Do I Have Enough Money to Flip This House?
If you are interested in getting into the fix and flip industry, then you are not alone. This industry is tremendously popular right now, and is filled with both novice and experienced flippers who are looking to make some money off of the real estate market. There is a lot that goes into fixing and flipping homes besides just having an eye for renovations. It involves a great deal of real estate expertise and a lot of patience. It also requires a lot of money upfront. After all, if you want to make money, you are going to need to spend money.
This is why the number one question that new flippers always have is “do I really have enough money to flip this house?” While there are a number of different lending options that can help you get the cash you need, you still need to figure out exactly how much of this cash is going to be necessary. This is why your first step should be to figure out what all you are going to need to pay for.
Here’s a list of expenses that you are going to need to be able to account for.
- The Purchase Price of the Property- This is a pretty obvious one. You need to start with how much the home is going to cost. Pay attention to how much the property costs and make sure that it is only 70% of the After Repair Value. You can figure this out by looking at comps in the neighborhood.
- The Extras With the House- Don’t forget about taxes and insurance. While you are going to sell the home rather quickly, you are still going to have to pay taxes and insurance on that property.
- Closing Costs- You still also have to pay closing costs on any property you buy. This includes all of those little fun fees and real estate commission. A good rule of thumb is to plan for closing costs to be 5% of the total property’s purchase price. So if the house was $100,000 then plan to spend $105,000 total for the house,.
- Rehab and Repairs- There are so many unknowns when it comes to rehab and repairs. Remember, the more repairs that you do the more opportunities there are for something to go wrong or something unexpected to come up. Tearing down a wall can be a great solution to get that open concept kitchen, but you never know what is in that wall and what type of electrical or plumbing is in the wall that needs to be repaired or rerouted. Get an estimate on the repairs and save an extra 10%.
- Materials- Budgeting for labor for all of the work you need done is one thing, but don’t forget about materials. This means all those new toilets, new sinks, new cabinet pulls, new window treatments and new tile. It can really add up and is the area most people under budget for.
While this can seem overwhelming, these are all of the things that you are going to need to have money for when you fix and flip a property. Once you have these numbers all written down you can really decide if you have enough money to flip that house and get started on this exciting new adventure.