It’s easy to add up profit from a fix and flip project if you just do the simple math. Sale price minus purchase price and renovation costs adds up to profit. But there are many expenses both small and large that end up being part of that equation. The following expenses are not as easy to predict as renovation costs and they eat into your bottom line.
1. Title company closing costs
Home buyers can expect to pay between 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.
2. Seller-paid closing costs to the buyer.
Seller-paid closing costs are costs and prepaid items associated with a purchase charged to the buyer, that the seller agrees to pay or accept into the increased cost of the loan. The closing costs include the charges from the lender to originate the loan as well as charges from the title company to do a title search, prepare documents, and process those documents. Often buyers do not have enough cash to pay for both the closing costs as well as taxes and insurance. In these cases the buyers will request that the seller pay, which will reduce the bottom line of what the seller profits from the house. Sometimes, a counter offer is made to negotiate a higher sales price to cover some of these closing costs.
3. Commissions on the sale
Unless you are your own real estate agent, you can expect to pay 6 to 9 percent of the sale price of a home in commissions. It is smart to minimize the listing commission by working out a lower fee. See our article about whether it’s worth it for a flipper to get their real estate license.
4. Marketing costs
Putting a FSBO sign in the yard doesn’t cost anything more than $1.99 for the sign. But there are other costs associated with marketing your home that often don’t get calculated in the initial equation. There are costs for photography and signage. Copies of the listing information adds up. Agents pay to advertise on Zillow, so if you’re acting as your own agent you’ll likely want to do that too. Costs are tallied up as cost per 1,000 ad views. This cost can vary widely depending on your ZIP code. Many homeowners pay to list their home in the newspaper or in other print real estate publications.
5. General upkeep
You’ll be paying for electricity and water for every month you’re doing the renovations. During summer, you may continue to pay for lawn maintenance and the cost of water to keep the lawn green. That means you’ll also need to have a working lawn mower. In winter you may pay for snow removal.