Flip accounting
Flip Accounting 101: Why Your Rehab Costs Don’t Belong in Repairs & Maintenance
Here’s the most expensive bookkeeping mistake in house flipping, and almost every self-managed flipper makes it: booking rehab costs to Repairs & Maintenance as they happen.
It feels natural. You paid for repairs, there’s an account called Repairs. But a flip isn’t a rental, and that one habit quietly breaks every number you use to run your business.
A flip is inventory, not a property you fix
When you flip, you’re a dealer. You buy a product, improve it, and sell it. On the books, the house is inventory, and everything you spend getting it to the closing table is part of the product’s cost. Not an operating expense of whatever month you happened to pay it.
So rehab spend belongs on the balance sheet, building up in a work-in-progress (WIP) account per project, until the property sells. At sale, the accumulated WIP releases to cost of goods sold (COGS). Your P&L shows the flip’s true profit, all in one place.
What expensing does to your numbers
Say you run one flip. Bought in January, rehabbed February through April, sold in May for a real profit of $60,000.
Expensed as R&M, your P&L tells this story:
| Month | P&L shows |
|---|---|
| Feb | −$22,000 “loss” |
| Mar | −$28,000 “loss” |
| Apr | −$17,000 “loss” |
| May | +$127,000 “profit” |
Capitalized as WIP, it tells the truth:
| Month | P&L shows |
|---|---|
| Feb–Apr | $0 (costs building in WIP on the balance sheet) |
| May | +$60,000. The flip’s actual profit |
Same money, same flip. But the first version has consequences:
- You can’t see project profitability. Costs are smeared across months and mixed with other properties. “How did the Maple Ave flip actually do?” becomes an archaeology project.
- Lenders see losses. Three months of paper losses on your P&L is exactly what you don’t want in the file when you’re asking for the next loan.
- Your CPA rebuilds it anyway. Dealer inventory has to be reported correctly at tax time, so someone reconstructs project costs in March. At cleanup prices, on a deadline.
- Multiple flips make it worse. Two active projects and one sale, and the blended P&L means nothing.
How the flow should work
The structure we install for flip clients:
- Each flip gets a WIP account (or sub-account) and a QBO class. Every acquisition, rehab, holding, and selling cost lands on its project.
- Costs capitalize as they occur. Purchase price, closing costs, materials, sub labor, permits, utilities during the hold, insurance, loan interest and points during the project.
- Hard money draws get tracked against the project, with lender fees split correctly instead of vanishing into “bank charges.”
- At sale, WIP releases to COGS in the sale month. Sale price minus COGS minus selling costs equals true project profit, visible on one line of one report.
- Budget vs. actual runs monthly while the project is live (original budget, committed, spent, variance), so an over-budget rough-in shows up at week 6, not at listing.
One thing worth knowing: whether something gets capitalized isn’t always mechanical. A few of these calls have tax consequences, and those get flagged to your CPA instead of decided by a bookkeeper. That boundary is a feature, not a gap.
The quick self-test
Open your P&L for last year. Flipped, and you see big Repairs & Maintenance numbers in months where nothing sold? Your books are hiding your real margins. If your “profit” changes depending on which report you run, same diagnosis.
The fix is a cleanup. Costs reclassified into WIP per project, COGS rebuilt for sold flips, and a chart of accounts that makes the right treatment the default. We quote that flat after a 30-minute file review. Or grab the free Flipper’s Chart of Accounts and install the structure yourself.
FAQ
Why is a flip treated differently from a rental?
A flip is inventory. You’re a dealer buying a product, improving it, and selling it. A rental is a capital asset you hold for income. Same invoice, completely different accounting. The property’s status decides the treatment, not the type of work.
What costs get capitalized to a flip?
Basically everything it takes to get the property to sale. Acquisition price, closing costs, rehab labor and materials, permits, utilities during the hold, insurance, loan interest and fees during the project. They build up in WIP and release to COGS at sale.
What happens if I’ve been expensing rehab all year?
Your P&L shows phantom losses during the rehab months and a wildly inflated profit in the sale month, and your CPA has to rebuild the project costs at tax time. It’s fixable. A cleanup reclassifies costs into WIP per project, and it’s one of the most common rescues we run.