“No Call, No Show” Policy: The Definition and Why You Need One (Template Included)

Flipped homes accounted for 5.7% of all home sales in the last quarter of 2021. House flipping can be an excellent small-business opportunity with a solid ROI. This is also a business venture anyone can explore without much experience. Many teams started flipping homes with little to no qualifications or expertise tied to the real estate market. This makes it an attractive option for amateur investors. While house flipping can be an exciting and lucrative enterprise, it does need to be approached the right way to keep the risk level under control. It always starts with considering the costs and setting a proper budget for flipping homes. But how much does it cost to flip a house? Before we answer this question, let’s explore the home flipping process in more detail. What Is House Flipping? If you are interested in learning how to flip houses, you need to understand the basics of this venture. Flipping houses is a real estate investment strategy where investors purchase a home to sell on rather than to use. The aim is to buy the property at a low price, fix it up into something habitable, and sell it with a high profit margin. One of the key aims is to put the home back on the market as quickly as possible. The longer you hold onto the property, the greater the risk and the costs become. The costs building each day own a home include: Insurance  Tax Utilities Mortgage payments Profiting from flipping a home is possible through pure price appreciation due to a heated real estate market - and it is now the hottest it’s ever been - combined with capital investments used to improve the home and increase its value even further. How To Start Investing in Real Estate If you are keen to start flipping homes, you must limit the risk while maximizing your potential return. To do this, you need to follow the 70% rule. The 70% rule is simple: As an investor, you should only pay up to 70% of the after-repair value (ARV) for the home, not taking into account the cost of repairs required. The ARV refers to the house's value after the property is ready for the market. The best way to explain this is by using a working example. For example, if a home’s ARV is $300,000. Even if you’re not flipping big houses, this is a realistic example in today’s market. The house might then need $50,000-worth of repairs. If that’s the case, a property flipper should pay no more than $160,000 for the home. This is 70% of the ARV, minus the repair costs. Professional house flippers use several ways to find houses to flip, including sales ads, real estate lead generation services, and word-of-mouth. The Costs Involved In House Flipping To create your house flipping budget, you must consider all the costs involved in this process. These include: Financing Closing costs Renovation Tax Insurance Marketing Remember, the total cost of all these factors should not add to more than 70% of the ARV, with the exception of the cost for repairs. Financing While it’s possible to flip houses with no money, you’ll have to borrow to purchase a property first. When looking into the cost to flip a house, the initial financing will likely be the most significant chunk of the expenses. Different financing methods for flipping property change the risk levels. For instance, a mortgage might have a high interest rate, while a home renovation loan will likely charge much less interest. There are different types of mortgage loans, too, so choose carefully if you don’t want to bury yourself in payments before even starting your business. Of course, the most favorable option would be to purchase the property using your own capital. If you can use financing to your advantage, it can also provide opportunities to flip several homes simultaneously. Do note that there are also likely to be other expenses included with the loan. For instance, most loans provided by private lenders come with origination fees. Add closing costs to this, and your initial expenses might surpass the average cost of flipping a house. In other words, be careful who you borrow from. If you’re lucky, you can get a Fannie Mae HomeStyle loan to cover the property's purchase price and refurbishing cost. Since this is a government-backed loan product, it will have favorable conditions. However, the lender will need to approve any contractor doing work on the home you bought with the HomeStyle loan. Closing Costs Whenever purchasing a property, you will be accountable for some of the closing costs. The costs here will usually amount to 5% of the price that the property was purchased for and include: Insurance Title company fees Title insurance You should receive a full breakdown of these costs from your lender or real estate agent. For example, if you buy a home for $300,000, you may have $15,000 in closing costs. As such, the total cost for the home would stand at $315,000. Renovation and Repairs Once you have done your due diligence and purchased the home, you now need to consider the costs of preparing the property for the market. First, consider how much you will need to pay for materials and labor to complete the work required. You might need to pay for building materials, as well as furniture and appliances if the home was stripped bare. In terms of labor, you will likely need the following services: Plumber Electrician General Contractor