As a house flipper, you probably have your own home or apartment to take care of. This equates to the definition of carrying costs. In simple terms, carrying costs will equal the amount of money you will have to pay out of pocket to maintain the house you are flipping, while you are flipping it. You will get this money back in the end, but for now, carrying costs must be included in your budget in order to flip the house.
You are making an investment, and part of that investment includes basic upkeep. This includes paying property taxes, insurance fees, and utility bills. If you are investing in a condo or a type of property that requires fees, you will be paying those as well.
You can only estimate how much money you will need to subtract from the fair market value which is usually 20%. This amount can be more or less in the end. Flipping houses is risky, but after you have flipped a few of them, you will have a much better idea of the right percentage to deduct, and how to minimize problems.
In the end, knowledge is power. The knowledge we give you will no doubt empower you and increase your profit. Now that you know what carrying costs are, continue reading in order to learn how to minimize potential problems before they happen. Prevention is not only the best medicine; it’s a great way to save money and increase profitability over the long run.
If you don’t already have a great team put together, re-consider. This is a must have for any house flipper. People you can trust who work together well, that do not procrastinate, and are healthy/upright individuals should be on your team.
“One mistake I’ve seen people repeatedly make is that they focus too much attention on their dream and too little on their team. But the truth is that if you build the right team, the dream will almost take care of itself.” – John Maxwell
Completing your house flip in a specific amount of time should be one goal you set for yourself and everyone involved. Make it known to the team members that the amount of money they make will be conditional upon finishing in good time.
Expect the unexpected and set aside ‘grace’ for these unknowns. You could even offer a small bonus, or if you plan on flipping more houses in the future, let them know that their productive work ability must be above par in order to be re-hired.
Your subcontractors must be made aware of the goals and plans up front. Giving them details will give them a greater vision and motivate them to keep up with the schedule. If they don’t keep up, it might take longer to complete the project. The longer it takes, the more you spend on taxes, fees, and utility bills.
What will it cost you to ‘carry’ your team? If they can carry themselves, then you have a fantastic group of people whom you can trust. If not, you may have to choose new team members. Doing things right the first time will save you time and money – if you overlook these ‘carrying costs’, you may have to re-do something, which will cost you more time and money in the end. Rushing through any business plan will eventually cost you something – maybe even your profit!