| Rehabbing and selling (Fix and Flip) houses is a | | | | - When you sell the home to a buyer: taxes, |
| very lucrative form of real estate investing. While | | | | random recording fees |
| the rewards can be great, the risks can be high if | | | | In addition to the above, if you sell with a realtor |
| you're not careful. There are several expenses | | | | expect to pay 6% of your sales price in |
| that beginner investors overlook when rehabbing | | | | commissions (or 3% only to the buyer's agent if |
| that can leave the investor with little, zero, or | | | | you list using a Flat MLS service). |
| even negative profits. Trust me, I know from | | | | Don't forget that you may have seller's |
| experience. | | | | concessions too in order to sell the property |
| This article reviews the top 8 overlooked | | | | quickly - could cost another few thousand dollars! |
| expenses when flipping houses. Be sure to | | | | #5: Marketing costs |
| carefully count all of your costs when evaluating | | | | These costs can easily get out of control. You |
| deals and anticipating profits. | | | | should estimate 10% of your sales price to be |
| #1: Interest payments on borrowed money | | | | used for marketing and then work to spend less - |
| This is not an issue for those investors with deep | | | | these costs can include Flat MLS listings, |
| pockets, however the majority of investors use | | | | newspaper advertisements, staging, holding round |
| OPM (other people's money) for deals which will | | | | robin auctions, flyers, etc. |
| have a costs associated with it. Even for | | | | #6: Utilities (water, electrical, trash/sewer |
| investors who purchase properties with funding | | | | recycling) |
| from private money lenders, small local banks, or | | | | Even with a vacant home, there are real utility |
| rehab lenders with 6-month no payment | | | | costs. The city does not care whether you are |
| programs, there is still an interest cost which may | | | | using the trash service, sewage, or recycling |
| be paid monthly or at some other frequency | | | | service - you will pay for this anyway. You'll have |
| depending on the loan parameters. | | | | a water bill because there will be a need to water |
| If you are using business lines of credit to fund | | | | the lawn (more on that later) and when the |
| the rehab, remember there is a payment and | | | | contractors and work crew are rehabbing the |
| interest every month that will need to be paid. | | | | home, they will use water regularly as well as |
| #2: Pre-payment penalties on borrowed money | | | | electricity. |
| Make sure to read the fine print with any loans. If | | | | #7: Lawn maintenance |
| there is a pre-payment penalty and you still think | | | | The first thing a potential buyer sees is the lawn - |
| the loan is still worth obtaining, count that as | | | | it must be kept in excellent condition. Depending |
| another expense. | | | | on the weather in your area, you may need to |
| #3: Vacant property insurance payments | | | | budget for lawn care service twice a month which |
| When you purchase the property you will likely | | | | can cost up to $100 per month. |
| need vacant property insurance and in many | | | | #8: Unexpected repair costs |
| cases you will have to purchase a 1 year policy | | | | This is another one that easily spiral out of control |
| upfront. At a minimum you will have to pay for 6 | | | | because inevitable contractors will find new issues |
| months and no money will be refunded to you. | | | | that need to be fixed when rehabbing the |
| With a 1 year policy you will likely receive a | | | | property. Make sure to have an "Unexpected |
| 6-month refund if you sell the home and cancel | | | | Repairs" line item in your repair budget - a cushion |
| the insurance within 6-months. | | | | that adds another 10% to your repair costs |
| #4: Closing costs upon purchase and sale to buyer | | | | would likely be adequate. |
| You're going to have expenses with two closings: | | | | If you take all of the above costs in mind when |
| - When you purchase the property: taxes, title | | | | evaluating house flipping projects and still can |
| insurance, surveys, lien searches, random | | | | make a reasonable profit, you're golden. Happy |
| recording fees, and any points you may have to | | | | flipping! |
| pay on loans | | | | |