When it comes to flipping houses, budgeting is everything. Whether you’re buying, selling, or mid-renovation, a budget is your primary line of defense against bad financial decisions. That said, many inexperienced investors get so caught up in contractor fees, material costs, and labor that they forget or underestimate the smaller, more transactional costs in their budget. Don’t wait for the final accounting to estimate a comprehensive flip budget. Here are a few commonly overlooked costs that you should consider if you want to budget like a pro.
It’s easy to think that once you acquire a property, it just sits in “real estate limbo,” waiting for you to give it some TLC and put it back on the market. Not the case. While you’re “carrying” it, your property functions like a second home, and your budget should reflect that. That means accounting for utilities like water, gas and sewer. That means property taxes. And yes, that means homeowners Insurance.
My advice: Barring any big surprises, I hold the average flip 5-6 month from closing to closing. Make sure you have funds budgeted for at least that amount of time. Even once you’ve finished the renovations, you must account for the time it takes for the average homeowner to get to the closing table. Most mortgage lenders take 60 days to close.
POST RENOVATION COSTS
After you’ve done the hard, gratifying work of transforming a space, you’ll feel like your work is done. Almost! Remember that your property has to pass inspections, and even the most perfect renovation job will get flagged for something. Not to mention, good and bad renovations alike often result in a lovely layer of dust. You’ll want to have the space professionally cleaned. Finally, staging your flip with furniture and decorations can make all the differences in getting your property sold. I highly recommend it to all my clients.
My advice: On a fully renovated flip, I usually budget $1,000 for inspection related repairs. That will vary based on the size of the home and the extent of the renovation. Use your best judgement. Add a $500 line in your budget for a good cleaning service. Staging can costs upwards of $3,000 dollars—again, it’s worth it!
Closing costs come with any property, whether you’re buying or selling. What some don’t realize is those costs change depending on your property’s municipality, and they can add up! Make sure to account for things like transfer taxes, government recording charges, and realtor commission.
My Advice: Log on to your local government website and see just how much you are expected to pay in your state. Also, your REALTOR can run a closing sheet so that you will be able to properly estimate the buy side and sell side closing costs. REALTOR commission is traditionally 6% of the sales price. Again, well worth it!
Every good plan has a backup plan. And I’ll tell you from personal experience: There’s no way to know what’s behind a wall until you tear it down. Surprises happen, and you’ll be glad you added a little bit of padding to your budget in case of emergencies.
My advice: This is tricky, but I suggest 10 – 15% of your overall budget, based on the size and scope of your flip.
So there you have it. Just a few ways you can foolproof your flip budget. But this is is just the tip of the iceberg. Interested in knowing more? Contact me today and let’s talk.