At a time when reality television shows have made property novices into flipping geniuses, you may think success in fixing and flipping houses should be easily within your reach. Flipping houses seems pretty straightforward. And, you would think being in the building trade would give you an edge in understanding your expenses and anticipated resale value. But if you’ve ever jumped into a fix and flip project with dollar signs in your eyes only to find yourself blindsided by unexpected fix and flip costs, you know that developing a sound budget—and sticking to it—is not always an easy task.
Begin with a detailed house flipping budget
It may seem like everyone is entering the house-flipping business, but make no mistake about it: fixing and flipping is a high-risk venture. A lot can go wrong before you ever get to plant that for sale sign out front. While you may be adept at pricing out material and labor costs, renovating an existing house is a far cry from new construction.
Start knocking down drywall and pulling up floorboards, and you never know what you are going to find. It may be mold, unsafe wiring, leaky plumbing, termite damage, or something else. So, in addition to sharpening your pencil to price out expected materials and labor, budget for the unexpected. Look at your final budget figure, then scratch it out and replace it by a number that is 20 percent higher. That’s what experts suggest be the minimum cushion for what may go wrong. Keep in mind, however, that there are no guarantees a job won’t push that limit even higher.