What Are the Costs of House Flipping?

To avoid any financial pitfalls and lost profits, it’s important to know and understand the costs of flipping houses. Here’s a list of costs that every real estate investor should know when calculating the budget of a fix and flip project.

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1. Purchase Price

When looking for a fix and flip property, determining and negotiating the purchase price is important when deciding whether to purchase a property or not. A smart trick to determining the maximum price an investor should offer is the?70% Rule . The 70% rule uses the ARV of the property multiplied by 70% to get an estimated maximum purchase price. From the financing side, a hard money lender would provide up to 90% financing for the purchase price.

2. Loan to Cost

Loan to cost is how much a lender will lend on the total cost of a property(purchase price + renovations). Hard money loans provide loan to cost as high as 90% depending on the quality of the investor and the deal. This means an investor will need to provide 10% of total costs as a down payment at the closing table.

3. Loan to Value

Loan to value is how much a lender will lend on the current value of the property. For fix and flip projects, a hard money lender will typically set the maximum loan to value at 70%.

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4. Down Payment

How much money does an investor need to have saved to complete the purchase of a property? Knowing how much cash is needed to close is key in financing a fix and flip. Closing costs should also be factored into the costs due at the closing table.

5. Renovation Costs

The profit on fix and flip loans comes from the renovation of the property. A hard money lender will typically finance renovations as a part of the total loan amount.? Some lenders will finance 100% of the Rehab.

6.?ARV

ARV or After Repair Value is the calculation used to estimate the market value of a property after the renovations have been completed. ARV is calculated by adding the purchase price and the renovation value. It’s important to have a good understanding of ARV and to be sure that the property makes sense and the returns are high enough to justify investing.

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