Costs can be difficult to predetermine on a fix and flip, there is always the potential for unexpected costs and expenses which can quickly add up. Fix and flip seekers should include the cost of acquisition, cost of any repairs, carrying costs, and any possible unforeseen expenses, when doing a potential fix and flip analysis.
Costs will obviously differ based on the location of the property, and the types of renovation or upgrades. The general rule of thumb is that the cost to flip the property should equate to about 10% of the full property purchase price. There are some other general guidelines which can give fix and flip investors a better idea of the true cost of their potential investment.
This one is rather straightforward. The cost of acquisition is the original purchase price of a property. The purchase price will include the physical property structure, the land it is located on. As a general guideline, many fix and flip investors follow the 70% rule: this rule states that investors should not pay more than 70% of the property’s after-repair value, subtracting the amount of repairs needed.
In addition to the purchase price of the property, an investor will also have closing costs. Closing costs can include things like property taxes, insurance fees, and title company fees. If the property is being financed, there may be additional costs at closing. Many fix and flip investors will connect with a private money lender who can provide an estimate of finance-related closing costs on a property. A general guideline here is that closing costs could amount to 5% of the property purchase price.
This one is not as easy as the acquisition cost or closing fees. The costs of property renovation or rehabilitation will vary depending on the amount of work needed and the overall condition of the property. To get a better idea about the overall renovation costs, speak to local service providers and compare quotes carefully. The condition of the property will play a major role in the total amount needed to flip the house. A good guideline here, especially for new fix and flippers, is to select a property needing more cosmetic rather than structural repairs to keep costs low and manageable.
Carrying costs accrue from when the property is purchased until the property is resold. These costs are typically recurring and may include financing costs if a loan was used to purchase the property. Another carrying cost is property tax, which can impact the total flip cost by adding monthly tax costs- this can also include any delinquent taxes payable at acquisition.
Fix and flip investors should keep in mind that the total cost of the flip will be dependent on a variety of factors including the location of the property, and how many renovations are needed among other things. Here at CIVIC, we’re always happy to sit down with you and formulate a profitable fix and flip plan. Contact us today to get started!