How Much Does It Cost To Flip A House? (2024)

Additional Costs To Consider When Flipping A House

Flipping a house may bring unexpected costs that hurt your bottom line when you’re unaware of them. Here are the extra costs you might overlook:

Loan Costs

Being a house flipper means experiencing both sides of the home transaction. First, you’re the buyer, meaning you may take out a mortgage to purchase the investment property. Mortgages incur a host of fees, such as loan origination fees, inspections, appraisals, insurance and discount points. These can raise your costs by thousands of dollars, so it’s beneficial to shop around for a lender that will give you a favorable deal.

Permits

Municipalities usually give permits for significant home repairs or renovations. For example, you might need a permit for redoing a bathroom or putting an addition on the home. Each permit can cost several hundred dollars.

How To Determine How Much Money You Need To Flip A House

Remember, real estate is a good investment if the sale is profitable. To make a healthy profit when flipping, real estate investors calculate how much money they’ll need, complete necessary repairs and hit their target sale price.

On the other hand, you can also implement the BRRRR method when flipping, which stands for buy, rehab, rent, refinance and repeat. This option means retaining your properties and renting them out to tenants instead of selling. In either scenario, here are a few tips to estimate your costs and profits when flipping.

Use The 70% Rule In House Flipping

While 10% is a reliable ballpark figure for flipping expenses, you can also use the 70% rule to decide if a home is worth buying. This rule limits your expenses to 70% of the after-repair value (ARV) minus the estimated repair costs, ensuring you make worthwhile money with the flip.

Now to return to the example with this rule in mind. Your goal is to have a $300,000 ARV. Your purchase price plus repair costs shouldn’t rise above $210,000, which is 70% of $300,000. Therefore, if you buy the home for $150,000, you can put up to $60,000 of repairs into it and still turn a sizable profit when selling it for $300,000.

Determine Your Return On Investment (ROI)

Determining your return on investment (ROI) will ensure you profit from your investments. Specifically, ROI weighs costs against profit in the following way:

ROI = (Investment Gain - Cost of Investment) / (Cost of Investment)

The resulting number is a decimal you can also express as a percentage. For instance, say you sell a home for $300,000 with a total flipping cost of $200,000. The formula would contain the numbers in the following way:

(300,000 - 200,000) / (200,000)

(100,000) / (200,000) = 0.5

So, your ROI would be 0.5, or 50%. In other words, you received the money you spent on flipping plus a 50% profit.

Remember, while flipping means spending money to make money, you don’t have to repair every last single part of the home. Specifically, the best home improvements for increasing home value on the interior are hardwood flooring refinishing, new wood flooring, insulation improvements, finishing the basem*nt and closet renovations. On the other hand, replacing an aged but working refrigerator can increase costs while not helping your resale value.

Ways To Save Money When Flipping A House

Fortunately, your ROI isn’t set in stone. These strategies can help you conserve cash when flipping houses:

• Negotiating the purchase price: Negotiating the purchase price can reduce the primary cost of flipping homes. For instance, you can ask the seller to cover your closing costs or leave their furniture if it’s in good condition. In addition, you can work with a real estate agent to negotiate on your behalf.

• Seeking quotes from multiple contractors: You can shop around for contractors when you need professional work. Getting quotes from several contractors can help you get the best deal, saving money when flipping a house.

• Beginning demolition yourself: Demolishing a home can cost upward of $18,000, depending on the home’s size. So, tackling the simpler parts of demolition can save you $15 or more per square foot. That said, it’s best to get quotes from contractors to understand your savings potential. Demo work can be dangerous and can cause major issues if you do it incorrectly. If you are going to DIY some of the demolition, consult a professional.

Financing A Flipped House

You have several loan options to start house flipping besides a traditional home loan through a mortgage lender. The following products can provide a solid foundation for your flipping ventures:

• Home improvement loan: A renovation loan, or home improvement loan, is for a home purchase with planned repairs. Specifically, this loan requires an appraisal using the estimated ARV. In addition, this loan type has identical interest rates to conventional mortgages.

• Home equity loan: A home equity loan can finance a house flip if you have sufficient equity. For example, your home repair estimate might be $20,000. If you can access at least that amount in the home’s equity, you can use it for a repair loan. However, these loans have higher interest rates than traditional mortgages.

• Home equity line of credit (HELOC): Similarly, a home equity line of credit (HELOC) turns your equity into a revolving line of credit. You can withdraw money over several years before you start paying it back, which is helpful if you want to take your time with the repairs. The drawback is higher interest rates which can fluctuate with the housing market.

• Personal Loan: You can get a personal loan from a lender for almost any purpose. In addition, you can secure funding in as little as 24 to 48 hours. The cost is a higher interest rate than a mortgage. However, you can reduce your interest rate by providing collateral and securing the loan. Remember, doing so is a double-edged sword because securing the loan means risking losing your collateral if you default.

• Crowdfunding: If the traditional lending route isn’t for you, a team of investors can finance your investment. For example, getting three investors to lend $5,000 apiece will provide $15,000 for repairs without owing interest. The pitfall of this tactic is splitting up the profits among your investors instead of keeping 100% of it for yourself.