Q & A Saturday – What are All the Costs to Rehab a House?

Welcome to our Q & A Saturday video.

In these Q & A Videos we will answer your questions about real estate.  Any real estate related topic from questions about selling your house, buying a house, real estate investor questions, land lording questions, local market questions and many others things are all fair game. 

Today’s question is “What are All the Costs to Rehab a House?

Money Questions - The REAL Costs of Flipping Real Estate

In this video Shaun discusses many of the forgotten costs when doing a renovation project.

 

Some of the main points covered in this video are:

1)      The forgotten costs when doing a renovation project

2)      Hint it is NOT just purchase price and construction costs

3)      Why a “low ball” offer from an investor really is not (usually)

4)      Ways to get a higher offer by finding “win win” solutions

 

If you watch all the TV shows about house flipping you can get a bad sense of what are the costs involved with these types of projects.  Few costs aside from the purchase price and the construction costs are discussed.  This gives a false sense of both the magnitude of the profits they are making and the simplicity in which they make these inflated returns.  Once you factor in the costs of financing the acquisition and renovations, the real estate taxes, the insurance, the utilities and services as well as the closing costs and commissions a much different picture will appear as these costs can easily cut the supposed “profit” in half or more.  Here is a fairly typical example of what an investor might encounter with a project.

While not a bad profit it is much less than you see on the TV shows and is a little thin.  Why is it thin, well it does not take much too almost erase it.  See this modified example where the only differences is the house eventually resells for 5% less than projected and with just one extra month of holding costs.

That is a pretty lousy payday for a $45K investment and 7 month of work.

To be honest we don’t do deals like this because something ALWAYS goes wrong and you go over budget some place, sell for a little less, hold it a little long than anticipated or something else that cuts into the profit.  Therefore we do take a conservative approach and try to reduce the risk.  One way is to pay less and another way is to work out some form of seller financing.  Note in these examples the lender was getting $16-19K, if expense can be reduced that leaves a lot more flexibility to pay more for the property.

In summary there are MANY costs associated with buying, rehabbing and selling a house.  When all these are taken into account the large profits seen on TV or touted by gurus selling people a course and a dream are a lot smaller.  It is good for direct sellers to understand why an investor might offer less than they expect and it is also good for wholesalers and real estate agents to understand why the deals you present that you think have $30K in profit might actually be money losers.

 

Do you want to sell a house that is a fixer upper?  Do you need to sell a house in Massachusetts or New Hampshire?  If you would like to sell your home fast and hassle free schedule a consultation with us today.

 

Hope you enjoyed the video and leave any other questions you have about the topic below or any other topics you would like to see covered in future videos.  I encourage anyone that has things they would like to talk about to let me know what they are.  You can always fill out a contact us form here and put Q & A in the subject, just leave a comment with your questions below here, send an email to info@masshomesale.com, or post it on our Facebook page or Twitter account.

 

Some useful resources:

–          Last Week’s video on How Fake Home Renovation shows are.

–          Our recent video explaining the Different Types of Seller Financing.

–          Our Video on Selling a House with Seller Financing

–          Our Video on Selling a House with Subject Too Financing

–          Our Video on The Due On Sale Clause

–          Our Video on Selling a House with a Wrap Mortgage

–          Our Video on Selling a House with a Lease Option

–          Guest post on 3 Reason to Sell with a Lease Option

–          All our articles/videos on Financing and Lease Options

–          Our Video on what is a Hard Money Loan (that 3 point 12% one in the examples).

–          If you want to sell a house in Massachusetts or in New Hampshire we can help.

 

 

 

  

(Image credit: MoneyQuestions via Own Your Money)

 

Speak Your Mind

*