Speculative real estate transactions have become extremely popular again in the last few years. Depressed house values combined with historically low interest rates have created the perfect environment for people looking to flip homes for a profit. But for many, this does not mean buying the house with cash, it instead means getting a mortgage on the investment property, fixing it up, and eventually selling it. Unfortunately, some would-be investors do not realize the actual cost of the mortgage in these situations.

First and foremost, there is a monthly cost to a mortgage. This cost is fixed and present until the property sells. So, if you planned to flip the house in 60 days, and it takes 120 days, then you are going to need to be able to come up with the additional mortgage payments.

Another big cost is closing costs. Over 30 years, the costs to close on a mortgage are very small, because there is so much time to factor those costs against. But over a shorter time horizon, closing costs can eat away at your profits on the flip.

Another major consideration is not to stretch when valuing your home after making the changes. If, for instance, you purchase a property and think you might be able to fix it up and sell it for $300,000, you should account for earning less than that, so that you can ensure profitability in your flip.

But ultimately, if you are looking to flip a house for profit, it can be a great idea and a great way to make some extra money. If you are considering flipping a house with a mortgage, please contact me so that I can get you all the information you need to help you determine the appropriate purchase and sale price you should target for yourself. If you have anything to add about flipping houses with a mortgage, please leave a comment.