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.
Justin, great article. I recently completed a residential house flip. Property was 1350 SqFt, 3 bed 1.5 bath. My two pieces of advice for any trying to estimate renovation costs; is (i) whatever you think your cost is going to be, add 25%. The second (harder to do strategy) is network with other successful higher end flippers and developers. By doing so, you can ask them if they are renovating a new kitchen, to utilize some old but nice cabinetry or appliances.
For example, I have a relationship with a luxury interior designer. On high end projects the developers are constantly throwing out great hardware, appliances and cabinetry. While on a luxury project you need your kitchen and bathrooms to be A+, if you are renovating a working class house, you can still create a fantastic product with second hand finishes.
Hello team! hope all of you are staying safe. Broad question that I am sure it has to do with local market and specific location within it. But in terms of building vs renovating a distressed property, what are some key points to consider when figuring out the ARV and how much you pros add to it if it is a new construction? Example 1500 SF fully rehabbed single fam house in Delaware with an ARV 220K conservative. If i built a brand new one next to it how much extra would be a conservative number to add on ARV?
When I click on the link about Rehabbers! it brings me to an article on LLC's?? I would love to read the article about all the costs associated with a flip! Can anyone help? Thank you.
Thanks for the good reading. Do you mostly use the bigger pockets rehab estimator tool to calculate the potential cost of a rehab, or do you have a different method?
My experience is that there is always one more thing to pay for.....maybe that says more about ME than flipping houses....
No, it says you have done this more than just once or twice! One of the line items I see get missed time and again is the final cleaning so it is stage/show ready and the clean up & haul away of debris and trash throughout the course of the project. I myself often underestimated these costs which would take a bite out of my bottom line.