When beginning house flipping, one of the biggest questions people have is how much does it cost to flip a house?
As there are so many factors that go into flipping houses, the answer to this varies widely. Depending on rehabilitation cost, the cost can vary from hundreds of dollars to hundreds of thousands of dollars!
However, if you are flipping houses and determine that you may spend several hundred thousand dollars, you will want to be extremely clear on what the selling price should be. So in order to best answer the question of how much it costs to flip a house, its best to begin with the end in mind and examine the back end instead of the front end.
And we do this through the use of ARV.
How Much Does It Cost to Flip a House: ARV
In order to figure out how much it will cost to flip a house, you need to know what you can fetch for the property itself when its ready for resale. When you know this, the other costs associated with the house flip will start to come into focus better.
A local realtor can help you determine this very quickly, which is one of the reasons why it’s so important to learn how to flip a house successfully using a solid team. You can certainly find comps by doing research yourself – as there are many sites that can help you with this - but use those only guides to draw comparisons to the information you receive from your Realtor.
A few things to keep in mind when determining ARV:
- Only look at houses sold and not ones just for sale
- If possible, look to houses that have sold within the last 6 months
- If you run comps that have no recent sales of similar properties, this may be a warning sign as the area may not be in demand or things are just not selling because of over inflated prices
- If you cannot find another property nearly alike to yours, find a similar property sales price, and then divide the sales price by the square footage. Then multiply that number by the number of square feet in proposed property you want to flip
- Adjust the price upward or downward based upon bathroom and bedroom numbers
- Look for other properties that have similar lot sizes in your comps, factor in water views as well
- Look for updated features like newer kitchens, heating systems, roofs or new baths, then adjust upward or downward accordingly
Financing Costs When House Flipping
To give you an idea of your possible finance carrying costs, look at the average days on the market from the comps to determine how long you may need to carry your house flip.
For example, if you are doing a house flip with no money and are carrying a loan amount of $1,000/month from your lender and the average selling time is 120 days, and then your average financing cost will be roughly $4,000
After you do this a while you will start to get a level of familiarity and will be able to determine quickly and easily – and oftentimes within a few hundred dollars - how much does it cost to flip a house.
Repair and Rehabilitation Costs
That’s all well and good, but what does it cost to flip a house if it needs rehab as well?
Rehabilitation and repair is no doubt the biggest potential cost when determining how much it costs to flip a house. Most house flippers will want to do at least some rehab in order to make the house more attractive to potential home buyers. And when you are just learning how to get started flipping houses, oftentimes its best to get some professional help in this area by hiring a contractor.
Oftentimes, its extremely difficult to find a contractor who can work within tight budgets because general contractors charge a fee on top of the price he charges the individual subcontractors. This may make it a challenge to control costs enough to turn a profit.
Nonetheless, when you are first starting to flip houses, having a contractor on your team will help you to get a rough idea as to what the rehab costs should be. This will help you get a baseline amount for future projects as well.
One rule of thumb is to determine the price per square foot for the comps in the area and use that price per square foot as a rough metric to determine the cost of rehab of any one particular space. Let's say the average price per square foot in your area in $250 per square foot and you need to rehab two bathrooms that total 38 square feet. Using that rough metric, you could factor a rehab cost of just under $10,000.
Other House Flipping Costs to Consider
When the property actually provides on the market, you'll probably have a realtor's commission payment to pay. However, this usually comes out of the income from the purchase of the real-estate property or house. This is usually about 6% of the rate.
Although you can figure these out in the ARV portion using average item on market for financing costs, you also need to determine other kinds of carrying costs including:
- Property Taxation
- Electric, Gas, Water
Although when determining how much it costs to flip a house, the longer you carry that property or house in your name, the more of these house flipping expenditures you'll have.
When figuring out how much does it cost to flip a house, there are many factors to consider, but in the end, the more houses you flip, the better you will understand exactly how much it costs to flip houses.
Also, don’t forget to lean on your house flip master mind group as well to get ideas and check your numbers. The more you know going into any house flipping project, the better you are likely to turn a solid profit.