Fixer Upper Budget Costs You Shouldn’t Ignore
When you are doing a fixer upper, it can be hard to keep track of all the costs you need to account for. If you let anything slip through the cracks, you may not be able to make your way to the finish line. You might not make the profit you worked so hard for.
It doesn’t have to go that way. That’s right, you can take simple steps to prevent this disastrous outcome. If you factor in your selling costs, house specifications, and other aspects of the fix-and-flip process, you can better secure your prospects. Let the hard money lenders in Maryland teach you what you can expect while flipping houses.
Table of Contents
- Acquisition Costs
- Repair Process
- Holding Period
- Selling Costs
- Additional Factors Impacting Fixer Upper Fees
Acquisition Costs
Fix-and-flip selling costs include the obvious sticker price of your home, of course, but it doesn’t end there. Let’s walk through the different fees that you should be ready to handle.
Purchase Price
Home acquisition can be the largest expenditure in a fixer upper project. So, you should seek bargain-priced or undervalued properties. It’s a good idea to use an ARV-based 70% rule formula to determine how much you should pay for a home. Furthermore, the loan terms, your credit score, and other elements can affect your acquisition cost.
Inspection
You should set up a home inspection for your property as the jumping point of your rehab. This way, you can get a feel for the property’s overall condition. Then, that data can support a rehab cost estimate.
Agent Fees
Real estate agent fees may end up being a part of your overall budget. Sometimes, you will pay these fees in the purchase price, and other times, you will pay at closing.
Closing Costs
When you buy investment properties, you must pay closing costs. These expenses could include lender fees, appraisals, title, search, and attorney fees.
House Specifications
The features of your house can significantly alter which types of fees you will have to factor in, as well as how big those fees will be in the end. Needless to say, there are some basic aspects of your property you need to keep in mind as you develop your budget.
Home Size
Your property’s size plays a large role in how much it will cost to fix-and-flip. Usually, the bigger a property is, the more rooms it offers. Then, the more rooms bring with them walls, windows, and doors that may need to be rehabbed. However, some areas of the property may require a simple cleaning, not an all-out makeover. So, you should examine how vast an area you need to redo and find the sum of those costs.
Home Style
You may want to base your fixer upper budget on your home’s style. After all, potential buyers like it when homes have one cohesive aesthetic. For instance, some homes may support a farmhouse fashion, while historical homes may flourish with an old-fashioned flair. So, you should weave your property’s best style into every area of your house to the expanse of your budget.
Home Age and Condition
You should always consider your property’s age when calculating your costs. Newer houses in better shape may require less pricey upgrades, while older ones or shoddily constructed ones may accumulate more labor fees.
Room Types
There are two types of rooms to differentiate when flipping houses. First, there are wet rooms, connected to sources of water, like kitchens and bathrooms. Then there are dry rooms without water sources, like bedrooms. Usually, wet rooms will cost more to redo than dry rooms.
Furthermore, various homes require different kinds of construction, and each type can affect your bottom line.
Location and Market Trends
Location and market trends will impact your profit possibilities. A home’s location can greatly influence how much it will cost to flip it. For example, if you choose properties in a densely populated area, that can hike fix-and-flip prices up to 40% more than those in more rural areas. So, it’s critical to locate towns and neighborhoods that have strong demand and appreciation potential.
Furthermore, you should investigate broader market trends. For instance, if the real estate market experiences a downward trend, you may benefit from making your property a rental one.
Repair Process
When you finally undergo the repair process, a whole other slew of costs will come with it. As such, you should be careful to think about the below costs and considerations as you prepare for your fixer upper.
Interior vs. Exterior Upgrades
Sometimes, your fix-and-flip project will require alterations solely to your interior, while other projects will hinge on the property’s exterior. Many times, projects focus on a mixture of each. Each type of space will cost you differing renovation fees. Within the category of interior renovations, too, costs can vary. For example, bathroom costs can look different than kitchen ones.
