4 Tips To Help You Budget For Your First Flip
Wondering how much money you need to flip a house? It’s one of the most frequently asked questions among first-time investors.
But as you might have guessed, the answer will vary for everyone, depending on factors such as the following:
- the size of the property
- the neighborhood in which it’s located
- the type of buyer you’re hoping to sell to
Fortunately, though, there are a few simple steps you can take to estimate an adequate budget— even if you’ve never flipped a home before.
How To Budget Accordingly For A Profitable Flip
1. Consider Both Current And Potential Value
Essentially, you need to figure out how much cash can realistically be invested into any given property in order to yield the highest profit when you sell.
So, once you’ve found a house you’d like to flip, look up the average sale price of comparable homes in the neighborhood— this will be the best indicator of what your own property would sell for after renovations have been completed.
Then, subtract the current list price (or the amount you intend to offer) from the home’s estimated post-rehab value. The resulting figure will equal the maximum amount of cash you’d be able to invest in the property without losing money.
Of course, your ultimate goal is to earn a profit, so keep in mind that this step merely provides a jumping-off point for calculating your budget.
2. Anticipate Every Expense
Remember, not every property makes for a profitable flip, so always be on the lookout for money pits!
Here are some of the most common examples of expenses you can expect to come up during a house flip:
- Home inspection and subsequent safety repairs, including the following:
- Plumbing repairs
- Electrical repairs
- Roofing repairs
- HVAC inspection and subsequent projects
- HVAC system installations and/or repairs
- Cosmetic upgrades
- Landscaping costs (including yard drainage solutions)
- Kitchen and bathroom cabinets
- New flooring
- New paint
- New lighting (for both indoor/ exterior)
- New appliances
- New windows/ doors
Once again, the costs of each of these items will vary from one property to the next.
Whenever you attend an open house or walkthrough, write down the address of the home in question, along with a list of all the projects you plan to complete as part of the flip. From there, you can put together a ballpark figure for each item’s cost, and then add up these amounts to estimate roughly the total renovation cost.
This is a crucial step to complete before you decide whether or not it’s worthwhile for you to bid on a home.
3. Don’t Forget About The Cost Of Selling
As you’re planning your remodel, always remember to budget for the additional costs of selling a home.
In addition to Realtor fees, which often range from anywhere between 5 and 6%, bear in mind that you’ll also need to account for attorney fees and the cost of staging (whether you hire a professional or you stage the home yourself).
4. Factor In Seasonal Market Shifts
Finally, one of the biggest mistakes to avoid as a first-time house flipper is neglecting to account for seasonal changes in the real estate market.
If, for instance, you’re planning to purchase a property in July, then you’ll need to find out what the average sale price was for homes in the neighborhood the previous fall.
Remember, most renovations require at least 6-8 weeks to complete (though that timeline may vary depending, again, on the size of the property and the overall scope of work).
With that in mind, you can generally expect increased buyer demand during the spring and summer months, making the late fall and early winter the perfect time of year to start a new flip.
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