Rehabbing A Property? 3 Things To Know About Setting Your Budget

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If you want to purchase a home, renovate it, and sell it for a profit, you might consider a house flip. Flipping houses is a common strategy that real estate investors use to make money, and lenders often call this process "rehabbing a property." If this is something you want to do, you will need a way to finance the project. You will also need to set a budget. Here are several things to understand about setting a budget when performing a house flip project.

Your Budget Proves the Costs and Profit

The first thing to understand is that setting a budget protects you. When you set a budget for a rehab project, you can clearly see the costs you will have for the project. You can also estimate the home's value after the project to determine if it is going to be worthwhile. If you must invest a lot of money into a home and cannot earn a profit, it would not make sense to complete the project. Your budget proves the costs and profit, and you can use it as a guide to determine if you should proceed with a project or not. 

Your Budget Should Include Everything

The second thing to understand is that your budget must include everything. If you skimp when preparing your budget, you might come up short on the funds you need. You might assume you can finish the project with $50,000 cash, but what happens if you really need $75,000? If you need more money than you figured, you might not have access to the money. You might also lose the profit you thought you would make. A lender needs to see your budget and will expect it to be accurate. They can help you in this aspect of the house flip.

You Need a Budget for Financing

When you visit a lender for an investment property loan, they will ask for your budget. They want to see the purchase price of the house and a breakdown of the renovation costs. They will also want to see the home's approximate value after the project. You cannot get financing without a clear, accurate budget. Additionally, they may ask many other questions, too. If you can prove that you can make a decent profit on the deal, the lender might be more inclined to approve your loan. To learn more about investment property loans, contact an investment property loan provider.