Six Costs That Eat Up Profits When Flipping Properties

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The main reason I cannot get excited about the property-flipping strategies that are being taught today is that they are way too expensive. There are six costs involved in flipping a property that eat up profits just like a Florida sinkhole sucks up fill dirt:

1. Acquisition costs.

2. Transaction costs.

3. Closing costs.

4. Repair costs.

5. Holding costs.

6. Sales costs.

The truth of the matter is that investors have no real control over how much a property-flipping transaction will ultimately cost them. The reason for this lack of cost control is that the actual amount of the holding cost is unknown when flipping a property. Holding costs include debt service, insurance, property taxes, maintenance, and security. And the single largest cost of holding on to a piece of property is its debt service or monthly loan payments. The problem with being the proud owner of a piece of investment property is that the mortgage meter is always running, whether the property is occupied or vacant. I learned this lesson the hard way when a property-flipping deal, which I thought was going to be a slam-dunk, turned out to be an air ball instead. When I was young and dumb, I bought a run-down single-family house in South Tampa with the intent of turning it around and reselling it for a fast profit. In those days, the term flip was not widely used. I quickly fixed up the house and put it up for sale at a below-market purchase price and waited for the thundering herd of buyers. Well, after six months and $3,800 in mortgage payments, I sold my money pit for a whopping $4,500 profit! This is when I decided there had to be a better way, and I started to learn about real estate options. I came to the realization that it would be much cheaper, easier, and faster to flip a real estate option than a piece of property.

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