Landscaper Don’t forget, to add value to the home, the work must reach a certain quality standard. If you are not experienced or qualified, you will need to rely on the support of professionals. There are three different types of repairs that a home may require: Cosmetic  Moderate Extensive Of course, cosmetic repairs are the cheapest, and the cost to flip a house can increase dramatically as we go down the list. Cosmetic Work Cosmetic repairs include replacing things like carpets, repainting the walls, and basic landscaping to keep any outdoor space tidy and enhance the curb appeal. The latter is particularly important if you’re doing an open house, because it contributes greatly to any potential buyers’ first impressions. Cosmetic repairs should not cost more than 5% of the property you have purchased. In our example of a home worth $300,000, a maximum of $15,000 would go toward cosmetics. Moderate Work Moderate work means significant repairs and contract work necessary to increase the home's value. Moderate repairs can include kitchen renovations and bathroom upgrades, like adding new fixtures and modern appliances to make the home more practical and valuable to a potential buyer. The cost of moderate work can be double or triple the amount for cosmetic changes. You might spend $30,000 on moderate repairs for a home worth $300,000. However, moderate repairs also increase the property's value much more than cosmetic ones. Extensive Work In some cases, you might invest in a home that requires significant work. This could include fixing structural issues or adding additional rooms to ensure that the home is more practical for a modern buyer. You could spend as much as $50,000 on extensive repairs. Extensive repairs can be worth it if you can purchase the home for a low enough price, and the work you do make it skyrocket in value. However, this will increase the level of risk, as you may be unable to get a high enough ROI to offset the repair costs. Tax and Insurance There are two different types of tax costs to consider as part of your house-flip budget. This includes monthly property taxes that need to be paid while you maintain ownership of the home and the taxes you may need to pay at settlement. Do note that property tax can vary substantially depending on where you invest - even properties in the same state can be taxed differently. Property taxes can also impact how attractive the home is to potential buyers. You must keep this in mind if you want to sell the property fast by attracting a large number of buyers immediately. The insurance required for flipping a home is different from the coverage for living in a property. Typically, you will need vacant and unoccupied coverage. The average cost of this insurance is over $1,800, even for a smaller home. It’s so expensive because of the increased risk of property damage due to no one being there to protect it. When choosing your insurance package, make sure it provides full coverage, including coverage for flood and fire damage, depending on where the property is located. Marketing Costs Once you’ve completed work on the property, you will need to choose the right marketing solution; this will be a significant portion of the house-flipping cost. In recent years, internet marketing has been a vital element of this, too. First, choose whether to handle the marketing yourself or use a realtor. If you are marketing the home yourself, you need to consider everything from the best listing for your property, to advertising it on the right websites. You will also need to create promotional materials, such as photos for the home’s exterior and interior. If you hire a realtor, they will handle all this for you; in a way, you can pay someone to flip your house for you. Those using a real estate agent should expect to pay them approximately 6% of the home sale price. If we resold our example $300,000 home for $400,000, that would mean paying the realtor $24,000. As such, you might assume it would be more cost-effective to market the property yourself. However, this is actually rarely the case: You will need to handle multiple costs for a range of services and products, making the process far more complicated and ultimately more expensive than the one-off realtor price. Mistakes to Avoid When exploring a fix & flip investment, it’s important to avoid some common mistakes that new investors tend to stumble upon. First, set a budget before you begin. This should include everything from the initial labor costs, to the closing costs for the home sale. It is the only way to generate a realistic number for ROI that you are likely to gain with the sale of the home. Also, research the market carefully: You need to know precisely how much a home in a specific condition should sell for. You should also know how much the necessary repairs will cost before buying a property; this will guarantee that you aren’t caught off-guard later. As mentioned, a strong starting formula for flipping houses is the 70% rule. If you can’t predict making enough from the house to follow it from the beginning, you might want to choose a different property. Conclusion We hope you now have a comprehensive understanding of all the costs tied to a property-flipping investment. By accounting for these costs, you can plan a thorough budget from day one. This will increase the chances of gaining a solid ROI from this investment.

