10 Factors That Affect Your House Flipping Cost

April 15, 2010 | Posted by admin | No Comment(s)

One of the key factors to the profitability of any business venture is to minimize operation costs. These costs can be anything and everything from repairs to insurance, and may even include issues beyond your direct control.

Here are a number of issues that can affect your cost of doing business as a property flipper.

1: Repairs and Renovations

This may seem obvious, and this topic is covered extensively elsewhere on this blog – but it bears repeating that it is important to think about this before taking the plunge. Consider the costs of necessary repairs and renovations, then weigh these against the price you can realistically get for the property when its time to sell.

2: Paperwork

This includes a number of things that can include (but is not limited to):

• title search
• title company fee
• recording fees
• courier fees
• tax assessments

These costs can add up in a hurry, and vary a great deal from one community to the next – so do your due diligence beforehand and find out what these costs may be.

3: Insurance

If you are serious about house flipping, you'll want to set up a corporation rather than attempt to do this as a sole proprietor. The reason is that as an individual, you are exposed to a great deal of personal risk. As we Americans have learned over the past nine years or so, corporations have the same rights as human beings – but are virtually immune from liability. Take advantage here and protect your personal assets.

4: Realtors' Fees

Some people think they may save money by attempting to sell the property themselves, but this may very well be false economy. Keep in mind that in order to sell your property, you'll incur several hundred dollars in marketing expenses, not to mention a great deal of time dealing with paperwork and complying with local and state ordinances. A good realtor will deal with these issues for you, and often for less than you could on your own.

5: Timing

Nothing makes a new home more attractive than a lush, healthy lawn – and this can have some ecological benefits as well. If you have brown dry patches, this doesn't mean its dead – but it has gone dormant for the season. If you can't bring it back, rolls of sod are an excellent investment that can pay for itself when you're going for the quick flip

6: Location

If there is an abundance of empty homes, run-down properties, poorly-maintained streets or a meth lab in the neighborhood, it doesn't matter how nicely you renovate the property. Remember that location is everything

7: Mortgage Types

There are several different types of mortgages available depending on the use to be made of the property. For a property flip, you'll want something reasonably short-term unless extensive renovations are required (or there are local ordinances to deal with – read on).

8: Local Ordinances

Since certain liberal whiners complained that the free-market practice of "house-flipping" was artificially driving up real estate prices, some communities passed ordinances requiring a home buyer to remain in the home as a primary residence for a minimum period of time before selling – usually about a year. Check this out thoroughly before committing to a property purchase – or you'll wind up risking a substantial loss.

9: Negotiations

How hard a bargainer are you? Even banks offering a foreclosed property are willing to deal. Likewise, if a potential buyer wants a property badly enough, s/he will be willing to raise their offer. It's a balancing game, though – don't be so inflexible that you talk yourself out of a deal altogether.

10: Demographics

This is related to location. Are the neighbors working-class, professionals, or...? It may seem a bit elitist and even racist – but the harsh reality is that the type of people who are living in the neighborhood is going to affect the value of the property, and ultimately your profits on the transaction.

While we do not currently offer access to legal advice or services through NFAFN.com, this may change in the future – and in the meantime, you can contact any of the professional real estate agents who are part of our community and can point you in the right direction.