How much does it cost to flip a house?
How much does it cost to flip a house? This is a question investors ask when they are interested in fixing and flipping a property for quick profit. The cost of flipping a house can vary greatly based on several factors, such as its purchase price, cost to remodel and hold the property, and potential selling price. Today we can break down the basics of figuring the cost to flip a particular property so that you can make the most strategic choice.
This blog would not be complete without the expert contribution of Jon Wilson, Vice President of Marketplace Homes’ Property Management Department. Thank you, Jon, for taking the time to verify facts and add your insights!
The Average Cost to Flip a House
After consulting various expert opinions, the average cost to flip a house falls between $20,000 to $70,000, but it can be below or above these figures depending on specific circ*mstances. This number doesn’t figure in the purchase price but the subsequent costs to renovate, market, and hold the property. Upon selling, you should recapture the money spent on buying the property and renovations/holding and gain a profit from the home’s increased market value. For the best chance at profiting, it’s vital to get a discounted house.
For certain types of distressed homes, a home inspection is allowed. Even though it’s not a requirement to buy, do not skip this stage if it’s available. A thorough home inspection will give you a good idea about how much to expect to pay for repairs – and if the expense is too high to make the house a good flip.
Average Timeline to Flip a House
“As soon as you own the house, you’re on the clock as far as bills go. Start ASAP to get the most out of your flip. Have your ducks in a row beforehand to finish renovations even sooner,” says Jon.
The general rule of thumb that Marketplace Homes’ Renovations Team goes by is to average $1,000 a day for your renovation’s timeline. For instance, if you plan to spend $15,000 on fixing the house, then this number should be divided by 1k to result in a 15-day timeline.
Follow The 70% Rule
How high is too high? Use the 70% rule to figure how much you should spend on a particular investment. Since the amount you can spend on renovations is based on the house’s original price and after-repair value (ARV), this rule offers you a hard number to stick to.
“The 70% rule” is a mathematical guideline that advises a flipper to pay no more than 70% of a house’s after-repair value minus the cost of repairs.
So, if the house’s full market value is $250,000 after repairs, multiply that number by .7 to get $175,000. Then, deduct the cost of estimated repairs. If the house needs around $50k of work, subtract $50k from $175,000 to get $125,000 as the ideal offer price. For buyers that plan to use a lender, you also need to figure in financing costs.
If you can’t get the house at the ideal offer price and can’t reduce repair expenses, then you will be less likely to profit off the house as a flip. However, this doesn’t mean the house can’t become a beneficial part of your portfolio. Buy and hold investments offer long-term benefits and can grow in value over time, then you can sell when it’s convenient for you.
Costs to Figure in the 70% Rule
To ensure you don’t make your offer too high, anticipating the costs to hold and renovate is a key step in the flipping process. Here are the typical costs:
Holding Fees:
- Loan Payment (Can range widely, get an estimate first)
- Property Taxes (Varies widely by state. Divide by 12 to get each month’s cost)
- Insurance for House Flipping
- Utilities
A brokerage with a dedicated marketing team will get the job done fast. They will use the best marketing strategies for your asset, which may include all or a some of these methods:
- Virtually staging rooms
- Taking professional photos
- Professional cleaning
- Making attractive online listings
- Social media promotion
- Open houses
Throughout the marketing process, it’s vital to work closely with a real estate agent who has experience in selling flipped properties.
Accept The Best Offer
This is where your real estate agent plays an especially critical role. As offers come in for your property, your agent will put your best interests first. As they negotiate with the other party, they will get you the best deal considering the current market conditions and the property’s unique selling points. Follow their advice about your house’s top dollar in the current market and be flexible and open to negotiations to ensure a successful sale.
The Cost of Flipping a House
Flipping a house can be a profitable venture, but it requires careful planning, budgeting, and execution. By considering all the necessary expenses, being efficient with time, and working with reliable contractors, you can increase your chances of a successful and lucrative house flip. If you need any help finding the best houses to flip, contact Marketplace Homes today.
- Do not forget the “forgotten” ones like Trash, Mail, and Lawn Care!
Renovation Costs:
- Permits
- Materials
- Labor
- Disposal
- Professional Cleaning
- Appliances
Marketing
- Professional Photography
- Home Staging
- Advertising
Tax Time Costs
- Capital Gains Tax: Speak with a CPA about your plans to understand what you need to set aside after profiting from a flip to not be in the negative during tax season.
Make a Budget
After acquiring the property, you’ll need to budget for renovation costs. This includes the cost of materials, labor, and any necessary permits. It’s crucial to have a detailed plan and estimate for the renovations to avoid unexpected expenses. Getting a quote from a contractor you trust will help you greatly in this process.
Other expenses to factor are holding costs. These include property taxes, insurance, and utility expenses while the house is being renovated. It’s essential to calculate these costs to avoid any surprises during the flipping process.