If you run a company, you’ll almost certainly have come across the terms “gross pay” and “net pay” as part of your payroll operations. But what do these terms actually mean?  Below, we discuss gross pay vs. net pay and how to calculate both for your employees.  Gross vs. Net Pay Gross pay is what you pay employees before taxes and deductions. It’s the salary you quote when you’re recruiting staff. For instance, a company might advertise for a marketing manager, paying $45,000 per year plus benefits.  Gross pay and net income (also called “take-home pay”) are not the same. You’ll notice that net pay is, by definition, lower than gross pay. That’s because it’s calculated by subtracting taxes and deductions from gross pay (and then adding benefits or allowances).  Employers typically highlight net pay in bold on pay stubs since this is the money the employee actually receives into their bank account. Employees in the systems of income tax withholding (“pay-as-you-earn” or PAYE) never receive their gross pay. If you have the right software, payroll sends taxes automatically to the IRS.  Gross Income vs. Net Pay: Deductions Gross monthly income is all of the pay an employee receives as compensation for their work. Net pay is the total income minus any deductions.  As stated above, apart from some very unusual circumstances, net pay is lower than gross pay. Deductions from gross pay fall into two categories: voluntary and involuntary deductions.  Involuntary deductions include:  Payroll taxes (Social Security - or FICA - and Medicare taxes) Federal taxes State taxes Local income taxes Employers may also make voluntary deductions on the employee’s behalf. For instance, workers may see further reductions in their take-home pay due to:  Union dues Equipment and uniform costs Pension contributions 401(k) deductions Health savings account deductions Flexible savings account deductions In most cases, you can opt out of these payments. For instance, employees don’t have to make pension contributions or put money into a health savings account.  For most voluntary deductions, the money remains the worker’s, whereas for involuntary deductions, it doesn’t. For instance, an employee will eventually be able to access the funds in their 401(k) account whereas they can’t get back any taxes they owe (unless they’ve paid more than they should).  In most cases, there is a penalty for accessing savings early. For instance, employees may have to pay a fee to their pensions provider for early release. HR departments can inform workers about the types of penalties they’re likely to face if they want to access their cash today. This information is something you, as an employer, can include in the employee handbook.  How To Calculate Gross Pay Now that we’ve discussed the gross pay definition, it’s time to find out how to calculate it. How calculations proceed depends on whether the employee gets paid hourly, weekly, or monthly.  Gross annual income is simply the sum of weekly or monthly paychecks. For instance, if an employee receives a wage of $3,000 per month, then their gross annual income is just $3,000 multiplied by 12 – the number of calendar months in the year. If their weekly income is $1,000, then their annual pay is $52,000.  Here is a table showing how many payrolls are necessary per year depending on the frequency of the payroll accounting period:  Pay period Example Payrolls per year Daily You pay employees at the end of the day, say at 5 p.m. 365 Weekly You pay employees every Friday evening 52 Biweekly You pay employees every fortnight, such as a Friday 26 Semimonthly You pay employees twice a month, for example, on the 1st and then the 15th 24 Monthly You pay employees once per month, say on the 27th 12 If employees receive pay by the hour, then calculating gross pay is a little more challenging. For instance, you might have an employee earning $15 per hour, working 40 hours per week, on average. This would imply a weekly pay of $600. For payroll purposes, you’ll usually calculate their expected income and then pay taxes on their behalf based on this. Then, if they earn less than expected, they can apply for a tax rebate.  Employers who pay bonuses also need to add these to their gross salary calculations. Bonus income is often taxed at a different rate from regular income. For instance, an employee might receive a base salary of $52,000 and then a bonus of $10,000 for good performance. Total income would be $62,000. The additional $10,000 is generally taxed at a different rate from the rest of the employee’s pay.  How To Calculate Net Income Because of the complexity of the net pay definition, the net income formula is quite complicated. Here’s what to do:  Step 1: Calculate Gross Pay First, to find annual net income, calculate gross income.  