Before you invest in a new project, you will need to know these 3 things regarding fix and flip financing. Before you begin, it is important to inspect the property thoroughly. You will also need to get a clear idea on how much the property is worth, the cost of fixing the property, and how much you can realistically sell the property for.
Fix and Flip Financing Fact #1: Do your due diligence
The most underestimated variable in this process is the cost of fixing a property. Add up the costs you will need for your renovation budget. Then, add an extra 25%-30% to that estimate.
For example, if you can fix a property for $10,000, it would be safe to estimate your actual costs at $13,000. This will let you avoid the risk of unexpected costs.
Fix and Flip Financing Fact #2: Calculate your carrying costs
You must be able to afford the house for the duration of the work in addition to the time it is on the market.Estimate the time it will take for all renovations to be complete. Research your market to decide how long it will take to sell once the property is on the market.
Calculate the costs of the mortgage, taxes, insurance, and all utilities you will need per month. Once you have all of this information, you can make an accurate estimate on your carrying costs. One big mistake most people make in this process is not realizing that the time it will take to fix and sell is usually longer than expected. For this reason alone, it is best to double your carrying costs in your estimates. Any number of unforeseen problems can cause your renovation or sale to be delayed. Do not get caught without the funds needed to complete your project.
Fix and Flip Financing Fact #3: You must price your property properly to compete
When your property is fixed and ready to be flipped, realize that you are in competition with other properties in that area. Get an estimate of how much your property and the surrounding properties are worth.
Now, remember those carrying costs? They add up. You must price your property to sell. Money will be saved on carrying costs by pricing your property correctly. If you sell your property lower than your competition you will have the advantage of time. Not only will you have saved money on your carrying costs, but you will have also saved time. You can then re-invest your profits into more projects and make much more profit down the road.
Never get caught up in trying to maximize the price of your property without taking into account the carrying costs and lost time.
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