By Dixie Somers
Thanks to television, house-flipping has swept the nation and inspired thousands of people to start investing in real estate. While this can be a quick way to make a lot of money, there are many hidden expenses and oversights beginner house flippers often miss. As a result, many people wind up spending far more than they bargained for when they decided to flip a property.
When you decide to flip a house, remember the 70-percent rule. This rule states that an investor shouldn't pay over 70 percent of a property's after-repair value (ARV) minus the necessary repairs. Simply put, the ARV is a home's value after it's fully restored.
Thinking about getting into the business? Here are five house-flipping expenses you'll want to plan for before renovations begin:
Most house flippers are working with a hard budget, so it's important to know exactly how much you'll have to pay for a property. Closing costs are typically 2-5 percent of the purchase price, so if you bought a fixer-upper for $90,000, you can expect to pay an additional $1,800-$4,500 before the deal is closed and the title is in your hand.
You want your house to stand out, so you may want to consider adding some smart home technology to your renovation. Smart home tech, such as heat-sensor faucets, smart blinds and heated floors, cost extra, so you'll need to plan ahead for these amenities and figure out how they'll fit into your final design before you buy.
You may be able to do a lot of home DIY projects yourself, but many repairs require a professional team. Whether you need a private contractor, plumber or electrician, find local businesses and get some estimates before you begin renovating. The last thing you want is to be in the middle of flipping the house only to encounter a major issue that you can't afford to repair.
Working With a Designer
You may want to bring in a professional interior designer to help you make over the house. Designers know how to pick the right fabrics, textures and colors to bring a space to life and make it look more appealing to potential buyers. Of course, none of this is free, so take the time to research designers and determine which of their services you'd like to use before you begin renovating.
You want to flip a house and sell it as quickly as possible, which ultimately takes good advertising; in fact, getting your newly flipped home sold will take much more than simply sticking a for-sale sign in the front yard if you want to attract a lot of potential buyers.
House-flipping can be a fun and fast way to earn a lot of money in a short period of time. While many people with no experience make it big in wholesale real estate investment, make sure you do plenty of research beforehand. Stick to smaller properties with minimal work before working your way up to larger projects as you gain more experience and your budget increases.
If you find yourself in need of more money or an advance for your fixer-upper, personal loans could be a good option for you. If you don't put the right stuff in, you won't get the financial result you desire.
Dixie Somers is a freelance writer from Arizona covering New Horizons Credit Union for the personal loan industry. She's a regular contributor to Housecall.