Step 2: Calculate Voluntary Pre-Tax Deductions Part of the difference between gross income vs. net income are voluntary deductions.  Employers typically make deductions such as health benefits, commuter benefits, or pension contributions.  Here’s an example:  Gross income $2,500 Health insurance -$500 Pension contribution -$200 Uniform costs -$20 Taxable gross income $1,780 Step 2: Subtract Mandatory Payroll Taxes Once you’ve deducted all voluntary contributions that reduce taxable gross income, the next step is to calculate mandatory payroll taxes.  Generally speaking, employees pay both federal income tax withholdings and FICA payroll taxes. Local and state tax withholdings may also apply.  Federal Income Tax To calculate an employee’s federal income tax, you’ll need to know their: Filing status (based on marital status and family situation) Withholding allowance Gross wages Most employers use an IRS Income Tax Withholding Table for the current tax year – Publication 15-A – to find their employees’ tax bracket.  For instance, suppose an employee has gross wages of $2,500 and a tax withholding allowance of $1,000. The federal government will then tax the remaining wages at 22%, implying a tax bill of:  ($2,500 - $1,000) x 0.22 = $330 Net pay will then be:  $2,500 - $330 = $2,170 FICA Payroll Taxes Employees may also have to pay payroll taxes. These are currently set at 15.3%, with the employer and employee sharing the tax burden equally (7.65% each). Payroll taxes include a Social Security tax or FICA charged at 6.2% on the first $147,000 in income and a Medicare tax at 1.45%.  To calculate this, first find the taxable pay (after making all qualifying voluntary deductions). Then reduce the gross pay by the amount stipulated on the FICA tax to get the net pay.  Here’s an example:  Taxable gross pay $2,500 Medicare at 1.45% -$36.25 Social security at 6.2% -$155 Net pay  $2,308.75 Step 3: Apply Any Additional Mandatory Contributions Employees may also have to pay local and state taxes, so any pay stub must include these, too. Furthermore, some workers may be subject to court-ordered wage garnishments for things like child support or bankruptcy payments.  Further Reading Onboarding New Employees: A Guide Employee Tracking Software - The Best Solutions The Best Free Employee Scheduling Solutions Wrapping Up The difference between gross pay and net pay is easy to understand once you become aware of all the elements that comprise gross pay. Gross pay is the wages employers offer employees before deductions and taxes, while net pay is what they actually get at the end of the pay period.   

Airbnb allows property owners to rent out accommodation to the public for a fee. Anyone with extra space, such as a spare bedroom, annex, or even a whole property, can start earning extra money from the platform. As such, Airbnb offers a tremendous economic opportunity for those looking to supplement their pension or wages.  In this post, you’ll learn how to start an Airbnb business and what you need to do to make it lucrative. Read on to learn more. Why Should You Start an Airbnb Business? Before we dive into the “how” of starting an Airbnb business, it’s helpful to ask why you would want to start one in the first place. While everyone is different, most people share the following motivations for doing so:  It allows you to earn an extra income on the side for minimal effort on your part. You can list properties for free. You only pay Airbnb when you make a successful rental. You give guests a more personalized experience compared to hotels. Many travelers want a home-away-from-home-style stay when they visit another country. You get protection. Airbnb provides up to $1 million in property damage protection to its clients. Airbnb has a vast market. While it is popular among vacationers, many people on business trips also use it. There are many opportunities to build a thriving Airbnb business, even if you don’t live next to a tourist hotspot.  What Responsibilities Do You Have as an Airbnb Host?  With Airbnb, you can be as hands-on as you want. However, you should always prioritize guest satisfaction. If you get bad reviews, you may have to lower your prices or reconsider how much (or little) you get involved in running the place, making sure it’s clean, and so on.  Most hosts welcome guests and introduce them to their accommodation. They also answer quick questions and tell guests how they can get in touch with them if there is a problem. Other than that, the majority of hosts leave their guests alone for the duration of their stay. Once the rental ends, they clean the rooms to prepare them for the next guests.  