Hidden Expenses of Home Flips

| July 9, 2008 More

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Creative Commons License photo credit: ryanrumsey

Flipping homes became a huge concept a few years ago. For some the venture was incredibly lucrative, for others it was the road to bankruptcy, and for others yet, it was just a dream, something never acted on.

For those home flippers who made a killing more went into the project than most people consider. First of all, there is the cost of purchase, an obvious expense that everyone considers, but there’s more to consider than just the price tag. Purchasing a home also comes with fees for the loan, home inspection, and realtor fees.

Another known expense but one that is often under priced is the maintenance or improvement expenses. Your expenses will initially be based on how many repairs you want to make and how extensive the renovation is going to be. But there is always an additional cost to a home renovation and it’s wise to figure on at least an additional 10% more than the original amount.

Then there are the carrying expenses. In part these expenses will be coming back to you with the sale or refunds if you pay for the whole year, but make a sale within that time, but they still must be considered. So take a close look at monthly mortgage, insurance, and tax payments.

Finally, there are the selling expenses. You’ll have to advertise the property and then decide whether a realtor is worth the expense. If you’re going to skip the realtor and sell the place yourself, then you’ll need to have a lot of available time for open houses and walk throughs. Also, keep in mind that you’ll be paying document fees, escrow, and title insurance fees.

Managing a flip effectively is difficult and requires more than just business sense, it require a lot of forethought and mathematical calculations.

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Category: Investment Property

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