Home Additions
Home additions, like HVAC systems and appliances, can cost thousands of dollars. But there are ways to cut down on the costs. The size of your addition, the cost-effectiveness of your materials, and the space’s purpose all alter the price. For instance, focusing on fixing the bedroom rather than the kitchen may save you money. This is because kitchens are usually bigger, with more bells and whistles, plumbing, and outlets than an average bedroom might have.
Permits
Homeowners will need government approval permits to allow their fix-and-flip projects to happen. Most times, these include code and safety standard permits for renovations.
Surprise Expenses and Emergency Budgeting
An emergency plan for surprise extra costs is a great investment plan. It’s a good rule of thumb to cut 10% to 15% of your budget for emergencies when flipping houses.
DIY vs. Hiring Professionals
There are pros and cons to having contractors handle repairs, versus doing it yourself. Each choice will hold deep implications for your final fix-and-flip costs.
On the bright side, sometimes, a do-it-yourself renovation can be a cost-saver. On the other hand, you may not have the same skills as a professional.
Experienced contractors have the skills and knowledge to ensure your remodeling is sufficient for potential buyers. This can cover you legally, as well. These contractor costs have costs, but they may be smaller than the fallout you could get from a DIY job.
So, you need to break down the costs in each scenario to find the best path for you.
Contractors
If you decide to work with contractors, you’ll find that each profession and individual contractor has their own charge rate. So, you should take in the fees for electricians, plumbers, painters, and other workers.
Holding Period
Holding costs, or “carrying costs,” refers to expenses you weather until the property sells. These can include property taxes, insurance, and other critical fees.
Homeowners’ Association (HOA) Fees
If your property is under the jurisdiction of an HOA, you may have to pay fees set by the association, like lawn upkeep.
Mortgage Payments and Interest
You must pay financing costs upfront, out of pocket, unless you use loans to finance your fixer upper. In addition, these mortgage payments will have interest payments tacked onto them.
Property Taxes and Insurance
You are on the hook for property taxes until the property is sold. Also, you might need to buy homeowners insurance, liability insurance, and builder’s risk insurance.
Utilities and Maintenance Costs
You must pay for gas, water, and electricity during renovations. Maintenance expenses could include snow removal, lawn mowing, HOA fees, and security.
Selling Costs
When you’ve finally finished your fix-and-flip, and it’s time to sell your home, there will be a lineup of costs that you need to remember. So, put the below expenses on your list.
Closing Costs
During your time flipping houses, you may accumulate additional expenses like legal fees, escrow fees, appraisals, loan payoff fees, and transfer taxes.
Marketing and Staging
If you go the route of selling your property by yourself, you will need to spend money and time on property marketing. So, you should evaluate these costs. Different ideas have different costs, from flyers to internet ads.
Agent Fees
Real estate agents may require you to pay fees again at this stage. This is something to keep in mind.
Additional Factors Impacting Fixer Upper Fees
Hidden costs and sudden events can hit you at any time. So, you should be prepared for these factors before they come barricading into your life.
Loan Costs
Fixer-upper projects usually benefit from short-term, asset-based hard money loans. After all, it’s usually easier to qualify for asset-based hard money loans because lenders can use the collateral as a backup if needed.
While asset-based hard money loans have higher interest rates than conventional bank loans, you can pay off this interest faster than you would be forced to with other loans. Furthermore, traditional banks often don’t fund fix-and-flips to begin with.
Fund Your Flip With MHML
When you are flipping houses, you should keep several costs in mind. If you remember the costs you need to pay in your investment, you can be a more responsible and profitable fixer upper.
If the above costs sound overwhelming to you, you can get help. Some lenders can offer you funds extra quickly and efficiently. Even better, repair costs can be built in. These loans are called hard money loans, and we can offer them to you. Fixer upper finances don’t have to feel as stressful and scary as they can when you juggle it all alone. We have the resources and expertise necessary to be your team member throughout the whole process. Contact us today to find a business partner for flipping houses.
