Six Costs That Eat Up Profits When Flipping Properties
The main reason I cannot get excited about the property-flipping strategies that are being taught today is that they are way too expensive. There are six costs involved in flipping a property that eat up profits just like a Florida sinkhole sucks up fill dirt:
- Acquisition costs.
- Transaction costs.
- Closing costs.
- Repair costs.
- Holding costs.
- Sales costs.
The truth of the matter is that investors have no real control over how much a property-f lipping transaction will ultimately cost them. The reason for this lack of cost control is that the actual amount of the holding cost is unknown when flipping a property.
Holding costs include debt service, insurance, property taxes, maintenance, and security. And the single largest cost of holding on to a piece of property is its debt service or monthly loan payments. The problem with being the proud owner of a piece of investment property is that the mortgage meter is always running, whether the property is occupied or vacant.
I learned this lesson the hard way when a property-flipping deal, which I thought was going to be a slam-dunk, turned out to be an air ball instead. When I was young and dumb, I bought a run-down single-family house in South Tampa with the intent of turning it around and reselling it for a fast profit.
In those days, the term flip was not widely used. I quickly fixed up the house and put it up for sale at a below-market purchase price and waited for the thundering herd of buyers. Well, after six months and $3,800 in mortgage payments, I sold my money pit for a whopping $4,500 profit! This is when I decided there had to be a better way, and I started to learn about real estate options.
I came to the realization that it would be much cheaper, easier, and faster to flip a real estate option than a piece of property.
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