How to Make Money on Flip Loans Part 3: Calculating Loan Costs

Before getting flip loans, calculate the cost of borrowing money.

When you start looking at flip loans, you have to do a lot of comparing properties and calculating costs to make sure you’re going to make money on a deal. We’ve been discussing these steps in detail. Read Part 1 to find out how to determine the After Repair Value (ARV) on a property. In Part 2, we went over how to calculate repair costs. For Part 3, we’re going to talk about the actual costs of borrowing the money to fix up the house. This is the part of real estate investing that the reality TV shows usually gloss over. However, it’s really important to calculate these costs before making an offer on a property.

Calculate the Closing and Holding Costs to Make Money at Real Estate Investing

There are several costs you’ll run into as you go through the steps of rehabbing a house. First are closing costs associated with buying the property. The seller typically pays the agent commission, these costs will usually be low. A good rule of thumb is to figure about 0.5% of the purchase price in closing costs.

However, when it comes time to sell the property, the closing costs will be higher. If you use a real estate agent to sell a property, you’ll pay their commission. The national average is between 5 and 6% of the selling price. But this is negotiable. Talk to a few agents. The buyer may want some concessions, which can add between 1 and 6%. Additional closing costs including title and escrow fees. This might be another 1%.

The other costs to consider for flip loans are holding costs. This means the interest you’re going to be paying on your loan. It also means utilities, insurance, and HOA fees. Don’t leave these out of your calculations.

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