Costs You Should Consider when Rehabbing a Home

If you’re thinking of flipping houses but you have no real construction skills yourself, how do you figure out the cost of rehabbing a home? This is a common dilemma many investors face, and without a clear understanding of what goes into rehabbing a home, it can lead to financial mistakes.

So, just how do you accurately estimate what it will cost to rehab a home? It’s important to keep in mind that there are more costs involved than just paying for a contractor, so keep reading for all the gory details. 

Your Rehab Team

It takes a village to rehab a house, so take enough time to build a rehab team you can rely on. The last thing you need is to hire a shady contractor because you were in a hurry to get something done. 

You want to hire qualified people who have the same goals in common. Your rehab team might include:

  • An attorney
  • Contractors
  • Lenders
  • An insurance agent
  • A real estate agent
  • A home inspector

Purchasing Costs

By far, the biggest expense of home rehab is the price of purchasing the property itself. Aside from the purchase price itself, purchasing property also includes other expenses such as:

  • Closing costs
  • Home inspection fee
  • An appraisal fee
  • Survey costs
  • Lender fees
  • Attorney fees

The Actual Cost of Rehab

Estimating this category can be challenging, but in general, this category includes contractor fees, permit fees, and any actual work that takes place on the house. To get a better idea of how much it’s going to cost, do a walk-thru with your contractor and get a quote. Alternately, if you can find a home inspector with knowledge of construction, you can ask questions of him as he inspects the house. 

You may also want to partner with another investor who has more experience than you to learn the tricks of the trade. 

Ownership Costs

Many inexperienced house-flippers forget about the actual cost of ownership. These expenses include:

  • Property taxes
  • Homeowner’s insurance
  • Mortgage payments
  • Yard maintenance
  • Utilities

Until you rehab the home and sell it, these costs come directly out of your pocket. 

Selling Costs

Once reaching this stage, many home flippers think it’s all profit. While this may or may not be true, selling a home comes with its own set of expenses that you need to budget for. These costs might include:

  • Staging
  • Real estate commission
  • Lead and/or radon testing, termite inspection, etc. that buyers often request
  • Home warranty
  • Attorney’s fees

Ultimately, flipping houses should be a for-profit venture. But, as with any investment, there are risks and costs involved. If you’re considering house-flipping as a way to increase your wealth, be sure you’re aware of these (hidden) costs.