Ways To Lose Money In Real Estate #4 (Remodel Costs)
Remodel costs and carrying costs are a quick way to lose money on a real estate investment. These costs can easily cut into or eliminate your profit margin on a flip or remodel project.
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Hey, Zach MacDonald, your real estate agent with Real Property Associates and we’re going to continue discussing ways to lose money in real estate and today I want to talk about remodels and house flipping. This is area and a way that you can lose money in real estate. You’ll see lots of videos on YouTube on how to make money flipping houses and remodeling houses. But I think it’s important to think and consider the dark side of remodels because what inevitably happens is when you’re doing a remodel or a flip, you have expenses. And there’s going to be costs to do the fix. There’s also usually cost to borrow the money and the longer that the project takes, the more money that you spend to borrow the money unless you’re buying all these homes cash.
But you’re essentially paying for the money and also paying for the work and if it takes too long, your money is really expensive. Right? And that’s going to cut into your profits. And if maybe the city has you bring sewer to the neighborhood or something like that. That’s going to be expensive.
Or if, the foundation has issues that you didn’t see before. That’s going to be expensive. Or if there’s, you need to rewire the whole house and you weren’t anticipating that. There are so many different things that could go wrong with a home and there might be a lot of different hidden conditions that you discover as you’re making progress in the project.
So, something just to be really diligent about when you’re doing a remodel project or a flip, is that research up front so you know what you’re getting into as best as you can and being generous with those projections because I’ve seen it, where you seemingly have an amazing margin as far as what you purchased it for and we’re talking about hundreds of thousands of dollars. You purchased for and what you sell it for. But, we were talking previously about the cost to sell. You’re going to have taxes and fees, things like that. You also have the costs for your money, and you also have the costs for the project and any one of those things could tip the scales to where maybe you spend six months to a year on a remodel project and you actually walk away paying money at escrow, which is not ideal.
Or maybe you’re not paying them actually, but proverbially speaking you really are in actuality paying them money. So, just be cautious if you’re remodeling and flipping houses. It’s a great way to make money in real estate if you’re able to do a good job projecting what the expenses are going to be, doing that work and selling it in a timely manner. It’s a great way to make money. But it’s also a way that you could lose money in real estate, so just be cautious.
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