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Counting the Costs of Rehab Projects

Posted On July 13, 2017

Investing in a home to sell is one way to earn a profit on a real estate investment.  “Home flipping” is gaining popularity through shows like Flip or Flop.  Christina El Moussa, star of Flip or Flop, sat down with Zillow to discuss the costs of rehabilitation projects that potential flippers need to consider.

In the case of a rehabilitation project, the buyer has to factor the cost of the home purchase, the rehab team, the rehab project, the cost of ownership, and the cost of selling into their budget ahead of time. 

A rehab team is more than just a contractor, the buyer should hire an attorney, lender, real estate agent, insurance agent, and home inspector as well to ensure a protected and safe transaction.

Buying an investment home is just like buying a home for occupancy.  The cost of the home purchase will include the purchase price, home inspection, home appraisal, closing costs, and any other associated fees. 

The total cost of the rehabilitation project will include contractor fees, permits, and all of the work completed on the home.  Hiring a licensed contractor and completing walkthroughs before and after the project is completed can help protect the buyer.

In some cases, the home will not sell as quickly as anticipated.  When this happens, the buyer needs to be prepared for the cost of ownership of the property including mortgage payments, property taxes, insurance, utilities, and upkeep.  Before investing in a real estate property to sell, the buyer needs to evaluate whether or not they can carry the costs for multiple properties. 

When it is time to sell the investment property, this transaction will incur additional costs also.  Typically, the sale of the house will include real estate commission, staging costs, attorney fees, and other closing costs.

Before making a real estate investment, it is best practice to consult a financial advisor or real estate professional.  With a flexible budget, and the right financial planning, the rehabilitation and sale of an investment property can be profitable. 

 

Sources: Zillow