While accounting for costs during your flip might seem pretty straightforward, there are some hidden costs that many flippers tend to overlook in their project. Sure, it’s not hard to count the prices of raw materials you pay for or labor you hire, but some costs aren’t so easy to spot. These hidden costs can add up to $1000s and eat into your profits if you don’t carefully account for what you are spending.
Calculating these costs in the future will help you have a better clue as to what you spend and what your actual profit was. Don’t let these costs eat into your profits on your flips anymore! Calculate the costs right and know what you are genuinely making on each flip you take on!
The following are 9 of those costs that you might be thinking of when you are flipping your home, but that you should be thinking about calculating when you flip your next house. These costs may seem minor. However, they can catch up with you and cost you a chunk of your profit later on:
- Account for Work You Did Yourself: It may sound silly, but “time is money” as the old cliche goes. You easily count the working hours that go into the flip when you hire someone to do the work because you have to pay them. What about the work you and your crew do yourselves? Your time is equally valuable as the labor hours you hire other people to do. You deserve compensation for them when you sell the home. Calculating your labor hours and the rate you would like to get paid for your time should count as part of the cost of flipping a property, as well.
- Account For Delivery Fees: Many companies will charge a delivery fee to drop off large appliances such as dishwashers, refrigerators, or washers and dryers. The same can get said for deliveries of building supplies such as wood. The same can be said of furniture and other large items (if you are selling a furnished home). Calculating the delivery fees and counting them into the cost of your renovation is vital to ensuring you have an accurate prediction of how much money you have spent on your flip.
- Tools You Need to Fix the Property: If you buy any flowers or trees for landscaping, you will count the costs of those items in your renovation. However, say that you had to buy shovels and spades and rakes to get the trees and flowers planted. Those are also expenses that you need to account for if you had to buy them for a specific job. Bonus? Those same tools may come in handy for future flips for doing similar jobs.
- Costs/Fees for Renting Equipment: If you rent equipment to renovate the home for your flip, you will need to count those costs in your flip. For example, if you rent a carpet cleaner to clean carpets and you have the machine for two days, and you pay $75/day to rent that machine, you need to account for $150 in your cost column to cover the cost of that rental. Sometimes determining if you are better off renting or buying equipment that you may use on other renovations will help you save money in the long-run.
- Interest/Borrowing Fees Paid: If you take out a loan to do a flip, you need to account for any fees/interest you pay on the loans taken. These interest rates and borrowing fees can add up to be rather expensive, so these expenses need accounting for if you want to know how much you indeed profited from the flip project.
- Property Taxes: You have to pay property taxes on the property when you settle the deal (you may owe the rest of the property taxes for the year) as well as the fact that you may have property taxes due monthly in your area. Consider where you buy properties as property taxes can vary even within the same state or municipality. The higher property taxes may deter buyers from choosing that home over one in a location with lower property taxes.
- Insurance Coverage: Homes that are getting flipped should have a coverage policy that is specifically for vacant or unoccupied homes. This insurance will cover your losses if a flood or a fire or something other cause would ruin the property you are working on and you suffered monetary or capital losses.
- Utility Bill Coverage: Many homes, especially those in apartment buildings or townhomes might require you to pay upfront for the bills if the utilities are on during the renovation. Some even may require up-front payment if the previous owner had very high-cost bills. Accounting for the cost of these will eat into your profit if they get ignored.
- Marketing/Closing Costs: All of the miscellaneous fees that are involved with purchasing the home, marketing it when it gets renovated, and closing on it when it gets sold should get counted. These might seem like small amounts of money, but they can add up into the $1000s and eat into your profit if they’re not planned for.
These are 9 hidden costs of renovating flipping properties that you may not have previously thought. Making sure that you are accounting for everything helps ensure that you are not overspending on your renovation itself and that you do make a profit from each property flipping.