One of the misleading things about the house flipping TV shows is that they don't show you all of the costs it takes to actually flip a house. In this lesson, we are going to discuss the hidden & often overlooked costs associated with buying, holding, selling & financing your rehab projects.
Despite what you see on TV, there are many other hidden costs other than just the repair costs that you will incur when when flipping houses. These other hidden costs are often called 'Fixed Costs'.
Fixed Costs are the other costs that you will incur when you Buy, Hold, Sell & Finance the property. Here is a breakdown of the common Fixed Costs you will have a on a rehab project:
- Buying Costs - Costs incurred when buying the property. (Title work, Attorney's fees, Inspection costs, etc.) (Generally 1 to 3% of Purchase Price))
- Holding Costs (Carrying Costs) - Costs incurred while holding the property. (Property Taxes, Insurance, HOA Dues, etc.)
- Selling Costs - Costs incurred when selling the property. (Realtor commissions, Home Warranty, Transfer Taxes) (6 to 9% of Sales Price))
- Financing Costs - Costs incurred for financing the property. (Interest Payments, Points, Closing Costs)
LEARN ABOUT BUYING COSTS
Buying Costs are cost incurred when buying your flip property. Typical Buying Costs are incurred for Title Work, Inspection Fees, and Miscellaneous Filing fees. Buying Costs are typically 1 to 3% of the Purchase Amount.
Holding Costs (also known as Carrying Costs) are cost incurred while holding your property. Typical Holding Costs are for Property Taxes, Utilities, Homeowners Insurance, HOA Dues, and Maintenance. Holding Costs can range from $500 to several thousand dollars per monthLEARN ABOUT holding costs
Selling Costs are cost incurred when you (you guessed it) sell the property! Most of the selling costs expenses will go toward paying your Seller's Agents Commission (3% of resale) and the Buyer's Agent's Commission (3% or resale). Otherwise you may spend a few hundred or thousand dollars on a Home Warranty, Transfer Taxes and miscellaneous fees.LEARN ABOUT selling costs
Overall, Selling Costs will typically be around 7 to 9% of the Resale Value.
Financing Costs are cost incurred if you use financing to fund the purchase or repairs of your projects. Typical Hard Money Loans will charge around 10 to 15% interest, plus 2% points upfront.LEARN ABOUT financing Costs
Generally, your Fixed Costs will amount to 10 to 15% of the After Repair Value.
why are they called fixed costs?
Fixed Costs are considered 'fixed' because the costs are generally the same on every deal and will not change significantly from rehab-to-rehab.
Whereas, Repair Costs are considered 'variable' because they vary significantly from property-to-property depending on the condition of the property and the scope of the repairs that need to be made.
House Flipping Calculator
To analyze your deals efficiently and systematically you may want to consider building your own deal analysis spreadsheet or utilizing a pre-built software like our FlipperForce software.
Our FlipperForce software has a 'Deal Analyzer' tool that is pre-built with a step-by-step process to help you can calculate your Buying Costs, Holding Costs, Selling Costs & Financing Costs for your projects.
Having a system in place will ensure that you don't miss any costly items in your analysis so you make the right offer for your property!
Learn more about our House Flipping Calculator