The Hidden Costs of Flipping a House

Written by Zachery Adam

July 8, 2019

The Hidden Costs of Flipping a House

The Hidden Costs of Flipping a House  

Have you ever watched the shows on HGTV and wondered if you could buy and flip a house? They make flipping a house look so easy. It appears to take days to turn what was once a tragic before picture into a luxurious abode that will garner tens of thousands of dollars more than the initial cost. If you’ve ever thought you wanted to try your hand at flipping, it may be helpful to look at the hidden costs. At GoPrime, we don’t specialize in loans for house flipping, and there are many reasons why. Here are the things you’ll need to look out for.  

High Cost of Financing 

When you do watch the home renovation shows on TV, what you see is a very romanticized version of the experience. What you don’t see is the high cost of financing a home in desperate need of repair. It appears that the experience would be lucrative when you sell the newly renovated home, but making up the cost of material is only a fraction of the formula.  

To get a loan to flip a house, you’ll need to be able to put cash down. Flipping is considered high risk and your loan will be assessed very differently than a primary residence. In fact, many mortgage lenders don’t offer these packages, including GoPrime in NC.  

Appraisal Costs 

There are a lot of things tied up in the appraisal of the house you’re buying in order to renovate and flip. You need the appraisal to qualify for a mortgage, based primarily on the ‘After-Improved Value’, (AIV). More importantly on a flip, you want to know your numbers to ensure your profit margins work out at end of the project.  

Here’s the kicker. You’ll have hidden costs on any renovation project, that will impact both your net numbers, and any material budget cuts, could impact the final AIV.  In the vast majority of cases, the post-flip appraisal will be an improvement, but does it justify the cost of the entire flip? The appraisal cost itself is small, all things considered, but there’s a lot riding on the outcome.   

Home Inspections 

For a flip, you’ll need more than a cursory inspection before buying. Any time you do work on the house you’ve bought; you’ll need to reach out to the local municipality for inspections. And all of this will be dependent on your specific city or town and the building codes and requirements.  

When the work on the house is completed, you may also want to get a pre-inspection. The longer your flipped house is on the market without selling, the more money you’ll lose as you continue to pay on the high cost loan and all the other associated costs.  

Taxes and Insurance 

According to the IRS, flipping a house is not considered a passive income stream. Instead, the money you make on flipping a home will be taxed as regular income rather than capital gains. That means a much higher tax rate than what people see with capital gains.  

The important thing if you’re going to flip a house is to keep track of all your financials. There may be tax deductions, but you’ll need to consult with an accountant to find all the details.  

We are also not insurance experts so we won’t be able to provide advice. But it is important to note that most traditional homeowner insurance policies are not set up to cover homes in the process of being flipped. You’ll need to discuss options with a professional if you decide to move forward with your project, and most likely obtain a builders risk policy during construction 

Construction 

Of course, the single biggest cost for most house flipping projects is the construction itself. The extent by which you need to renovate will depend on a number of factors. Some homes will need to be stripped to the studs, and started as if from scratch. Others have good bones that just need TLC to make them shine.  

But budgeting for the construction will be a huge part of your process. And know that it will likely take a lot more time and money than you initial expected, especially if you’re inexperienced.  

Emotional Toll 

What a lot of people don’t consider when they decide to take on a major renovation to flip a house is the emotional stakes. For example, if you partner with a friend, family member, or spouse to do this project know that you will butt heads and it will be challenging at all times.  

Even if you work well together, the kind of work it takes to flip a home will be dirty, stressful, and sometimes even frustrating. It’s important to keep that in mind throughout the process.  

