Finance  »  Real Estate

Estimating the Cost of Repairs for Flipping a Rehab

Date Added : August 11, 2010 | Views : 354

The most commonly-employed strategy for flipping homes (short-term ownership



of real estate) is to fix and flip a rehab property.  The investor




finds a property for sale that needs repairs, buys it at a price well




below the retail market value, assumes responsibility for making those




repairs, and then resells the property to a homeowner at its retail




value.  It can generate a hefty profit, tens of thousands of dollars




on a single property, but only if the investor thoroughly researches




the cost of turning the home from a substandard shack to a picket-fence




American dream-home.




      Obviously,



that’s an exaggeration of what you’ll be doing as a rehabber, which



in all likelihood is going to be nothing more intensive than updating



some systems, repairing the roof, painting, and so forth.  But



it gives you the sense that the transformation to make the home suitable



for retail is going to cost time and money, and you need to approach



the initial deal cognizant of that.  You make the profit on the



day you buy the property, not on the day you sell it.  Which means



you need to accurately account for the cost of repair, ownership, and



resale.





      Let’s



just address the cost of repairs.  Always overestimate, or you



will eat away your profit.  First, before you buy anything, make



a thorough assessment of the house in which you literally check every



inch of every room.  Write down everything that needs to be replaced,



modified, repaired, or added.  Write down everything! 



Every little detail you omit will be an unforeseen cost you incur later,



and they will pile up.  Take your list to a hardware store and



find out exactly how much the materials will cost.  Next, you must



account for the labor cost to install all of the hardware, which unless



you plan to do everything yourself will be about $1 for every $1 spent



on materials.  Finally, increase your total by about 20% to get



a final estimation.  This increase is for contingencies—if anything



should happen that you didn’t predict, this will reduce the likelihood



that your profits are eaten away.  Whatever the final estimation



is, round up to the nearest clean number.





      If



you can negotiate to buy the property at a price that, if added to your



estimation of the cost of repairs, you think you can sell the house



for, then you’ve found yourself a good deal.  Don’t forget



about the cost of selling and owning the house, and remember: you make



your money at the point of purchase (not sale), so don’t just jump



in with two feet every time you find a home listed below market value.
 




Be sure to leave us your feedback below.  We would love to know. J 


InvestmentPropertyMadeEasy.com



InvestmentPropertyMadeEasy.com

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Article By: Jay Redding


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