Have you ever watched those popular real estate flipping shows that seem to dominate the home and do it yourself networks? They make it seem so easy to make a profit flipping real estate. First, they begin by telling you how much a property was purchased for. After tallying up the construction costs and subtracting them from the amount that the property sold for, they produce a number that is supposed to be the amount of profit that the investor put in his pocket. Sometimes these numbers are astronomical and too good to be true.
While many investors make a phenomenal amount of money through real estate investing and flipping properties in particular, there are numerous costs associated with selling a property that documentary shows like those mentioned above just do not mention. These costs can reach into the thousands of dollars, so it is important that you become familiar with each and every one of them before you start counting your profit.
The most expensive cost associated with selling a home is the real estate agent or brokerage fee. This is the percentage that your broker takes directly out of your profit for securing a buyer and making a sale. Normally these fees average about 5 to 6 percent, but they can vary according to the sale price of the property and the area that it is located. If you do not wish to hire an agent, you will still have to figure in costs of advertising the property and taking time out to show the property yourself. All of which can add up pretty quickly.
Inspections are another expense that can cut into your real estate investing profit margin. In many areas, health inspections are mandated and must be provided by the seller. Any needed repairs found during these inspections must also be provided by the seller. These inspections can include septic, termite, mold, lead paint, electrical, ground water, and a host of other inspections mandated by the area in which the property is located or by the buyers themselves. These inspections are individually priced and vary according to the location, size of the home, and purchase price. You may also opt to have a general professional inspection performed on the property although this is normally done by the buyer. This costs anywhere from $100 to $200 and depends on the purchase price.
Before you sell the property, you may have to have it appraised to determine the value of the home. This costs around $100. Other fees associated with selling a home include legal fees if you decide to have a lawyer look at the sales contract; prepayment penalty if you have taken out a mortgage to buy the property; and capital gains taxes on any profit secured from the sale of the property.
As you can imagine, all of these costs add up quickly. Do not forget to take them into account when calculating your real estate investing profit.
James Klobasa, once broke with no job and $20,000 in debt made a choice that changed his life forever. That choice was investing in Real Estate. With the founder of, The Little Building Co. you too, can learn at Real-Real Estate Investing