Do You Know ALL the Expenses Associated with a House Flip?

150 Replies

One of our Bloggers, Justin Pierce, wrote a fantastic article that took an in depth look at all of the costs associated with a house flip.

This is a MUST read for any newbie rehabber/flipper:

Rehabbers! Know ALL the Costs to Flip that House

Please leave your thoughts below the article, or here.

I'm like Justin that I enjoy watching those 'flip' shows but I usually end up shaking my head at the end when they post some ridiculous supposed profit for the investor when in fact, they are gonna be lucky to not LOSE money. So many costs they don't take into account .... :roll: :oops:

Great article Justin!

The thing about those so called profits they put at the end of those shows is that they are gross profits they don't bother saying that it's gross or even post holding/closing costs and other expenses.

I think only one show Property Ladder did tell everyone at the end of the show that it's gross profit but the other shows don't bother telling you that making everyone think that flipping houses is so so so easy and profitable not realizing the amount of hard work and money it takes to do a successful flip.

Great information from Justin.

Just like wholesalers who subtract the rent from the PITI and say that is how much 'cash flow' you're going to get... not taking into account vacancy costs, utilities, maintenance, etc etc. That's the same thing with those flipping shows--oversimplify and paint an unrealistic picture.

Important to take into account all costs when evaluating a deal.

Originally posted by Joshua Dorkin:
One of our Bloggers, Justin Pierce, wrote a fantastic article that took an in depth look at all of the costs associated with a house flip.

This is a MUST read for any newbie rehabber/flipper:

Rehabbers! Know ALL the Costs to Flip that House

Please leave your thoughts below the article, or here.


This is why I love Bigger Pockets! :D

You share great information from people who are actually working in real estate on a day to day basis. So many people focus on "The Deal" they forget to factor in things like closing cost and any attorney, inspection or other fees involved in buy or selling a piece of propoerty. The portion of the aritcle about buying additional insurance coverage I found especially useful. You usually don't think of something like that when considering a rehab property but the article shows why it should be strongly considered.

Thanks for sharing this valuable info Justin, and thanks Joshua for basically putting it right in front of my face:) This is exactly the type of stuff I'm looking for, and frankly, I don't really know how people invest their money without knowing exactly what will be happening with it.
Great article:)

Originally posted by Ted Harris:
I'm like Justin that I enjoy watching those 'flip' shows but I usually end up shaking my head at the end when they post some ridiculous supposed profit for the investor when in fact, they are gonna be lucky to not LOSE money. So many costs they don't take into account .... :roll: :oops:

Great article Justin!


yea i loved screaming at the screen that there is no way they are getting that much work done for those little budgets. I guess that explains why they havent aired a new episode in two years...

HGTV, LMAO!

If anyone estimates the actual costs and pegs it, please post it here, you'll be the first! And then the profit in advance, we will all figure out some kind of an award with a prize! Good luck...

Good overview article Josh.

Hey it is a nice detailed expalaination for newbies and some experienced investors to take note. However, still missing several expenses such as :

1. Property Appraisal -- If I am buying from a Whoelsaler -- I like to have my own appraisal --" as-is" and after repairs value. Which may cost $3000 to $6000.

2. My Profit-- Before I decide to even consider the property --I have to make sure that I make at least $20,000 profit
for houses under $150,000 ARV and $40,000 for houses above $150,000 ARV.

3. Discount -- No one ever sells a house at Full FMV or ARV price --in todays economy. Even before recession --most buyers ask for discount off of listing price. I may discount 10 % to 15 % to sell quickly in todays market.

4. Closing Costs -- If I want to sell quickly after finishing repairs and / or increase my profits by reducing holding costs --I may have to sahre some of the closing costs for new buyer ( end buyer) --upto 3 % --- or some times offer FREE HDTV or even a Car --

5. Realtor's commission --yes -he did mention that when selling --However I may offer 5% commission instead of 3 %
to attract more buyers and more agents
interest --there by creating more competition for offers as well as reducing holding time.

That also assumes that Realtor's commission is paid by Bank ( Lender ) when we buy the house.

6. One more -- Dont forget to add at least 10% contingency --on top of contractor's bid for repairs --

7 Also --if you are buying out of state --make sure the repair estimates are prepared by that city
( state's ) local contractor--certifide and licensed in that state.

8 That reminds me another expense --if repair costs are over certain amount or for certain type structure ( such as a deck or adding new bathroom ) - may require a building permit from city or county--so add permit costs --some times included in contarctor's bid.

