The cost of every house flip depends on all available variables that come into play. In essence, the cost of flipping a house is unpredictable and changes too much to have one universal answer. However, there are ways to compute your house flipping costs depending on your state’s economy. Online house flipping calculators such as Rehab Financial Group’s House Flipping Cost Calculator can help you calculate how much you need to shell out and what your anticipated profit is.
Even if you don’t have a definite answer to your current situation’s house flipping costs, there are general expenses that everyone in the industry encounters. Explained below are the five fees you need to anticipate when you need to flip a house.
The Cost to Flip a House
The Current Cost of the Property
As with any other buy-and-sell business, the first expense comes from buying the item or property. However, keep in mind that this is just the beginning of your house flipping journey. Granted that the property’s cost is the most significant expense, but it’s not the only cost you need to pay. After all, you can’t sell the property as is; you need to repair as much as you can to get a high resale value. Furthermore, the initial cost of purchasing the house comes with a plethora of expenses you might not have expected. They are:
- Commission fees.
- Lien fees.
- Insurance. And;
- Property taxes.
Calculating the After Repair Value
Now you’ve got your property ready, you need to calculate its after-repair value (ARV). In essence, the ARV will tell you if all your efforts are worth your time and money. House flippers calculate the properties’ after repair values to estimate how much their anticipated profit is.
When calculating your ARV, it’s best to gather as much information on the property you can. Learn your property’s lot size, municipality, neighborhood quality, and more. Next, collect data on properties you can compare your house to and check them in person. Finally, compare the properties to estimate the value of the property.
Computing for your ARV requires many “what ifs” and guesswork, but that’s okay. In essence, calculating the ARV is only needed to get a quick sketch of how much you’ll profit from the property; this doesn’t determine how much you’ll gain.
The cost of repairing your property, along with the property’s initial price, is the bulk of the expense in house flipping. However, if you’re lucky enough, the property won’t need that much renovation. Ultimately, if you want to sell your property as high as you can, you need to consider all possible repairs to the house. Take note, the essential part in repairing the building is to get the property up to code and follow all your state’s regulations. At this stage, it’s best to hire a general contractor to do the work for you. House contractors know all your state’s code and will repair the building as much as they can to get it up and running in time. Furthermore, general contractors are licensed to use any equipment they can use to speed up the rehabilitation.
House repair and rehabilitation will be the longest part of your house flipping journey. Properties may need to get their exterior, interior, and mechanical equipment checked, repaired, or replaced. Hence, we recommend inputting all your repair costs in a spreadsheet to easily monitor how much money you’re shelling out and what upcoming expenses to expect.
Holding and Financing Costs
Holding costs are all the expenses you need to consider when maintaining control of the property and the costs required to keep the property running. If you have an adequate amount of cash to pay for house flipping, you won’t need to calculate your financing costs. On the other hand, if you don’t have enough money, chances are you’re going to need to loan for your house flip. Getting loans from banks incur interest the longer you need to get the house fixed and whenever you do get to sell the property. There’s little we can do to lessen your financing cost other than searching for a bank with the lowest interest rate.
Besides financing costs, holding costs also contain all the property’s insurance, utilities, and HOA fees. Plus, you may need to pay property taxes too. Holding costs are generally cheap, but over time they add up.
If you thought holding costs were the last expenses you need to pay for, then you’re wrong. You need to pay for closing costs that come with selling your house. Selling costs are attorney fees, miscellaneous fees, marketing, real estate commissions, and even Escrow. If you add them all up, you might still end up paying thousands of dollars to sell your house.
Calculating the cost of flipping can’t be calculated precisely. There’s no general equation that takes in all variables and calculates how much you’ll profit from the house. A good house flipper can’t predict their profit precisely but rather estimate the costs and yield.