For motivated individuals, fixing and flipping houses provides a unique opportunity to transform an outdated home into a money-making venture. However, making money flipping houses is no easy undertaking.

In most cases you’ll find yourself fighting a tight schedule and even tighter budget that demands speedy turnaround.  There’s a reason it’s called flipping. You can reduce some stress, of course, with assistance from private money lenders in California, Texas, or New York.  However, you still need to stay on top of your timetable in order to earn the greatest profit.

In addition, you have to do all you can to avoid going over-budget. This can be difficult in situations where you only have a few options.  If you are buying a home with bad credit or you’re looking for short sales, foreclosures, or run-down houses in up-and-coming areas, then you will have to keep a close eye on your profit margin.

Making a good return on your investment requires you to buy low, fix fast, and make the repairs and upgrades that are going to significantly increase the market value of the home. However, mistakes can wreak havoc on your budget.

Planning can go a long way toward keeping you on track.  You certainly can’t afford to ignore your expenses along the way. Here are a few tips to help you manage expenses throughout the house flipping process.  These will help you repay your hard money lenders in California in a timely manner and make the greatest profit in the process.

Materials

The best thing about the cost of materials is that you can usually determine them ahead of time. If you can get into a property before you buy, then you should be able to anticipate costs for renovations.  At the very least you’ll identify cosmetic upgrades like flooring and paint.

Unfortunately, you might not know everything that’s wrong with the home until you purchase it and read your home inspection report. In cases of short sales, foreclosures, and other “as is” properties, you may only be able to see the outside of the home prior to purchase.

Still, you can often control the cost of materials and even reduce them in some cases as your budget demands. These expenses should be among the easiest to track in the course of your project.

Labor

You might mistakenly assume that labor costs will also be easy to control. While you should be able to create a close estimate, this element of house flipping can be difficult to quantify.

Most professional flippers line up a solid crew of workers they already know and trust.  By only working with known contractors, they can ensure that labor is completed in a timely, efficient, and high-quality manner. A reliable contractor and crew should be able to adequately estimate the duration of a project so that you can plan accordingly.

However, there are definitely going to be instances in which labor delays occur due to any number of factors.  Illness among workers, inclement weather conditions, delays in delivery of materials or a delivery of incorrect materials are just some of the problems that can throw your schedule off. In such cases, your labor costs could go well beyond what you planned for.

Mortgage

Whether you have a traditional mortgage or, if you’re unable to obtain home loans with bad credit and you have to turn to hard money lenders for funding (often a better choice for flipping houses anyway), you’ll still have to contend with a loan payment and associated costs.  Expenses like homeowner’s insurance, disaster insurance (earthquake, flood, etc.), HOA fees in some cases, and possibly even property tax, depending on how long it takes you to sell, will start to add up fast.

Factoring in this monthly cost will impact your budget.  Even if your plan is to fix the house within 1-2 months and sell immediately, you have to keep in mind that the escrow process could stretch out your timeline, increasing mortgage costs along the way. Plus, you might not be able to make an immediate sale. You need to prepare for this possible outcome and budget accordingly.

Setbacks

You should always, always anticipate setbacks such as work delays, repairs you didn’t expect, and an inability to secure a speedy sale once the property is back on the market. By planning your budget accordingly, you can reserve 10-20% of your funds for such overages.  This safety net will ensure that you’re able to finish your project and continue paying the mortgage on your property until you make a sale. Tracking expenses along the way will help you to stay on budget and maximize profits.