If you don’t want to manage your Airbnb rental (or you’re going to be away), there are alternatives. For instance, you can leave keys in a coded key box that guests can access when they arrive. You can also hire a cleaning company to come in and prepare the rental for the next guest if you don’t want this responsibility.  How to Start an Airbnb In this section, we will present a step-by-step process for starting an Airbnb rental. Please note that some areas of the country do not permit short-term rentals. Airbnb should tell you immediately whether your address is eligible or not.  Step 1: Find Your Property If you already own the property you’d like to rent out, then you can skip this step. If you don’t, you’ll need to set your budget and choose a location.  Learning how to start an Airbnb business without owning a house is easier than you might think. Start by asking yourself the following questions:  What do I want my rental market to be?  What type of customers would enjoy staying in this accommodation? Is the accommodation close to any important landmarks, historical sites, tourist traps, or business hubs?  Once you know who you’d like to target, the next step is to set a budget. You’ll want to approach this just like any other real estate investor, thinking about the yield on any property you are considering.  In many cases, you will find that the yield for Airbnb properties is higher than you expect. For example, a property that requires a $20,000 deposit could possibly generate $100 per night (compared to just $1,000 a month if you rented it out as a regular apartment). However, you may need to check occupancy rate limits in your area. There may be rules on how long you can do short-term rentals in your area.  Step 2: Set Up Your LLC for Airbnb If you’re setting up an Airbnb business as an investor, it’s good practice to form an LLC. Having a brand name for your rental makes it more memorable and encourages people to recommend you via word-of-mouth. It also protects you from certain business-related losses. Don’t go for something generic like “Lakeside Cabins.” Instead, choose something original that will stick in people’s minds, such as “Cara’s Tree-Top Retreat.” The more authentic you are, the more bookings you’ll get.  Step 3: Talk To Your Accountant Airbnb properties let you generate a large second stream of income (alongside your primary day job or pension), generating taxes. Airbnb calculates these taxes for you, depending on your location.  However, you will need to keep track of expenses associated with running your business, such as cleaning and repairs. Accountants can help you determine your net taxable income more accurately. They can also help you manage the tax implications of renting out accommodation you own (including advising you on sales tax and the local occupancy tax). Step 4: Get Your Business License If you want to operate a rental business, you’ll need a business license. Depending on where you are in the US, this could be called either:  TOT certificate Lodgers Tax License Make sure that you register your rental business with the agency that collects the local occupancy tax. This way, they’ll have a record that you’ve paid, even if you do it through Airbnb. Step 5: Set Up Your Accommodation to Receive Guests Once you’ve chosen a property to rent out and set up an LLC, the next step is to prepare it for guests. Good furnishings allow you to charge a higher nightly rate. However, you will need to invest more money upfront.  The quality of the décor and finishes you use will depend primarily on the type of tenants you want to attract. Budget accommodation is highly sought after in some locations, so you might want to look for deals on furniture from a thrift store or on Craigslist. In other places, people may want accommodation that helps them have fun or entertain guests. You may also want to set up the rental space to be family-friendly, particularly if you operate in an area popular with vacationers.  Step 6: Open a New Business Bank Account Whenever you start an Airbnb business, it’s always a good idea to open a business bank account. This way, you can save yourself the hassle in the future as your enterprise grows.  If you make more than 200 Airbnb transactions or $20,000 from rentals every year, then Airbnb will send you a 1099-K form. This form helps you comply with tax law by reporting all your transactions to the IRS. Keeping your business transactions in a separate account makes this process easier.  Step 7: Get Rental Insurance Insurance is a part of Airbnb startup costs. Here’s what you’ll need as a minimum:  Homeowners insurance: Homeowners insurance covers damage to the property on vacant days.  