Do you want to know more? GoPrime can refer you to additional resources, so call us today 

Steps for Homeowners During the COVID-19 Crisis

Steps for Homeowners During the COVID-19 Crisis

The Next Steps for Homeowners During the COVID-19 Crisis At GoPrime Mortgage, we’re dedicated to helping our community through the Asheville area’s “Stay Home, Stay Safe” order. We want all of the homeowners we’ve worked with over the years to have a better...

read more
Preparing for Back to School in the Age of COVID-19

Preparing for Back to School in the Age of COVID-19

Preparing for Back to School in the Age of COVID-19 There is no longer any doubt: the 2020 school year is going to look very different. The COVID-19 pandemic is changing our lives as we strive to protect the most vulnerable, but that also means that our children will...

read more
Affordable Housing as Social Justice

Affordable Housing as Social Justice

Affordable Housing as Social Justice Social justice has been at the top of conversations in Asheville and around the country for several weeks now. While there is a lot of misunderstanding when it comes to the definition of social justice, it’s been a driving force...

read more
Buying My First Home

Buying My First Home

What I Wish I Knew About Mortgages and Real Estate Before Buying My First Home  Before I was an independent mortgage lender, I was a first-time homebuyer. My experience, like many others, wasn’t perfect. I found it difficult, challenging, and even frustrating. It was...

read more

Related Articles

Buying My First Home

Buying My First Home

What I Wish I Knew About Mortgages and Real Estate Before Buying My First Home  Before I was an independent mortgage lender, I was a first-time homebuyer. My experience, like many others, wasn’t perfect. I found it difficult, challenging, and even frustrating. It was...

Preparing for Back to School in the Age of COVID-19

Preparing for Back to School in the Age of COVID-19

Preparing for Back to School in the Age of COVID-19 There is no longer any doubt: the 2020 school year is going to look very different. The COVID-19 pandemic is changing our lives as we strive to protect the most vulnerable, but that also means that our children will...

Just a Few Reasons We Love Asheville

Just a Few Reasons We Love Asheville

Our North Carolina Home: Just a Few Reasons We Love Asheville Do you love where you live? One of the things that we’ve found living here in Asheville is that loving the city is an integral part of the entire experience. Sure, that doesn’t mean it’s perfect rainbows...

About Us

How we can help you

Although labeled an independent mortgage lender, GoPrime Mortgage, Inc. . is not a one-man operation. Zachery Adam and his Team has the support of a streamlined operation, with professionals who assist in every phase of the loan process. His team includes an appraisal vendor, loan processors, underwriters, closers and even the CEO or president if needed. When you choose to work with Zachery, you get the support of his team as well.

Zachery Adam

It’s important to Zack that he and his team are approachable and can provide assistance to home buyers who are often inundated with misinformation about the financial picture and mortgage options. In an automated culture reliant on digital communication, it’s time to put the human element back into these conversations. He could never be behind the scenes.

Daniel Clancy

Today, Dan likes working with first time home buyers to help them through the often intimidating process of buying a home. In just the time he’s been with GoPrime Mortgage, Inc., Dan has been able to work with a number of diverse products including USDA, FHA, and VA loans. This has given him great insight very quickly about the best ways to work with homebuyers.ern Appalachian city.

When you apply securely online with GoPrime Mortgage, Inc., we will contact you within 24 hours or less.

We want to be more than your mortgage lender.

The company, like Branch Manager Zachery Adam, wants to become the go-to destination for people who have questions about real estate financing and the mortgage application process. Applying for a mortgage can be a frightening process at a bank. GoPrime Mortage, Inc. aims to keep the process simple.

Our mission is to:

  • Provide holistic mortgage planning for every customer
  • Offer simple, strategic solutions for all homebuyers
  • Supply reliable services for real estate investors
  • Educate the public on the mortgage process
  • Keep the mortgage process simple for all customers
  • Inform real estate agents of the latest mortgage news

In short, GoPrime Mortgage, Inc. will provide complete, inclusive mortgage solutions that are educational, transparent, honest and sincere. No other bank or independent mortgage lender can beat the service and prices — the complete package — that GoPrime Mortgage, Inc. offers.

 

Let's Get Started

Contact Info

862 Haywood Road Asheville, NC 28806

828-348-1907

WestAsheville@GoPrime.com

Enjoy a mortgage process built for the modern world.

Borrowers can easily complete a loan application, upload supporting documentation, eSign disclosures, and monitor the status of their loan — in a single, easy-to-use location.

Pin It on Pinterest

Share This

Share this post with your friends!