Flipping Real Estate: Calculating Costs

If you’ve been in the real estate investing business, or more specifically been flipping real estate, for more than a few days, you’ve inevitably gotten an email that reads something like this: “Investor’s Dream. This property will go QUICK. – Property Address: 1234 Main Street – Asking Price: $100,000 (Add or subtract zeros!) – After […]

If you’ve been in the real estate investing business, or more specifically been flipping real estate, for more than a few days, you’ve inevitably gotten an email that reads something like this:

“Investor’s Dream. This property will go QUICK.

- Property Address: 1234 Main Street

- Asking Price: $100,000 (Add or subtract zeros!)

- After Repair Value: $150,000

- Repairs: $15,000

- Profit: $35,000

- Details: Needs paint, carpet, tile, new kitchen, update bathroom, some roof damage.

- Tenant occupied. Need to evict!”

STOP! Before you read on… Take a guess at what you think the “real” profit’s going to be on this real estate investment…

If you haven’t ever gotten an email or fax broadcast like this, then rest assured, you will! I’m about to probably tick off all of the late night infomercials and pitchmen out there! Sure, I understand that when you’ve got 30 minutes (or 90 minutes, for that matter), that you’ve to sell what’s sexy… not what’s real!

Now it’s my turn to expose the real deal on real estate investing! This goes for flipping real estate itself (i.e. properties) or simply flipping the contract (also known as assigning the contract). When you’re flipping real estate, you need to be able to calculate the “real” bottom line and if your assigning the contract, you need to know your numbers so you don’t get blacklisted from investors! This one piece of information will keep you from getting into trouble because of any “real estate bubble”!

Purchase Costs

Here goes… Have you EVER purchased and sold a piece of real estate for FREE? If you’re not sure what the answer is… It’s an emphatic NO… You are going to have costs to buy, costs to hold and costs to sell. This holds true even if you are buying a property for all cash. (Think title fees, attorney’s fees, recording fees, etc.)

If you’re not getting a mortgage, your purchase costs are obviously much lower, but nonetheless, there are costs associated with any real estate transaction. Plus, more than likely, if you’re relatively new, you’re probably not paying all cash for property anyways. You’re probably going to be using a hard money investor for your initial real estate investing financing!

For a quick calculation, you can estimate anywhere between 3% – 5% for closing costs to just acquire the property. That’s 3%-5% of the purchase price.

Holding Costs

How much is it going to cost you each and every day to own this piece of real estate? See, if you’re making money in real estate, you’d better believe that there are a lot of other people that are going to expect to get paid and they get paid in the form of mortgage interest, property taxes, utilities, property insurance, etc. Each of these is an expense each and every day that you own the property. Here’s an example… A hard money loan on a bread and butter type piece of real estate might run you 15%. Let’s say you got the property for $100,000. Every month, you are paying $1250 in interest alone. Let’s say that taxes and insurance are another $200/month and then utilities at $100. Right there, the property is costing you $1550/month – or roughly $50/day. See, why it’s important to know your not only your holding costs on a real estate investment, but also how long it’s going to be on the market before you can flip the property.

Selling Costs

Here’s the third part of the real estate investing puzzle. When you want to turn around and sell this piece of real estate, it’s going to cost you yet again! Are you going to use a real estate agent and pay a commission or 3-4-5% or even more? On $150,000, that’s anywhere from $4500 to $7500 chopped of the top. Then, you can figure 1-2% in closing fees.

If you can remember this… and apply what you’ve just learned to each and every real estate deal that you do, you’ll be safe flipping real estate in any market. You see, if it’s a hot market, you can calculate less time for holding cost. But, in a slower market, make your offer based on 6 months or 9 months of holding costs. It’s really simple math! And real estate really is a numbers game…

Heather Seitz, the co-creator of Fixing and Flipping software, takes the guesswork out of estimating repairs. Learn how to estimate repairs and calculate profits in seconds.

Bookmark and Share

Submit Something

Think you can write or produce a video?

Join our group, learn what we like and send us your best article ideas, maybe we'll publish it. Maybe not. Longer in-depth content is good. Short keyword fluff-stuff is bad. At this time, the pay is non-existant and the working conditions are terrible. All our pencils are broken. The cat is meowing at his empty bowl. The doorbell is broken. We do this simply for the FAME & GLORY.

Otherwise, if you really, really like our site, please buy me that Tibetan Singing Bowl I've always wanted. I'm sure the wife and the cat will be absolutely thrilled when I stay up all night composing music with it and GarageBand. Maybe I'll write a song about you. Well, anyway... Thanks for stoppin' by our web and reading this far!

Mortgage News

  • 16.Dec
  • Costs for All-Time Low Mortgage Rates Inch Lower
  • Posted To: Mortgage Rate WatchMortgage Rates experienced another record setting day. While the 3.875% Best-Execution rate remains unchanged on average, the costs involved to obtain that rate reached inched slightly lower to reach a new all-time low. De…


  • 16.Dec
  • Bond Markets Keep Rallying in Low Volume. MBS Hit Multi-Month Highs
  • Posted To: MBS CommentaryThe latest alert on the MBS Live Dashboard at 11:15am works just as well about an hour later to explain current goings on: Dealers Set Em Up, Fed Knocks Em Down. Bonds Rally Post-POMO 11:15 AM The long end of the yield curve ra…


    TAG CLOUD