Money management is an essential skill to succeed in any real estate investment. If this is your first time flipping a property, you will need to be particularly careful as you learn how much things cost and how quickly those expenses can up. Indeed, your house flip budget can get completely out of control in a snap. Therefore, you need to stay on top of finances from the very beginning.
Money Management Starts With a Budget
The first step of any house flip project should be to establish a realistic budget. If you find yourself spending more money than you had initially planned, you have two options. You either need to revisit the initial budget and find a way to face the added expenses, or you need to make adjustments elsewhere to recover the excess.
You will need to have a firm idea of the projects you are going to tackle and of the costs they involve. 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. You can also talk to different contractors to get a grasp of the cost of labor.
Use the services of contractors wisely
Hiring a contractor for a job is expensive, but it can also save you money in the long run. Use contractors when necessary but sparingly.
Usually, it is less expensive to use a contractor on a project than to muddle through on your own. Therefore, always be realistic about the extent of your skills and do not start a project you are not 100 percent confident about. Besides, local regulations may also require that the work (plumbing, electricity, etc.) be done by a professional. Make sure to include not only the cost of labor but also the contractors’ fee (often a percentage of the work to be done) in your budget.
Don’t forget to include permit costs
The goal of a flip is to put the property back on the market. There are no cutting corners about it: you will need to apply for each applicable permit and pass all inspections.
Time is money when you are flipping a house. Make sure you have all the permits you need and that they are paid for before you begin the project to save time and money after the project has started.
Daily accounting is key for money management
Get into the habit of accounting for every penny spent throughout the day at the end of every day. Therefore, you will have a solid grasp of how much money you are spending and how quickly you are spending it.
Don’t forget to take into account the little things throughout the project. They add up quickly and will affect your overall budget. Besides, half of the work will be done when tax time comes.
Don’t lose track of your objectives.
Treating a house flip according to their tastes is one of the most common money management mistakes that beginner investors make. Don’t fall for the trap of having the “best house in the worst neighborhood.”
For your first flip, you will likely work on a house destined to sell at an affordable price. Keep track of what similar homes are selling for and take a look at the other properties in the neighborhood. If you are working on a small ranch in a working-class neighborhood, potential buyers are unlikely to expect (or be willing to pay for) marble countertops.
If you want to make money by flipping houses, you will need to take money management seriously, including how you are using your funds and how you are financing future plans. Only spend the money you need to improve the value of the home but avoid superflux expenditures.
What is the best money management advice you have ever received when it comes to real estate investment?