The concept of house flipping is relatively simple: you buy a house at a bargain, refurbish it, then sell it for a profit. It will, however, entail costs. Let’s look at some of the standard expenses you have to consider.
Property Acquisition Cost
You need to have the means to acquire the property. If taking out a bank loan, factor in interest payments, appraisal fees, handling fees, mortgage redemption insurance, and fire insurance to your house flipping expenses. As a buyer, there will also be a documentary stamp tax, transfer tax, registration fees, and notarial fees to take note of.
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As a house flipper, you would definitely want to spruce up the house to a certain extent to make the property more appealing to potential buyers. To come up with a ballpark figure of how much you’ll need to do renovation work, here’s a simple rule of thumb: get the average price per square meter where the property is located. Multiply that figure by the total size of the area that has to be fixed. So if the average price per square meter is Php25,000 and the area to be renovated is 10 square meters, renovation cost will be roughly Php250,000. Note that this is just a starting estimate.
There will be labor costs and materials costs; should you pay for materials through credit card, consider interest payments as well.
These will be the recurring expenses from the time you acquire the property to the time it is sold. This will cover utilities, insurance payments, and association dues, among others.
So the property is now ready to be placed on the market; the next important step is to get the word out. When selling a flipped property through a broker, you would have to pay the broker a commission, which ranges from 3 to 6 percent. The rate of the commission will depend on the size of the property and will be deducted from the home’s sale price.
How does one check if you’re not going overboard with house flipping costs and are still on track to making a profit?
Before shelling out anything, it’s important to determine the After Repair Value (ARV), or the estimate of how much the property will be worth after all the planned renovations have been completed. You can gauge the ARV of a property by doing a quick check of similar properties that have been sold (and not just up for sale) in the same area as the house in question within the last three months. If you don’t see any properties sold, let that be a red flag and do some further research; there might be issues with the location and property demand might be low.
Let the ARV be your starting point as you compute for all house flipping costs; work backward from there. In this way, you more or less have an idea if you’re getting your money’s worth.
Tips to keep your costs in check
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Monitor your expenses. Be conscientious in tracking every peso to check if there are areas where you are spending more or less than expected, then adjust accordingly.
Mind your timelines. The timeline starts when you acquire the property and ends when it is sold. The shorter the timeline, the lower the carrying costs, the bigger the profit at the end of the day.
Seek professional advice. Get a reputable contractor to work with you on your house flipping projects, especially if you’re just getting your feet wet, so to speak. This will help you avoid costly mistakes in the long run.
House flipping, just like any other business venture, will require you to invest time, money, and effort. It also has its risks. But with adequate research and planning, the rewards will be worth it.