If you are debating whether or not you’d like to get into the business of flipping houses, then you’ll first want to know how much it costs to flip one. Better yet, you’ll want to know what exactly the costs are that this process consists of. Below we’ve listed the various costs that go into flipping a house, so you can get an idea of whether or not this is a business you can see yourself getting into.
On average, it can cost between $30,000 and $50,000 to flip a house, depending on where you are located. The biggest costs that fall under flipping a house are the purchase of the property, renovating the house, carrying costs, and marketing/selling costs. Let’s take a look at each of these categories separately to properly understand what we’re looking at cost wise. Then, arrive at a final number for the rough average cost of flipping a house.
Your costs will vary depending on the price and size of the house you’ve taken on, so keep in mind that there is not a one size fits all number for flipping houses. That being said however, I’ll try to break it down percent wise, so you can get a big picture idea of how much you will be spending on a house depending on how much the property you purchase is worth.
Purchase Price of the Property
The biggest cost associated with flipping a property is the purchase of the property itself. Whether you use savings to buy your first property, or take out a loan, your upfront cost will vary depending on the size and location of your property. This could be anywhere from $10,000 to 10M. But keep in mind, the cost of your property will also play a huge role in many of the costs that will follow.
For example, the bigger the property that your start with, the higher your renovation costs will be. This is largely due to the fact that your larger property will have more space and square footage that needs to be renovated.
Costs of Renovating the House
Once again, the cost of renovating your house will vary greatly depending on the property you choose to flip. The costs of renovating a house that is 5,000 sq. feet, and a house that is 100,000 sq. feet is going to be vastly different. You have more space to cover and more work that needs to be done. The cost of labor, materials, and time will all be higher.
According to fitsmallbusiness.com the cost of renovations on a house should cost roughly around 10% of how much you purchase the property for. That is why I say the cost of renovation will vary vastly depending on how much you initially spend on the house. For example, the cost of renovating a house that is $50,000 will be $5,000, while the cost of renovating a house that you spent a $100,000 on will be double that at $10,000.
The cost of renovations is going to be the second most costly area of flipping a house. But an area you definitely want to spend money on to make sure all the necessary renovations are taken care of. If your house doesn’t look good to buyers, it won’t sell very quickly. If it doesn’t sell very quickly, the more costs you’ll end up racking up just by owning the house.
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Carrying Costs of Flipping a House
If you’re wondering what the heck carrying costs are, don’t fret, you’re not alone and I’m here to help! Carrying costs are the costs that you take on when you purchase a property, just as you would when purchasing a home that you would actually be living in. These costs may include any Home Owners Association fees, any property insurance you are required to take on, if you took a loan out to pay for the house any loan payments you need to make prior to turning around and selling the house and if you’re using water/gas/electricity etc. during the renovation phase. You are still responsible for paying for these things even if you aren’t technically “living” in the house.
This is again why I stress that it is important that you sell the house as soon as you can. The longer the house stays without selling, the more fees that rack up that you are responsible for.
Costs of Marketing and Selling a House
Marketing a house will likely be the cheapest part of flipping a house, but is just as important in getting it ready to sell. The more effort you put towards marketing your house the quicker it will fly off the market. There is no hard and fast rule as to how much you should spend toward marketing but just keep in mind that the more you invest in this process the faster it is likely to go.
Next are the fees that come with selling a house. The largest cost by far when it comes to selling a house is the commission that goes toward a realtor. The average rate for a realtor’s fee right now is about 5%-6%. This could really dig into your profit! If you sell a house for $100,000 then the realtor you work with makes about 5K to 6K off of that. The more your house sells for, the more you owe your realtor. If you sell a house for $500,000, then your realtor makes about $25,000!
You of course always have the option of trying to sell your house by yourself, but anyone can tell you, if you’re new to the industry, going through a realtor is going to get your house off the market much, much faster.
On top of this, there may be a few closing costs that are tied to selling a house. According to bankrate.com there could be property taxes and transfer taxes that come with passing a property off to a new owner. While these won’t be huge fees, it is still something to keep in mind.
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Adding the Costs All Up
Hopefully this article will give you a clear idea of how much it costs to flip a house. If done properly, flipping houses can become a very lucrative business for many people, and become a full-time job. As with all things, do your research before you decide to enter into it. If you don’t want to take a large risk, then start with a small house that won’t cost you too much to invest in and renovate. Then once you make a profit off of your first house, keep working toward higher priced real estate so you can continue to make more and more of a profit.
You could also try to flip a house that you are currently living in (this will keep initial costs low, as you likely have already paid off a good chunk of the house, if not all of it). Or, try to buy a house that is less of a fixer upper, and more so already in a great and sellable condition. If you buy a house that has minimum work required to go back out on the market, you lower your up front costs, and maximize your profit!
Flipping houses can be a very satisfying and enjoyable career for many people. But make sure it is something that you are willing to take on before jumping in, as it can be a very time-consuming job as well. It likely won’t be something your balancing with a full-time job (unless you are fine working very long days), so make sure you are committed and are financially stable before starting your first house flipping project.
If you are someone who is accustomed to a typical 9-5 job, with bi-weekly pay days, then make sure this is a field you are really ready to jump into. You won’t get paid until you close on your home, and there are a lot of costs that come before the big pay day does. Like I said above, do your homework and make sure that this industry is the right fit for you, before you quit your job and decide to start flipping houses!
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Frequently Asked Questions
- Are there ways to save money when flipping a house?
Absolutely! For one, you could shop around for who you end up partnering with on doing renovations. Or, perhaps you’ll be doing them all yourself in order to save money. You could also do your homework and try to find the lowest rates on materials. You don’t have to nickel and dime things, but saving a couple hundred dollars can still help keep overall costs down.
- How much profit can I make per house?
On average, you can make between $30,000 and $60,000 flipping houses (this is not taking into account ultra-luxurious mansions) but is what you’d make selling average sized homes. This number will of course depend on how much you need to spend on repairs, renovations and the other fees. Flipping houses can be a very lucrative business, and if you continue to work at it can definitely be a full-time job.
To learn more on how to plan your own house flipping business click here!
Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.
About the author. A lifetime of Entrepreneurship.
Hi! My name is Shawn and I am a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop (link here http://archives.starbulletin.com/2003/05/18/business/index.html) to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet new business owner, I see myself. I know how hard the struggle is to obtain and retain clients, finding good employees and making sure everything works together all while trying to stay competitive.