Flipping a house can be a great way to make some serious cash. Those with a vision can see a diamond in the rough when they look at an old tear-down and know that with a little love, care, and elbow grease, it can be someone’s dream home. However, before you dive into the flipping business, it’s important that you keep a few things in mind. After all, as lucrative as flipping houses can be, there are risks. While that’s true of any investment opportunity, it’s good to keep in mind the particular risks and expenses that you face when you choose to get into house flipping. Here’s our list of the most important expenses to keep in mind the next time you plan out your renovation budget.
- Real estate cost. The first one is a no-brainer. You should remember to figure into your expected profits the amount that you have to spend to actually buy the house you’re flipping. While this may seem obvious, it’s actually one of the most important for a key reason: it’s the most likely to change. While the cost of lumber and spackle mostly stays the same, the price of the property you’re going to purchase will fluctuate along with the market. If markets are riding high, it might not be the best time to buy. If the market dips, your profits may take a hit – or you may even end up operating at a loss once the renovation budget is factored in. Getting a mortgage can be tricky, so if you’re really pressed, you can refinance with a hard money loan, one of the best ways to get your flip off the ground.
- Material costs. If you’re doing some serious remodeling for your house flip, chances are that you’ll have to purchase all the necessary materials. While buying a 2 x 4 down at the hardware store might seem cheap, once you multiply that cost by 200 for the new deck you’re adding, you can see how quickly material costs add up. It’s a good idea to have a clear idea in mind for what renovations you want to make to the home, then get an estimate for how much all the necessary materials will cost. Quality materials can also boost the selling price, too, which is something to think about when choosing between linoleum and tile for the kitchen.
- Labor costs. You’re probably not a carpenter-electrician-plumber who is capable of working 80-hour weeks. So, it’s likely that you’ll have to pay experts to come in and make sure that the house is structurally sound, the wiring is all up to date, that the plumbing is ready to handle whatever the next occupants throw at it. Labor can be pretty expensive, as most skilled technicians can charge a pretty penny for their services. You might also want to hire a contractor to figure all that out for you, but that’s its own cost too. Either way, be sure to put aside a few thousand to pay the folks who will be helping you turn the house from a trash heap to a home.
- Realtor and advertising. Once your house is all set and ready to go, you’re going to want to build some hype. The best way to do this is by hiring a realtor who will market the house for you. The best realtors use social media marketing to raise awareness of the property. While you might be able to get by with a more run-of-the-mill realtor, it’s often worth it to invest in a committed and skilled realtor to make sure that you don’t just get a buyer for your flip, but the best buyer possible who will pay top dollar for your creation.
- Paying yourself. It’s easy to get caught up in all the expenses of a house flip, and you can forget perhaps the most important person to pay: yourself! After all, you’re the one who stuck their neck out on a risky tear-down and turned it into someone’s forever home. You deserve to take home a decent chunk of change for your investment of time, sweat, and tears. Be sure you know how much you hope to profit from your investment once all is said and done.
There are plenty of other expenses that you may encounter along your house flipping journey, but the items on this list will be the lion’s share. Keep them in mind for a fiscally responsible renovation, and have fun flipping!