The cost of flipping the house includes the money spent on the acquisition, repairing and carrying activities. Apart from this, the marketing and sales procedures also add to the total budget of flipping the house. However, according to the home improvement contractors, the flipping of the house turns out to be the 10 percent of the purchase price.
Although the total costs of flipping a house is different. It’s ranging from the project to project, depending upon the size and the pattern of the structure. But, there are 4 main aspects to be considered that impact the costs during the process.
Here, we will guide you on total investment you have to make on the project with respect to these 4 steps that are involved in flipping the house.
1. Purchase Price of Fix and Flip Property
Purchase price refers to the cost spent upon taking the acquisition of property rights. It comprises the price of the property and the associated closing costs for the legal requirements according to the law. These closing costs are in fact the government fees paid for the settlement of real estate transactions which also involve taxes related to the transfer of property rights and transfer. Moreover, the insurance factor cannot be overlooked which turns out to be different ranging from locations of the area and state.
Moving on to the starting costs of the property, purchase price depends upon the design and structure of the home with the area of land it occupies. The most important feature impacting the cost start from the fact that whether it is a single family or multi-family home. Similarly, how its structure is made related to the cabinets, bathroom features, appliance support, and window treatments have deciding role in the final purchase price of the home. Besides these things, there are 2 most significant factors everyone must look forward in order to make a useful and profitable decision.
The first is to measure up the property you have decided to purchase and by the rule of thumb, pay the 70 percent of the price of the proper after ARV (After Repair Value).
Look for the property that needs the minimum repair stuff which will ensure an easy assessment of the actual value of the home.
Total Costs of the purchasing process
At the end of the purchasing process, you must know that closing costs will be your responsibility as a potential buyer. These closing costs according to the home improvement contractors are almost 5 % of the total purchasing price of the property. Hence, if you have purchased the property worth $200,000 then according to the general trend your closing costs would be $10,000. This should in the end result as the total costs of the property as $210,000.
2. The cost to Rehab a House
The rehab costs of the property include the renovation and remodeling costs done upon the house you are looking to flip. It will involve all the renovation work done from the outdoor, interior and roofing work which revamps the appearance and structure of the home in order to sell it for a profitable price to the customers. Take a look at following points that are included in this process.
Material & Labour cost: It is the investment you have to make upon the purchasing of the material for replacing the existing ones with poor condition. It includes appliances, features and building materials. Moreover, the cost of the labor for repairing work is part of it too.
Extensive Home Repairs: It is done among the parts of the house where the conditions are very poor and require the complete makeover.
For example, if you have bought the home for $200,000 including closing costs, then the cosmetic changes cost will add up to the $20,000. Furthermore, labor costs with the new materials would increase the investment to 65000$. Hence, in the end, your expenditure on the building would be approx $265,000.
3. Carrying Costs to Flip a House
These costs are referred to be as the recurring costs being spent on the property from the time to purchase and then flip it. They are mostly paid over the period of the month and usually are composed of the utility, taxes and legal requirements fees.
Financing Costs: These costs include the tax and interests laid upon the borrowing money taken for renovation through a bank or private loans.
Renovation Loans: The loans taken for these projects are comprised of the two types; hard money and homestyle renovation. For the later, Fifteen-year and 30-year fixed rate and adjustable rate mortgages are offered.
Utility Costs: Utility costs relevant to a property flipper include water, electric bills, gas, and oil. These expenses need to be factored into your monthly carrying costs.
4. Fix and Flip Marketing & Sales Costs
The two forms of the marketing campaign are through the Realtor and by doing the work yourself. However, performing the marketing work would result into investing the upfront costs yourself. Therefore, there are two most important areas where you need to spend on your marketing investment till the property gets a buyer.
Realtor Fees. The fees paid to the Realtor is proceeded by the seller. In most cases, the total costs of the fees turn out to be the 6 percent of the property. For instance, if you sell a home for $200000, then the fees paid to the Realtor would be $12000.
Promotion Campaigns. If you haven’ hired a marketing company then it would be upto you to bear the costs for promotions spent on the sale signs, flayers, online postings and open house expenses.
How to Determine Your Fix and Flip Costs
The number of investments have been explained earlier to guide you how much you have to spent on the construction, repairing, legal work and marketing for fix and flipping the home. however, in the end, after selling the home you must determine profit or loss for better future dealings. The four steps that should be followed for calculating the costs are:
ARV (After Repair Value) of flipping a house by the investor.
Budget to Flip a House
Timeline of the total process.
Return on Investment
Therefore, it is clear that it requires plenty of areas to deal with while flipping the house. Therefore, you need to be in contact with home improvement contractors for better planning and budgeting.