Making the decision to dive into house flipping is exciting and it can be lucrative. The key to success is keeping your project on schedule. By developing a robust and accurate budget, you can ensure draw requests keep pace with progress during your fix and flip so that your project wraps up on time and within budget.
What to Include in Your Budget
Your rehab budget should include all of the details a lender needs to see in order to calculate the total cost for your project and see where every penny is being spent. Here are a few things to keep in mind when creating your budget:
- Include listing and descriptions of all items in your rehab budget.
- Consider your vision for the project and what you want to accomplish. The costs for updating a kitchen may be far less expensive than gutting the kitchen and installing a new one.
- Assess your own experience; how much of the work can you reasonably and competently do yourself?
- Depending on the scope of the work, you may need to hire a contractor. Choose the best contractor for the job, and incorporate their expertise and expenses into your budget.
- Create a checklist of common rehab expenses for yourself, and calculate expenses per square foot.
Why a Correct Rehab Budget is So Important
An accurate rehab budget will not only reduce the time it takes for your draw requests to get paid out, but it will also avoid nasty surprises like running out of money before your fix and flip is ready to hit the market.
In preparing your budget, it’s critical to know your market and understand what comparable properties are selling for, as well as what kind of amenities they have. If neighboring homes have laminate kitchen counters and you’re installing marble, it’s unlikely you’ll recoup your investment.
A good budget shows insight into the best way to maximize asset value within the constraints of the local market. Adding a bathroom, for example, may be more valuable than laying hardwood floors.
And don’t forget to add a cushion of 10%-15% to accommodate unexpected problems like leaky pipes that need replacement.
The Best Way to Get Your Draw Requests On Time
Knowing what lenders look for can help you prepare the strongest budget possible, enabling you to move quickly on flipping houses. The greater your level of detail, the easier it will be to stay within your budget and recognize when expenses aren’t lining up with planned expenditures.
For example, in a kitchen, list exactly what kind of countertop, flooring, and appliances will be used. The more specific you are, the less wiggle room the inspector will have when evaluating the property for your draw request. You want the inspector to be able to compare your work to the budget and note “yes” or “no” all the way down the line, not rely on judgment or guessing.
The Bay Mountain Capital Difference
A rehab budget is the best way to not only get your fix and flip project funded, but also ensure your draw requests are paid out on time. This will keep the momentum on your renovations going and reduce your carrying costs.
Once you find your property, draw up a budget that reflects your vision for the project. Keep in mind the market you’re working in, and strive to align your renovations with what your particular market most desires for maximum return.
Highly detailed budgets for flipping houses keep your draw requests paid promptly and your rehab running smoothly to completion.
Call Bay Mountain Capital once your rehab budget is ready, and we’ll discuss the next steps with you. With a dedicated asset manager, you’ll receive full consideration of your application, as well as someone to work closely with you after loan approval to review draw requests promptly.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans. We specialize in financing all types of residential and commercial property investments throughout Texas and Georgia. Using common sense and value-added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving a complete file and clear title. The process generally takes two weeks for a residential loan but can be accelerated where circumstances require it.
We are primarily an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.