Fix & flip bookkeeping
My Flip's Books Don't Show What I Actually Made — Why?
Why This List Exists
A flip and a rental are both real estate, financed the same way, sometimes held in the same LLC — which is exactly why their bookkeeping gets crossed. A rental depreciates. A flip never does. A rental's mortgage payment splits into principal, interest, and escrow. A flip's rehab draw capitalizes in full. Treat one like the other and the numbers a fix & flip investor actually needs — true cost per deal, real margin, whether the next one pencils — quietly stop being true.
The Six Mistakes
01
Rehab Draws Booked as an Expense
A contractor draw gets coded to repairs & maintenance or a general renovation expense account, the way it would on a rental — it feels like the natural category for a construction invoice. Every rehab dollar on a flip capitalizes into inventory instead; it doesn't touch the P&L until the property sells. Expensing it early makes the deal look like it's losing money every month it's in progress, when in fact nothing has been realized yet.
02
Carrying Costs Expensed With No Consistent Policy
Interest, property tax, insurance, and utilities during an active rehab get expensed as paid, without ever being tested against a capitalize/expense policy — there usually isn't one written down. Carrying costs during active construction are generally capitalized into the property's basis, the same way construction-period interest capitalizes on any project being built for sale; expensing them piecemeal understates the deal's true cost.
03
No Property-Level Draw Tracking
With more than one flip active at once, draws get coded to a single shared rehab account instead of each property's own inventory sub-ledger — it's faster in the moment, especially when the same contractors work multiple addresses. By the time anyone checks, there's no way to tell which deal is actually over budget until the sale already happened.
04
Refinance Fees Carried Forward Instead of Written Off
A hard money loan gets refinanced into a bridge or DSCR loan mid-project, and the original loan's unamortized points quietly stay on the balance sheet instead of being written off — nobody thinks to close out the old loan's fees when the payoff happens. Those points need to be expensed in full the moment that original loan is paid, not carried forward or netted against the new loan.
05
Retainage Not Tracked as a Liability
A lender withholds retainage on a draw pending inspection, and the full invoice just isn't recorded until the retainage is actually released — it's simpler to wait than to book a liability for money not yet paid out. The obligation exists the moment the work is done; the retained portion belongs in a liability account from the invoice date, not whenever it happens to get paid.
06
Sale Profit Read Off the Bank Deposit
After closing, "how much did we make" gets answered by looking at the net wire that hit the bank — quick, but it nets together the loan payoff, selling costs, and the actual profit into one number that doesn't mean anything on its own. The real profit is gross sale price minus the full capitalized cost of the property minus selling costs — a number the bank deposit alone can't show you.
How This Actually Catches Up With You
Bad flip bookkeeping doesn't stay invisible — it surfaces one of two ways.
Path A — you find out at tax time
The CPA reviewing the file finds depreciation posted on inventory, carrying costs scattered across expense accounts, and a "profit" number that doesn't match the closing statement. Everything gets reclassified after the fact — often after the next deal has already been decided based on the wrong number.
Path B — you catch it every month
A property-level inventory ledger and a monthly draw-to-budget check mean the true cost of the deal is visible in real time — so the decision to take on the next flip is based on what the last one actually made, not what the bank deposit made it look like.
The Fix Is Almost Always the Same
1
Capitalize every draw
Rehab costs go to inventory, never to a repairs expense account.
2
Set a carrying-cost policy
Capitalize interest, tax, and insurance during active rehab — apply it to every deal.
3
Never depreciate a flip
Reclassify to a fixed asset only if it truly becomes a rental.
4
Write off old loan fees
In full, the moment a loan is refinanced or paid off — never carried forward.
5
Track draws by property
A separate inventory sub-ledger per address, reconciled to the draw schedule.
6
Relieve cost to COGS at sale
Compare gross sale price to full capitalized cost — not to the net deposit.
Frequently Asked Questions
Does a flip get depreciated like a rental property?
No. A property held for resale is inventory, not a depreciable fixed asset — it never gets depreciated, no matter how many months the rehab takes. The one exception is if the strategy changes and the property is converted into a long-term rental instead of being sold; depreciation only starts from that conversion date forward.
Is profit on a flip taxed as ordinary income or capital gain?
For most active flippers, it's ordinary business income, not a capital gain — because the property is dealer inventory, not an investment asset. Dealer-versus-investor status is a facts-and-circumstances tax determination a CPA needs to make; this affects both the tax rate and self-employment tax exposure.
Should rehab carrying costs like interest and insurance be capitalized or expensed?
While a property is actively under renovation, interest, property taxes, and insurance are generally capitalized into the property's cost basis rather than expensed as incurred. Once the property is listed for sale or substantially complete, further carrying costs are typically expensed. Whichever policy is used, it should be applied consistently across every deal.