flippers therefore think in terms of annualised return, which scales the profit as if the pace could be repeated for a full year.
Flippers also face reputational and legal issues. Authorities and neighbours may dislike rapid turnover of homes, and consumer laws often hold sellers responsible for poor-quality renovations.
A flipper who cuts corners risks being sued, losing their licence or struggling to get future finance. For readers outside property, the lesson is that quick resale strategies reward preparation and punish optimism.
Anyone who plans to buy and sell fast should know the full cost, the realistic selling time and the tax result before committing any money.
In practice
Real-world examples.
Example
A full-time property flipper buys three run-down houses a year, renovates each one and sells it within five months. She tracks each project in a spreadsheet with a budget, a target profit and a weekly update on how many days the work is behind schedule.
Example
A part-time investor applies for shares in several IPOs each year. On the day the shares start trading, he sells any that open above his purchase price and uses the proceeds to apply for the next one.
Example
A small business owner buys discounted vehicles at auction, repairs them and sells them to local buyers. The business treats each car as short-term inventory, monitors how long each one sits unsold and cuts the asking price if a car passes 60 days on the forecourt.
Formula
Calculation
Annualised return (simple) = (Profit / Cash invested) x (12 / Months held)
Suppose a flipper puts $100,000 of their own cash into a project, which covers the deposit, the renovation and the costs of holding the property. After six months, the property sells and the net profit is $20,000. The return over the period is 20,000 / 100,000 = 20%. Annualised, this is 20% x (12 / 6) = 40%, although this assumes a second similar project can be found and completed.Case study
Seen in the real world.
Maple Street Homes is an illustrative, fictional business founded by a former builder who flipped properties. In its first year, the owner relied on instinct and sometimes bought homes that needed more work than he had allowed for.
He then introduced a simple rule: never pay more than 70% of the finished sale value minus the cost of repairs. A house expected to sell for $300,000 with $40,000 of repairs would therefore be capped at 70% of $300,000, which is $210,000, less $40,000 of repairs, giving a maximum purchase price of $170,000.
The illustrative result was fewer deals, but a more reliable profit on each one and fewer sleepless nights. The owner also found that lenders offered better terms once he presented a clear costing for every project, and his sellers took him more seriously because he could close quickly.
Watch out
Common mistakes.
- Judging success by the profit on one deal while ignoring the annualised return on the cash used.
- Using too much borrowed money, so that a delayed sale leads to a cash shortage.
- Forgetting that profits from frequent resales may be taxed as trading income.
Questions
People also ask.
Is a flipper the same as a day trader?
Not quite, because a day trader buys and sells financial instruments within a single day, while a flipper often holds a property for months.
Do flippers need a licence?
That depends on the country and the activity, and in some places regular property dealers or builders must register.
What is the 70% rule?
It is a rule of thumb that caps the purchase price at 70% of the expected finished value less the repair costs, leaving room for costs and profit.
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