When you are just getting started with house flipping, putting together your budget will be one of the most challenging things you do. The reality is that there are always moving parts that even the most experienced people cannot always predict. The market for labor may change…prices of materials increase…you may change contractors…there’s always something. Knowing that some amount of uncertainty is okay and learning from each project are key to your budgeting process.
Whether you are just getting started or looking to make improvements on your house flipping skills, my House Flip Blue Print course has tips to build your plan so you can take action.
Categories of Expenses
When I am putting together a budget I use categories to assess the different types of expenses associated with the project. The five categories are:
Remember this is the first turn at the budget that we are talking here. This is where we are identifying whether or not the project has potential and if an offer should be submitted.
Because it is so early in the process, you will not have the time to schedule people to walk through. Truthfully, until you have the signed and accepted contract, you should wait to bring your contractors through for estimates. Unless of course you have a partner, a contractor or an experienced investor who is willing to walk through with you and give you an idea of expenses.
Quick Numbers and Ballpark Costs for Repairs
Another way to calculate a budget, is to run your numbers and see what they look like in different scenarios. Drop in $50,000.00, $60,000.00, and $70,000.00 for your budget and see if the numbers for the profit work for you. If they do, then you know that even if you spend $70,000.00 on your repairs the profit will still make the project worth it. Also, if you know what your maximum budget can be and the bids for repairs are increasing that number then you know you will need to make some adjustments in the work that is to be done if you are to stay within that budget.
This is also where having conversations with contractors and other investors would be helpful. That way you have a ballpark price for certain items. For example… if a plumber charges around $6K for updating two bedrooms, a kitchen, and replacing a water heater, then you can enter that number into your budget sheet. If you were going to be adding a third bathroom, then you could increase that number another 50% to $9K.
Even for experienced house flippers, it’s not uncommon to have a budget overage at the end of the project. Many people include a contingency of 5-10% of their overall budget to cover these types of items. These can be unknown items or they may be items that have a change in condition during the course of the project. These types of “extras” are very different than going over budget due to over improvements. Again, building in for unexpected items is fine…but intentionally going over budget is entirely different.
More Tips on Budgets
There is so much information around on putting together your budget. Here are some quick tips in this video as well. Don’t forget to check back next week and go deeper into budgets. We will break down acquisition costs, holding costs and expenses associated with selling a house.
Now the next step is making sure that property is a good one to purchase!! I’ve got you covered with my 8 Things I look for When Purchasing a Home. Just click here to download it.
Leave me your questions in the comments? I’d love to answer yours next time!!