In general -- I never take what they show
as profit on listed properties --in BP or other websites. I assume very conservatively --half the profit or less -of the equity shown. Each property has to be evaluated on its own --based on ARV,
holding time, repairs and profit before making offer to buy.

champak shah

Originally posted by CHAMPAK SHAH:
...

1. Property Appraisal -- If I am buying from a Whoelsaler -- I like to have my own appraisal --" as-is" and after repairs value. Which may cost $3000 to $6000.

...


Are you sure about the price for that appraisal?
. Property Appraisal -- If I am buying from a Whoelsaler -- I like to have my own appraisal --" as-is" and after repairs value. Which may cost $3000 to $6000.

I'll give you a deal and appraise your properties for $2500.

No --that price is variable based on what state and what price range --In Atlanta it may be from $350 to $800 for normal appraisal --but for ARV appraisal from an
experienced person who specializes in that may be $1000 to $1500 --I may have over priced that --Point is just keep in mind to add appraisal cost as another expense .. Thanks

champak shah

I too enjoy watching the flip homes programs as I get a huge laugh out of the stupidity of the so-called flippers and their claims of profit at the end.

Originally posted by CHAMPAK SHAH:
I may have over priced that --Point is just keep in mind to add appraisal cost as another expense
Thats not the only mistake in your post.
Before I decide to even consider the property --I have to make sure that I make at least $20,000 profit
for houses under $150,000 ARV
You claimed in another post that you could complete deals at this arv with $100k profits. How did you shrink down to $20k?
No one ever sells a house at Full FMV or ARV price --in todays economy. Even before recession --most buyers ask for discount off of listing price.
Never say "Ever". In the last 2 years, I have only received less than I asked twice out of all my rehab flips. You should not make such a blanket statement that encoumpasses the entire country, as it is not true.

On a side note for Justins blog about costs:
I consider holding costs to not only be interest paid, but also these items, some of which were missing from the blog post -
1. interest
2. Taxes
3. Insurance
4. HOA (if applicable)
5. Utilities
6 Yard maintenance / Pool maintenance (if applicable)
7. Any other necessary ongoing maintenance during ownership.

Very interesting article. Thanks to Joshua for mentioning it and many thanks to Justin for laying the expenses out in such a clear manner. Can anyone give me an estimate on the total title company fees, Justin mentions the title work, abstract and recording fees, but doesn't give a price. I'm new to wholesaling and want to understand the total costs before moving forward.

Great post. I think there are some great points in there. particularly around utilizing realtors and including a reduction from ARV in order to get a quick sale. Those "couple" of points can make a huge difference.

Also, thanks to all of the additional posts from members above!

Things to consider when it comes to calculating total costs for a flip:

1.Closing costs
2.Holding costs(if not buying cash)
3.All types of fees(HOA,Attorney,Assignment,etc)
4.Repair costs
5.Taxes
6.Insurance
7.Utility bills
8.Permits
9.Marketing costs
10.Realtor commissions

For those of us that have done flips, we understand that "Murphy's Law" rules. If it can go wrong, it will & cost plenty in the process. Buying a property with the systems OFF, is like buying a closed container - you do not fully know what you are getting.

I have, on more than one occasion, said that the rehabbing business has a sound to it, like a vacuum "sucking money" out of your pockets. But, sometimes there is still enough left to make it fun.

Originally posted by Rob Beeman:
I have, on more than one occasion, said that the rehabbing business has a sound to it, like a vacuum "sucking money" out of your pockets. But, sometimes there is still enough left to make it fun.
There had better be or you might as well find another line of business. Without consistant profits, there is no reason to stick it out, of course there can be the occassional loser, but the larger percentage must make money.

those shows are hilarious.... "will pour a new basement floor and completely finish a basement for 10k".

yeah, on what planet? if it comes pre-assembled from China, maybe.

i dvr many of these shows simply for entertainment purposes.

lol

great article.

Originally posted by Joshua Dorkin:
One of our Bloggers, Justin Pierce, wrote a fantastic article that took an in depth look at all of the costs associated with a house flip.

This is a MUST read for any newbie rehabber/flipper:

Rehabbers! Know ALL the Costs to Flip that House

Please leave your thoughts below the article, or here.

I like the reality of the article. It seems like one of the only businesses where people puff up the profits is real estate. I own a couple other types of businesses and everyone of my competitors keeps there cards close to their chest. I never hear about how well they are doing unless they do a press release to increase their page rank on google. Then it is just boilerplate anyway.

Excellent article. I have co-owned property and had an LLC and realize the value of the LLC for protection. Your article opened my eyes as to additional costs over and above what a newbie would consider and I thank you. I am now looking at buying and rehabbing REO's and find your site tremendously informative and helpful.

Thanks again for this site.