Whether you’re flipping houses to earn your primary income or doing it as a weekend hobby to supplement your income, tracking your expenses is vital for setting your resale price and knowing what profit you made. But keeping those expenses is more complicated than it appears to be on all those TV shows.
Here’s some advice on how to track your expenses when flipping a house:
Computer or Paper
First, you should decide just where you are going to record all your expenses. If you are running a business and have a computer, that’s the best way to keep track of things. You can set up a simple spreadsheet or your accountant can help you set up a system in an accounting program.
If you have a computer but aren’t really fond of using it, you also can set up a spreadsheet through an open source program, such as Google sheets, where you can add items right from your phone or tablet. This comes in handy when you get receipts at the work site or send a worker to the store with cash, so you can enter the data as soon as they return and hand you a receipt.
If you’re more comfortable with paper, you can get a ledger from an office-supply store and simply note the expenses there.
Wherever you set up your system, it’s a good idea to enter you receipts on a daily basis; that way you aren’t overwhelmed with a mountain of receipts (many of which will be faded from setting in your sweaty pockets) when you near the end of the project and want to start thinking about setting a price.
What Do You Record?
The simple answer: Everything! The more complicated answer: Depends?
Of course, everything that goes into the house you are flipping will be an expense you need to record. Every nail, every screw, every shingle, every piece of electrical wiring. This is where it can start to get more complicated (unless your electrical contractor provided all the wiring as part of his bid). Still, you might have to calculate some percentages if you use part of a purchase on this house and some on another house or the next house. Say you buy two boxes of roofing nails but only use a box and a half. Then you count 75% of that cost for this house (and don’t forget the other 25% on the next house).
Complicating the matter more might be tools you need to purchase as you work on the house. Hopefully you are in this business for the long haul and you can use those tools throughout your business, but why not put some of that cost into this house? If you think a compound miter saw can last you 20 houses, put 5% of the cost into this house. And maybe 50% of the blade cost, or 100% depending upon how long blades last you.
Costs of Ownership
These are those expenses you rarely hear mentioned on television. But as long as you own the home during the flip, you are incurring costs:
• Property taxes
• Interest on loans
• Lawn maintenance
• Home Owner Association dues
These can add up to some pretty significant figures, depending upon how many months you own the property, so don’t forget any of these figures.
This may not be a figurative cost, but you certainly want to keep track of all the hours you work on a house. This can include time spent buying the house, doing the accounting, shopping for supplies, marketing the house, showing the house. While you’re not likely to write yourself a check for any of these duties, you do need to value your time and make sure your profit really is covering the amount of time you spend on each flip.
Knowing all these real and figurative costs of flipping a house will ensure you set a fair price, give yourself a nice profit and decide if flipping houses is really the right business venture or hobby for you. Contact us for information on loans for purchasing and remodeling your potential flips and for other advice about the business of flipping homes.
Center Street communications are not intended to provide business, legal, tax, investment or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.