How to reduce closing and selling costs?
Hi All,
In progress of my very first flip. I'm starting relatively small for my area to get my education. I purchased the unit for $430k and it appraised for $458k. My agent expects the unit to sell for $530k, but I am assuming $520k into my calculations just in case.
My remodeling costs are coming in much higher than expected - I am trying to keep it to $23k to earn a ~$23k profit. But unfortunately I am learning $23k for the remodel is unrealistic. If I went thru a GC it would be closer to $40k. If I manage a lot of the project on my own I think I can keep the remodel at $30k (assuming $8k closing costs, $5k holding costs, $31k selling/agent fees).
So when you guys do a flip, what are some ways you control your closing costs and selling/agent fees? In retrospect I should have done a HELOC vs. a mortgage. But anything else I could have done/can still do to maximize profit? Points to reduce closing costs?
Jeremy
Most Popular Reply
$23k expected profit on a $520/$530k sale is just too low of a percentage. At that price point, you should be shooting for $50k profit, so that with over runs you are still ok. $25k expected profit, should be more in line with stuff priced in the $250k and under price points.
Also $23k expected rehab is a very small budget for a rehab. Thats like a paint and carpet and systems type rehab without anything else.
- Russell Brazil
- [email protected]
- (301) 893-4635
- Podcast Guest on Show #192
$23k expected profit on a $520/$530k sale is just too low of a percentage. At that price point, you should be shooting for $50k profit, so that with over runs you are still ok. $25k expected profit, should be more in line with stuff priced in the $250k and under price points.
Also $23k expected rehab is a very small budget for a rehab. Thats like a paint and carpet and systems type rehab without anything else.
- Russell Brazil
- [email protected]
- (301) 893-4635
- Podcast Guest on Show #192
Completely agree Russel. That is why I am here to figure out how to do better next time, or if there are things I can do to improve now. I still have yet to close on the property.
In all likelihood the profit will be larger, I just am trying to be conservative and keep my expectations low. This is my education.
the closing costs on a mortgage will always cut into the profits. That’s why a lot of flippers try to use cash (either theirs or a partner’s) so you don’t get all those extra fees.
Don’t have any good suggestions, but if you end up with any profit on your first flip, you’re well ahead of a lot of people who try flipping!!
@Mike McCarthy
Thanks! Yes for my next one I definitely will go HELOC.
Hi Jeremy,
If you work with a Keller Williams agent in the future, Keller Mortgage is offered with zero lender & origination fees which could help you keep more of your profit, they even do cash out refi's! Just something to consider. Congrats on jumping into your first flip, I hope it sells high!
@Megan Mangold
I would love to hear more about this. My agent actually is with Keller williams and she didn’t mention it. Maybe she doesn’t know?
Its kind of new! Ask your agent about it, heres the link!
You’ve said both that you realize a Heloc would have been better. You’ve also said you haven’t closed on the property yet. Any reason you can’t back out of the mortgage and go with a Heloc?
@Russell Brazil probably hit the nail on the head that this was generally a thin deal to start given the higher cost of this property.
If you do manage some of the renovation yourself, you can probably shave a bunch of money. Doing floors and tile yourself would save thousands assuming you are doing a floating laminate or engineered hardwood floor. If you go that route, make sure to adjust your holding costs as it will likely take you longer to do those tasks than a contractor.
@Wes Ripley
I was pre approved for the mortgage and was able to offer 21 day close. That's how I got a good deal on the unit. I wasn't prepared for a HELOC and we were not confident we would get it done in time. Once this deal closes I'm going to open the HELOC so I don't find myself in this situation again.
I’m going to do some of the stuff myself - paint, demo, some trim to save on costs. Although in the future I’m going to be better about not buying such thin deals where I’m obligated to do work myself to turn a profit.
@Jeremy Segermeister
Get your RE license or list with a flat fee broker.
@Jeremy Segermeister if you’re doing a quick fix and flip, see what your lender has your costs at if you take a loan with a 1 point rebate. In this scenario, you’re taking a higher rate in exchange for little to no closing costs. Depending on your loan balance it may only impact your mortgage payment by very little. Sometimes it works out if the higher rate is only a 0.125 or 0.25% difference. It may be worth it if you can save a couple thousand dollars on the cost of the loan.
@Jeremy Segermeister Consider not buying title insurance to save on closing costs when you buy
