House flipping logistics can get complicated. But if all goes well, you are sure to make a nice profit. One of the overlooked basics for house flipping is budgeting. If not done properly, you may end up not having enough money or enough time. Many people are enticed by TV shows that make the whole business look like a simple flip of a finger. Before you go shopping for property, create a budget with a serious checklist. It does not have to only include purchase expenses.
Here is what you need to include in your budget for house flipping:
These costs include financial sources for the project as well as the cost of maintaining the house until it is sold. Unless the venture is financed by private means or cash, a loan is one way of doing it. Consider the expense of repaying the loan on top of the principal itself.
Another carrying cost is property taxes. Depending on your state and their rates, this is a burden you will have to bear until you can sell your house.
Utilities and property insurance are other expenses you’re going to have to pay. Gas,water and electricity bills will all have to be settled. When budgeting, it is prudent to estimate your carrying costs in order to determine your profit margin.
After repair value
Referred to as ARV, this is a good base to determine your Return on Investment(ROI). However, determining this value on your own is not an easy affair. Experts called realtors exist that can help you determine the ARV of your house. Be sure to find one that is trustworthy to avoid misguided decisions.
Determine the amount of money you are willing to risk in your venture. This entails the amount of loss you are willing to accept in the event that you have to sell the house at a lower price than the cost. Also, if you financed your venture by loan, calculate the additional debt payments you can be able to make if you end up not selling the house.
These are costs that are often forgotten by many. Inspection fees, contingencies, and closing costs are good examples. If you chose to ask for the services of a realtor at one point in your investment, realtor’s fees is another additional cost you have to meet.
There is no proven way of having a zero risk investment. Risk can however be mitigated by having a realistic budget. Never invest more than you can afford to lose.