“It’s going to take
you approximately 2
4 months to repair,
market, and sell the
property. During
those months, you’ll
incur holding costs
(i.e. mortgage
payments, taxes,
insurance, and
utilities).”
Estimated profit: While we're
at it, let's factor in profit. You
want to make at least a 2025%
profit on each of your flips. In
that way, if unexpected expenses
do popup, you’ll have some
margin before you lose money
on the deal. (And if you sell the
house for more than you
expected, or your expenses are
lower, you’ll make an even
better profit.) will yield only a 10% return,
which would you choose?
Lost opportunity costs:
Opportunity cost is the cost of
pursuing one investment choice
instead of another. Every
investment you make has an
opportunity cost. With respect
to flipping, lost opportunity cost
boils down to making choices
between various deals. For
example, if you are considering
two potential deals and can only
make one, which one is likely to
generate the greatest return?
Which fits best into your
workload, your skill set, and the
time you have available? If you
can spend the same amount of
time and money on a property
that will generate a 20% return
instead of another property that Time: Another cost that you may
not have considered is your time.
Successful flipping takes time. If
you buy a property and plan to do
some repairs yourself, you will
save money on repair costs but
you'll also spending your time.
How much is your time worth?
If you'll spend 300 hours
repairing and renovating a
property and will make $3,000 in
profit, your time was worth $10
per hour. If that sounds good to
you, great! If it doesn't, you'll
need to adjust your cost estimates
accordingly. For example, if
your time is worth $50 per hour,
you should factor $15,000 into
your budget for those same 300
hours.
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