Additionally, you should consider marketing and selling expenses. You’ll need to invest in professional photography, staging, and advertising to attract potential buyers. Real estate agent commissions and loan closing costs should also be accounted for. Sometimes, unexpected expenses can arise during the renovation process. Life happens, which is why it’s wise to have a contingency fund to cover unforeseen costs.
Mind “The Forgottens”
While you hold a house during renovations, it’s important to not miss the tiny details that make the experience more convenient. Inexperienced house flippers may forget at first to schedule lawn care, set up trash pickup, or forward mail during the holding period. However, these small details will make all the difference in the house flipping process.
Time and Scale of Project
In addition to the financial aspects, time and scale of the project also affect your profit. The adage about time being money is painfully true in flipping, as every month you hold a property accrues tax, utilities, and other costs.
Depending on the extent of the project, it could take weeks to months to flip a house. This means you’ll need to be comfortable enough financially to renovate, market, and sell the project and ensure that the profit you gain from the sale more than makes up for what you spent. The shorter the project, the less you pay to hold it while it sells. The longer the project, the more you pay.
Getting The Most Out of Due Diligence
At Marketplace Homes, we usually flip homes that can be inspected during the due diligence period. Being able to conduct an inspection helps greatly in knowing how much it will cost to flip the house. In addition, we schedule a general contractor to come at the same time of the home inspection. While the home inspector looks at the overall condition of the home and its major systems, our trusted general contractor will take pictures of the home and spot other issues beyond the home inspection’s checklist. Things such as pink wallpaper that isn’t marketable in the open market will be documented, cracked floor tiles, outdated countertops, and more can be noted during the due diligence period and be accounted for in terms of renovation expenses.
Contractors that work with Marketplace Homes can instantaneously share photos through an app called CompanyCam. This gives Marketplace Homes’ Renovations team real-time updates on the condition of any home undergoing inspection or renovations. This helps everyone be on the same page and know what the house looks like before they decide to buy it. It also informs us and our clients what stage of completion the house is in during renovations.
If a home you’re interested in is an auction home that doesn’t allow inspections, you must assume the worst about it. Any home with major issues such as mold or structural issues can be too expensive to flip for a profit, so it’s good to identify these issues before you get to the closing table. Having a general contractor present during the home inspection helps a great deal to spot red flags. This is just one of the many ways we advise and protect our clients and ensure that a flip can be profitable.
Use Expert Contractors
To save you time and money, it’s crucial to hire reliable and skilled contractors. The right professionals will make a significant difference in the quality and efficiency of the renovations. Plus, they won’t waste materials or do a bad job that must be redone. It’s advised to obtain multiple quotes and check the contractors’ references before making a final decision.
“At Marketplace Homes, we make sure we work with good, reputable general contractors that are from financially stable companies. They have a history of being in the business and excellent reputations. These local pros can use common sense and see how things look in the house to give honest, reliable quotes for repairs during the inspection period,” says Jon.
During the renovation process, maintain open communication with the contractors and regularly inspect the progress. This will ensure that the work is done according to your timeline and specifications.
Stay on Track
To ensure you’re on your financial plan, keep track of all the expenses and maintain a detailed record. This will not only help you stay organized, but also provide valuable information for potential investor tax breaks. For the best results, find a trustworthy CPA who can advise you on deductible expenses (and expected capital gains taxes) for your house flipping business.
Finalize The Renovations
During the renovation process, Marketplace Homes’ partnered general contractors should be sending photographic updates through CompanyCam. Our renovation team also does plenty of face time with contractors to inspect the progress. When the renovations are complete, there will be a final visual inspection though Company Cam and a video run through of the work. This is an exciting time for the contractors to show off their amazing work!
Market Efficiently and Effectively
Good marketing will make it possible to sell your home more quickly, which is what every house flipper wants and needs. Once the renovations are complete, it’s time to focus on marketing and listing the home for sale.
A brokerage with a dedicated marketing team will get the job done fast. They will use the best marketing strategies for your asset, which may include all or a some of these methods:
- Virtually staging rooms
- Taking professional photos
- Professional cleaning
- Making attractive online listings
- Social media promotion
- Open houses
Throughout the marketing process, it’s vital to work closely with a real estate agent who has experience in selling flipped properties.
Accept The Best Offer
This is where your real estate agent plays an especially critical role. As offers come in for your property, your agent will put your best interests first. As they negotiate with the other party, they will get you the best deal considering the current market conditions and the property’s unique selling points. Follow their advice about your house’s top dollar in the current market and be flexible and open to negotiations to ensure a successful sale.
The Cost of Flipping a House
Flipping a house can be a profitable venture, but it requires careful planning, budgeting, and execution. By considering all the necessary expenses, being efficient with time, and working with reliable contractors, you can increase your chances of a successful and lucrative house flip. If you need any help finding the best houses to flip, contact Marketplace Homes today.
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