Airbnb damages insurance: Airbnb provides up to $1 million in coverage for damages caused by guests to your property while it is being rented.  Workers compensation insurance: You’ll need to take out this insurance if you hire workers to manage your Airbnb, such as cleaners. This insurance protects you against liability suits. Business insurance: Business insurance protects you against a range of legal risks associated with running your Airbnb operations. General liability and property and casualty insurance protect you if you’re found legally liable for injuries incurred in the accommodation you own. Don’t skip on insurance. If you do, you could be putting your livelihood at risk and may face hefty fines for non-compliance. Step 8: Put Together Your Airbnb Dream Team Running an Airbnb business often requires assembling a team. While most owners do at least some of the jobs themselves, they outsource others.  You’ll need to consider hiring the following people:  Photographers to take photos of your accommodation that appeal to users Cleaners to change bedding and prepare accommodation for the next guests Interior designer to create attractive spaces that encourage guests to stay and return Handyman for odd jobs around the property Accountants to help you keep track of your business revenues and expenses Emergency contacts – people who can step in and help if you’re not there Property management company to welcome guests on your behalf Many Airbnb owners do all of this work themselves. However, some prefer a hands-off approach.  Step 9: Check Your Business Plan Just like any other enterprise, Airbnb LLCs need well-considered business plans, particularly if you’re learning how to start an Airbnb with no money.  Set out your business plan by first defining the business structure:  Who is in charge? Who will you hire to help you manage or run the property?  Who will handle customer complaints?  Who will interact with customers via the Airbnb platform? Next, calculate your income predictions. Find out the going nightly rate for accommodation similar to yours and then subtract any expenses you expect to incur, including taxes, to determine your net profits. Consider all your recurring costs, such as equipment and furniture replacement, cleaning costs, and utility bills.  Step 10: List Your Airbnb Property Once you’ve completed all these preliminaries, getting started on Airbnb is incredibly easy. The platform provides you with most of the digital tools you need to make it happen.  As you build your profile on the platform, you’ll need to consider the following:  How much you’ll charge guests to stay per night. How many people you can comfortably fit in your accommodation. You’d like to attract (i.e., families, businesspeople, backpackers, etc.) Whether you’ll allow guests to book immediately. The details of your cancellation policy. The title of your property listing. The photos you’ll include, and in which order you will present them. Once you’ve completed your listing, get somebody you trust to look it over and tell you whether they would rent it out, depending on the information provided. Ask for honest feedback and what you can improve.  Step 11: Collect Feedback Airbnb rentals depend on guest ratings. The more positive feedback you can acquire, the more demand there will be for your accommodation.  Here are some tips for getting good Airbnb reviews: Specify your location clearly so that guests can easily find you. If you’re off the beaten track, experiment with different location instructions to see which your guests find easiest to understand. Provide guests with a check-in message, providing them with details about their stay. Send a check-up message after a few hours, asking if everything is to their liking. Send a check-out message, thanking the guests for using your accommodation for their trip. Leave a welcome note. Write a house manual that explains how to use everything. Make sure that you always follow your cleaning checklist. Allow guests to book instantly. Supply goodies for children and pets. Wrapping Up You can start an Airbnb out of your home or approach it very much as you would a conventional real estate business. The goal is to find projects that afford you the highest returns on the cash you put into the business.  If you already own a property, the cost to start an Airbnb is generally quite low. Expenses will rise if you decide to take out a mortgage, but the returns are still good. Once you learn how to start an Airbnb, it can be a real money-spinner.  Further Reading What Does LLC Mean? Everything You Need to Know About This Business Structure How to Pay Yourself from an LLC Best LLC Services: The Top Companies in 2022