Do you #fixandflip to earn your primary income is it just a weekend hobby? Whether a full-time or just for fun, tracking your expenses is vital for setting your resale price. Keeping expense organized is often more complicated than it appears on television. With enough organization, however, you’ll be able to stay organized and on track of your home improvement and reselling process.
How can you track your progress? How can you make sure you’re not getting ahead of yourself?
First, you should decide what tools to use to record all your expenses. If you are running a business, use your computer system to keep track of things. You can set up a simple spreadsheet or your accountant can help you set up a system in an accounting program.
Also consider tools such as Google sheets. Here, you can add items right from your phone or tablet. When you get receipts at the work site or send a worker to the store with cash, you can enter the data as soon as they return and hand you a receipt.
It’s a good idea to enter you receipts on a daily basis. This way you aren’t overwhelmed with a mountain of receipts when you near the end of the project.
Everything that goes into the house you are flipping will be an expense you need to record. Every nail, every screw, every shingle, every piece of electrical wiring. This is where it can start to get more complicated (unless your electrical contractor provided all the wiring as part of his bid). Still, you might have to calculate some percentages if you use part of a purchase on this house and some on another house or the next house. Say you buy two boxes of roofing nails but only use a box and a half. Then you count 75% of that cost for this house (and don’t forget the other 25% on the next house).
Complicating the matter more might be tools you need to purchase as you work on the house. Hopefully you are in this business for the long haul and you can use those tools throughout your business, but why not put some of that cost into this house?
These are those expenses you rarely hear mentioned on television. But as long as you own the home during the flip, you are incurring costs:
• Property taxes
• Interest on loans
• Lawn maintenance
• Home Owner Association dues
You also ought to to keep track of all the hours you work on a house. This can include time spent buying the house, doing the accounting, shopping for supplies, marketing the house, showing the house. You do need to value your time and make sure your profit really is covering the amount of time you spend on each flip.
Remember not to get too over the top with your project. This house is going to soon be changed when new owners take over. One sign you went too far with improvements is if it would cost a lot for the new owner to take down all of your additions if they don’t like them. According to an article by biggerpockets.com, a person buying a $100,000 suburban cookie-cutter home does not necessarily want crown molding, antique vanities and expensive travertine showers. If a potential buyer who comes into your investment property doesn’t like your choice of cabinetry, countertops or flooring, he or she will likely consider what it costs to replace what you’ve done. Avoid quirky upgrades with limited appeal. As far as windows and doors, focus on clean and attractive as opposed to a design statement. Make a design statement with staging.
Find out ahead of time whether an appraiser thinks certain improvements add or detract from the home’s value. Adding square footage is typically the best way to add value. Experts caution against turning two smaller bedrooms into one larger bedroom or multi-purpose room since it’s better to have more rooms rather than fewer rooms.
Visit homes for sale in the neighborhood so you get an idea of how the competition fixed up their homes.It’s smart to tour new home models to get an idea of what people want in terms of improvements and finishes. If you need to list your fix-and-flip for more than a new construction home of comparable size, it’s a sign you spent too much on the improvements. Most new homes sell at a premium. But it’s wise to choose less expensive materials that look nearly as nice. For example, an investor could buy your fix-and-flip to turn it into a rental property. Inexpensive laminate flooring would likely appeal to the investor or a typical home buyer in the low to mid-price range.
Finding the right balance and working quickly lets you make a profit on your real estate project. Knowing these costs sets you on the right course to setting a fair price, giving yourself a nice profit, and deciding if your prepared for the hobby or career of house flipping.
Contact us for information on loans for purchasing and remodeling your potential flips and for other advice about the business of flipping homes.