The 19 Secret Expenses That Could Sink Your House Renovation Profits

[Joshua Michael Hauman]

1. Ready to take on that first or next fix and flip? Before you roll up your sleeves and start swinging that hammer, there's something crucial you need to know: the hidden costs that can quietly sabotage your renovation profits. By actively researching, obtaining quotes, and preparing for each of these costs, you'll create a more realistic and accurate rehab budget. This means fewer surprises, fewer setbacks, and ultimately, a better bottom line no matter if you intend to flip or BRRRR.
2. Permit Fees:
• Research local building codes and regulations, contact your local permitting office, and ask for a breakdown of permit fees. You can typically find this by typing into google “[Insert your city here] Department of Building and Housing”. Always include permits for major renovations in your budget.
3. Utility Activation/Transfer Fees:
• Contact utility providers well in advance to understand the fees involved in activating or transferring services. Include these costs in your budget from the start.
4. Dumpster and Waste Removal:
• Obtain quotes from waste removal companies based on the estimated amount of debris. Overestimate the volume if unsure to avoid unexpected expenses.
5. Landscaping:
• Consult with a local landscaper for an estimate. Consider low-maintenance landscaping or spending most of the landscaping budget on curb appeal.
6. Homeowners Association (HOA) Fees:
• Contact the HOA or review HOA documents to understand fee structures and any upcoming assessments. Include these fees in your budget. I don't buy property governed by HOAs for the fact that it is too variable of an expense to take on for me.
7. Property Taxes:
• Contact the local tax assessor's office for property tax rates and estimates. Calculate the annual cost and prorate it for your holding period. This can be found on your county auditors website.
8. Insurance:
• Shop around for insurance quotes and ensure you have adequate coverage for the renovation and any liability issues. Review your policy annually for cost adjustments.
9. Legal Fees:
• Seek quotes from real estate attorneys upfront and discuss your needs to get a clear understanding of entity creation and any potential legal costs.
10. Interior Design/Staging:
• Get quotes from professional stagers or interior designers. Consider virtual staging as a cost-effective alternative. I use this AI to stage my flips: https://www.virtualstaging.art/?via=topaitools
11. Property Management:
• If you plan to hire a property manager, research local property management companies, and obtain quotes. Ensure their fees align with your budget.
12. Marketing and Advertising:
• Allocate a marketing budget based on local advertising rates. Include professional photography and listing fees.
13. Travel and Miscellaneous Costs:
• Create a miscellaneous budget line item for unexpected expenses and pad it with extra funds to cover any surprises. This might include travel, living expenses you incur as you move or that mocha latte you buy on the way to check on the property.
14. Interest on Loans:
• Calculate the monthly interest payments, lender fees or any other cost on your loans and include them in your holding costs.
15. Contingency Reserve:
• Allocate a contingency fund as a percentage of your total budget (usually 10-15%) to cover unforeseen expenses.
16. Home Warranty:
• Research home warranty providers and obtain quotes. Use this as a form of insurance for yourself as a landlord if that is your exit strategy or offer this as an incentive to potential buyers while factoring in the cost.
17. Title and Escrow Fees:
• Request quotes from title companies and escrow services. These fees should be part of your closing costs budget.
18. Home Inspection Repairs:
• Budget for repairs based on the buyer's inspection report. Address critical issues and negotiate reasonable solutions to avoid surprises.
19. Cleaning and Final Touches:
• Hire professional cleaners and contractors for finishing touches. Ensure the property is in top condition for potential buyers.
20. Holding Costs:
• Calculate monthly holding costs by considering property taxes, insurance, utilities, and maintenance. Include this in your overall project budget.

By actively researching and obtaining quotes for each of these costs, you can create a more realistic and accurate rehab budget, reducing the chances that you have to change course later or make a costly mistake.

BP Community let me know if I'm missing any.

With resilience,
Josh