7 Commonly Overlooked Costs Of Fix and Flip Properties
Fix and Flip properties have gained in popularity over the years, especially after the 2008 housing crisis. With an influx of fix and flip buyers that may be somewhat new to the scene, it is important to be conscious of hidden costs of fix and flip properties on top of the more obvious expected expenses.
The mere definition of these types of properties include a certain level of property negligence and disrepair. Therefore, it is pivotal to keep in mind the unintended costs of these homes that may effect your ability to make a profit.
A smart fix and flip investor should keep an eye out for these hidden costs and factor that into their overall strategy. Here are just a few of the common overlooked costs that may occur during the process of fixing and flipping properties.
1. Permit Costs
Hiring professional teams to come in and do renovations on your fix and flip home is an obvious cost. The important thing to remember here is that you will likely need multiple different permits to do the work.
If you fail to get these permits, then you may not pass inspections. If you do not pass inspections, which will be harder to pass simply because there is no proof of a permit, then you cannot sell the homes that you have fixed up for the purpose of selling.
Factor in the price of your permits into your initial costs and apply for them prior to starting your restoration process
2. Removing and Replacing Lead and Asbestos Materials
You may not know that the home you have purchased is full of lead paint and asbestos-filled floors and insulation unless you have done a great deal of research.
This is one of the biggest hidden costs for homes that have been built prior to 1978 because the construction companies of homes prior to this time in history did not know of the health risks associated with using these materials.
Lead paint must be removed and replaced in the home during your restoration because it can be easily inhaled if the paint is chipping or cracked in anyway.
Asbestos-filled materials need to be removed by professionals because of the complex process it takes to safely remove the material from the home.
Not only are there costs associated with removing the asbestos in the home, but there are the hidden costs of hiring a professional team to do the removal.
3. Replacing The Roof
You are very likely to purchase a home to fix up and sell knowing that the roof needs a little bit of work. This is just a common problem that many homes have, particularly if they have been neglected for a few years by previous owners.
What you may not know, is that the entire roof may need to be replaced. Even a small leak in a roof can create a massive amount of damage if left untreated for many years.
You may purchase this property thinking that the roof just needs a few thousand dollars to repair and find that you are paying many thousands of dollars on the project because of damage.
4. Dangerous or Fragile Pipes
Pipes are found in the vast majority of properties that have been listed on the market for the last one hundred years or more. Civilization has been built upon the expectation that there is a solid foundation of pipes that support indoor plumbing.
Many people fail to realize that pipes do need to be changed, particularly if they contain lead or if they are weak from many years of use.
You may expect to have to replace the pipes when you buy the property, but the greatest percentage of people that purchase properties for the purpose of flipping do not account for this hidden cost unless it poses a problem during restoration.
5. Heating and Cooling Unit
Most of the homes that are on the market today are equipped with heating and cooling units that can be easily controlled by the new owner.
Older homes or homes that have not been maintained well have a lack of one or both of the systems or has heating and cooling units that pose a safety risk.
Beware of the hidden cost of replacing heating and cooling units. You must make sure that these units are 100 percent safe for use if you are going to replace them.
If you fix up a home to sell but neglect to fix up the yard as well, then you may not sell the house that you have put a lot of time and effort into fixing up.
When purchasing a fixer upper, many restoration-minded buyers may not account for the costs that go into fixing and landscaping the yard as well. You could sink a lot of money into this project if the yard is large or in bad shape.
7. Extra Additions
If you are looking at a home, then you know whether or not you want to add an addition to the home when you buy it. However, you may not know what the addition will be, what plumbing or electricity needs to be run through it, or what sort of purpose the addition will be used for when you buy the home.
If you start your process out by thinking that the addition will be a simple dining room and then discover that the space would best be utilized as a master bathroom, then you are running into hidden costs that you did not initially account for.
Let Orchard Funding Help You
Let us help you navigate the complexities of a fix and flip home by providing the necessary capital to secure a smooth flipping process. When investing in this business, it is important to have a professional lender on your side.
If you’re thinking about buying a home that you plan to renovate, Orchard Funding can give you a fix and flip loan. Our underwriting process is easy, and we can approve you in 24 hours or less. The application process is straightforward and some cases no appraisal is required.
If you’re thinking about getting a fix and flip loan, contact us online or call (310) 356 – 7373.