Before jumping into a fix and flip, every investor knows that they need a well-thought-out strategy to execute their plan with less risk. Whether you’re planning to invest into the market or already have your property on hold, here’s some costs you should consider during a fix and flip.
You might not think about the purchasing costs when buying a home to flip. As with any home that you are considering for an investment, you should purchase an inspection to find out what large repairs need to be done to the property. It’s easy to look around and point out the cosmetic issues that need fixing; an inspection gets below the surface and tells you what structurally needs to be repaired. In many instances, investors conduct an appraisal as well to determine the return on investment, which is another added expense while purchasing a property.
When purchasing any property, there are various closing costs you must pay before finally getting the key to the home. Some closing costs to consider during a fix and flip include broker fees, legal fees, title fees, insurance, and loan origination fees. An experienced investor is sure to leave enough room in their budget to cover all closing costs when planning to buy a home to flip.
While you’re repairing your fix and flip, costs will arise that are associated with owning the property like property taxes, maintenance expenses, utility expenses, and HOA fees if your home is located within a neighborhood that has HOA. You can avoid holding costs during this period by finding a contractor you trust and setting a strict timeline regarding the repair process of your flip.
Renovation costs are expected when purchasing a fix and flip, but that doesn’t mean more unexpected costs can’t arise during renovation. Every real estate investor knows that renovation costs are never set in stone, and a property might have unexpected costs rise along the way that are crucial to fix. On top of unexpected repairs, material costs have been increasing in the past couple of years, making it more expensive to rehab a property. Be sure to put away extra capital to avoid unexpected repairs that could potentially derail your project’s profitability.
When it’s time to sell your property, it can be a very exciting time for an investor; but you might not consider the selling costs associated with your property. These selling costs can creep up and affect your overall profits. Based on the price of the home, selling costs could take a generous amount out of your ROI. Some selling costs to consider include your agent’s commission, the buyer’s agent’s commission, a transfer of taxes, and other miscellaneous fees.
There are miscellaneous fees you should be aware of during a fix and flip such as marketing fees, fees from acquiring building permits, and other advertising costs associated with the property. An investor that sets aside a modest cash reserve will avoid going into the red on their investment. Flipping houses is far from easy and requires patience and careful planning. If you take the time to crunch the numbers and create a strategy, you might just be surprised how smoothly a fix and flip can go.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.