Money management during any real estate investment venture is an essential skill. If this is your first time flipping a property it is probably more important on the first flip than any other as you need to fully realize how much things cost and how quickly those expenses can up.
It is so simple for the budget on a house flip to get completely out of control. For this reason, you need to take control of the financial situation from the very beginning.
Begin by establishing a realistic budget for the entire project.
If you find yourself spending more money in one area than you had originally planned you need to either revisit the initial budget
And plan for adding more money to the pot or you need to make cost lowering adjustments elsewhere along the way to recover the excess.
You will need to have a firm idea of the projects you are going to tackle, big and small, as well as the costs involved in each project.
Take a walk through a hardware store and get a firm grasp of today’s prices on the hardware, equipment, and supplies you will need to complete the job.
Use contractors when necessary but sparingly.
There are times when it will cost much less to use a contractor on a project than to muddle through on your own.
There are also times when local laws require a contractor.
You need to use contractors for these times but you need to avoid paying the princely labor costs contractors charge for things that you could easily do yourself.
You never want to spend a penny on a flip that you don’t need to spend and labor costs are a huge budget buster.
Get permits first and upfront. Time is money when you are flipping a house and once you start the work that time is precious.
Make sure you have all the permits you need and that they are paid for before you begin the project in order to save time and money after the project has commenced.
Then create a habit of accounting for every penny spent throughout the day at the end of every day.
This becomes a good habit to have for your first and all subsequent flips.
By doing this you will have a solid grasp of how much money you are spending as well as how quickly you are spending it.
You will need money to spend on little things throughout the course of the project so if you are spending money too fast upfront
You may not have the money needed to take care of the small details that mean a lot when all is said and done.
One huge way to better manage your money during a house flip is to make a conscious decision and consistent effort to work according to your tastes.
Chances are quite good, especially for a first flip that you will be working on a house for those who have less financial means than you may have.
For this reason, you need to keep your project within the budget of your buyers.
This will save tons of money. In other words, a lower-income community cannot absorb the costs of granite,
marble, and hardwoods in most situations so don’t go to that expense.
In order to turn a solid profit when flipping a house or doing any type of real estate investment you absolutely
must have a firm grip on your money, where it is going, and what your plans are for the money.
The less money you spend the more money, in many cases, you stand to bring home in profit.
Spend the money you need to spend in order to improve the value of the home but avoid luxury expenditures
that aren’t necessary for the neighborhood or the home in question in order to maximize the potential profits you can bring home.
5 House Flipping Don’ts
When it comes to making money in the business of flipping houses and other real estate investments
you will find all kinds of dos and don’ts along the way.
The truth of the matter is that these are extremely useful whether this is your first house flip
or you have been flipping houses for years.
In fact, you might just find that you can learn something new on occasion by reading lists such as this even if you’ve been flipping houses for years and have many successful flips under your belt.
1) Don’t forget to check out the neighborhood before you buy.
You will want to make sure that the property you are considering is a good fit for the neighborhood.
You should also take the time to make sure that the plan you have in mind for the property
will match well with the other neighborhood residents in order to guarantee a quicker sale.
2) Don’t blow your budget without just cause.
Your budget is what you used to determine whether or not the house would be a profitable venture.
If you blow your budget and cannot recover the extra money you’ve spent on the selling price of
the house you will have seriously cut into your profits if not eliminated altogether.
The goal in property flipping is to get in and out quickly and spend as little money as possible in order to make as much money as possible.
3) Don’t forget to set daily goals and hold yourself accountable to those goals.
If you don’t reach your goals for the day it can set the entire project back by as much as a month depending on the goals and what has to be rearranged as a result.
Stick to your timeline and your daily schedule in order to avoid potentially costly delays in time and money.
4) Don’t neglect the exterior. Curb appeal is what brings buyers into the property.
If you spend all your money, time, and effort making improvements to the exterior of the home
you will have little left to make the outside appealing to potential buyers.
A homebuyer is in the market for the entire package.
A home that looks run down on the outside leaves the impression of being neglected on the inside
and many potential buyers will never walk inside if the outside looks forlorn.
5) Don’t spend money you don’t need to spend.
While it would be great to put in granite countertops and gourmet kitchens into every home it isn’t always practical
And this is often money that will not be recovered, particularly in homes that are in marginal neighborhoods.
If you want to get the most for your money avoid costly expenses
that aren’t exactly necessary for the successful completion of the flip.
Resurface bathroom fixtures rather than replacing them if possible and use new cabinet doors or hardware
rather than adding new cabinets altogether to cut down on expenses.
In other words, salvage what you can, fix what needs to be fixed, and add a few cosmetic
touches before moving on.
The market for real estate is a very fickle market.
Avoid risking too much time and money on a property that isn’t going to recover those added touches and expenses.
Instead, hold onto those ideas for higher-end flips once you have a few successful flips under your belt.
