The Hidden Fees of Flipping a House
Flipping houses is a great way to make money off an investment. But while the concept of purchasing a home, renovating, and selling for a profit sounds like a simple process, there are a lot of hidden fees associated with flipping property. From home inspections to property taxes, here are some hidden fees you should account for when figuring out your profit line.
For most investors, flipping a home means financing through a personal loan. Unless you have the cash in hand or find a good financial backer, this means you will have to deal with typical fees associated with a mortgage loan. This includes underwriting and recording costs, document fees, and attorney charges. If you are short on cash, you can avoid paying these costs upfront by rolling them into the loan.
Appraisals are usually required by the bank before they loan you the money. The cost of an appraisal is determined by a variety of factors, including the number of rooms in the home, square footage, special features, and location. Make sure you account for the appraisal costs when figuring out your initial expenses.
Some lenders will require a home inspection. Even if yours doesn’t, it’s a good idea to have the home professionally inspected before making an offer. The inspector might catch some issues that you didn’t notice on your initial walk-through. While the inspection is an extra cost, it should give you an idea of the critical areas of the home that need to be repaired.
Depending on how you purchase the home, you might have to pay some back taxes, especially if you buy from an auction. To avoid a major tax bill at the end of the sale, check with your local assessor’s office and find out what taxes were left unpaid by previous owners. You will also have to pay taxes on the days you own the home, so make sure you find out the daily rate in your location.
Insurance is different in every location, but it’s always a good idea to make sure you are covered in the event of any construction accidents. A good insurance policy will cover damage to equipment and materials as well as the home. Keep in mind that policies for vacant homes are generally higher because they fall under construction.
One of the most overlooked hidden costs in flipping a home is the day-to-day maintenance. This includes yard work, heating and cooling, and regular upkeep—like making sure all the lights are kept in working order. You can avoid eating into your bottom line by giving yourself some extra room in the budget for these expenditures.
It’s hard to anticipate the hidden fees related to remodeling. In most cases, however, there will be things that pop up that you didn’t take into account. Fortunately, you can prepare for these hidden fees by giving yourself a little more room in the budget for remodeling. It’s also a good idea to hire a contractor consultant to help estimate renovation costs. As a general rule of thumb add three to five percent extra on top of the estimate.
The length of time you own the property and the current rates will determine how much interest you pay for the loan. This can really add up over time, so make sure you leave room for this expense in your initial budget and keep your project running on time.
The reality of flipping a house is that you will need somewhere to put all the trash. Whether you make trips to the dump or purchase a large dumpster, you’ll have to spend some cash on trash services. If you choose the former, then make sure to account for fuel costs and time lost.
Once you’ve remodeled the home and put it on the market, you’ll have to pay a commission to your real estate agent. The commission costs typically range from five to eight percent. The good thing about commissions is that they are negotiable, so make sure you aren’t paying too high a rate.