It’s impossible to put an exact figure on the cost of flipping a house. House flipping comes with so many variables so it’s hard to tell how much it would cost. It can cost you anything from hundreds of dollars to thousands of dollars depending on your market, rehab costs and plenty more factors.
First, you need to know how much the property will be worth when you are done rehabbing. Once you know the value, all other costs that come with the rehab will start to make sense. This is what is known as the ARV or the After Repair Value.
The best way to get an estimate of the ARV is to compare prices of similar properties in the same area of your target market in the past three months. Get a local realtor to help you determine the ARV faster or alternatively, you can do the research yourself by visiting websites such as Realtor.com.
Keep in mind the following things when determining ARV:
- Only look at sold houses and not those still on sale
- Only look for recently sold houses. They should have been sold within the last three to six months.
- If there are no recent sales then this could be a sign that perhaps properties in the area are not on demand.
- You can square footage to determine ARV. All you have to do is divide the sales price of property in the area by the square footage of the house. From there, use the square footage in your house and multiply it by the price of per square foot. Although this is effective, it’s not as great as doing a price comparison of the homes in the area.
- You can adjust the price accordingly depending on the number of bedrooms and bathrooms in the property.
- Factor in water views and look at other properties that have similar size lots
- Factor in updated features such as new baths or new roofs, heating systems, kitchens, etc then adjust your price accordingly.
A List Of Things That Determine How Much A House Flip Costs
The amount of money you will spend on rehab will depend on how much work needs to be done. If you do not have extensive experience in rehabbing, I would advise you to first start with projects that do not require extensive repairs. Here’s a formula that you can easily follow:
1. Set A Budget
First, you have to get a budget repair form. It’s not a complicated document and is basically an Excel document that itemizes all the repairs that need to be done within the property. From there, request your contractor to fill out the form before you begin the rehab process.
If you plan on using a general contractor, ask them to get an estimate from other subcontractors like painters, finish carpenters, roofers, framers, plumbers and electricians.
2. Set A Time Line
Once you have a budget, you must do everything with your contractor to ensure that your subcontractors are held accountable for the cost estimates they gave you. If issues that you had not anticipated come up, (and they do so a lot) get a second estimate as soon as possible to ensure that you do not go over and beyond your budget.
The idea here is to ensure that you avoid running into unexpected issues by having a solid budget that can accommodate them whenever they arise.
3. Use A Scope Of Work
To ensure that your project goes as smoothly as possible, organize a meeting with all your subcontractors and the contractor and discuss the entire project. Your discussion should mention which is the best logical order for doing the work.
Everyone should agree to a certain timeline that they expect to get the work done on time. all your subcontractors should have each other’s cell phone numbers so that they can communicate with each other. Ensure that everyone in your team is updated of any delays or changes in the project. All changes should be pre-approved by your contractor before they are implemented.
House Flipping Financing Costs
To avoid incurring extra costs, try as much as possible to ensure that your rehab goes as smoothly as possible. This will reduce the amount of time that you hold the property. To get an estimate of how much your financing costs will be, just look at the average number of days other properties in the area have been in the market.
The best way to sell a house quickly is to set the price slightly below market price. Your financing costs will also depend on your lender.
If you have excellent credit and you finance your flip through a bank, your financing cost will be much less than if you sourced for funds from a hard or private lender. You might justpay with 4-6% on the money you borrowed if you get financing through a bank.
2. Private Money
Most hard money lenders ask for a 14-20% and four to six points on top of the money you borrow from them. Hard money lenders are great sources of financing for beginners but there are many rsks to be aware of.
For instance, if it takes you six months from close to close on a $100k loan at 18% and five points, your interest would be $9k to $5k for five points. That is over $14, 000 in financing costs. It will also cost you an extra $1500 for every month you hold the property above 6 months.
This may seem like a lot of money but if you factor in these costs into your house flipping formula, you will still make a profit.
You may need to figure out other costs such as:
- Association fees and condo fees
- Water, gas, electricity
- Property tax
The longer you hold on to this property, the higher your costs will be. For instance, in Massachusetts, property taxes are supposed to be paid on a quarterly basis.
You will have to pay realtor fees once the property provides the market. This is about 5-6% of the income from the purchase of the house. So if you flip your house for $250, 000 at a 5% commission, you will pay the realtor $12, 500. Although this seems like a large amount of money to pay a realtor, you should not cheap out. Find a good realtor who will help you sell your flips much faster.
How To Determine Your House Flipping Financing Costs Summary
All the costs in this post will account for 95% of your financing costs but bear in mind that they may vary from one project to another. But provided you can factor in all the costs into your formulas and stick to the 70% rule, you shouldn’t have a problem making a profit.