When it comes to flipping houses, the rehab can make or break your profitability. Choosing the right rehabs and upgrades is key to house flipping success. Our experts will take you through investment property renovation tips so you can complete a successful house flip and find profits.
1. Look At Comparable Properties
One of the biggest mistakes a flipper can make is over-renovating. For the best chances of selling your flip, only spend on upgrades that add value. The best way to determine what adds value is to look around neighboring properties to understand their style and what additions standard in an area.
The three key factors in valuing residential real estate are location, location and location. This is important to remember when figuring out what improvements to add.
It is very easy to over improve a property and end up with a product that is beautiful, but overpriced for its location. While some buyers might spend a small amount more for a more improved property, they will not likely spend a significant amount more if there is nothing in the area selling for that high of a price.
Remember, not all improvements add value. Such things as home offices, concrete patios, and sports courts generally do not add value to a property. Be careful not to spend your money on things that will limit the number of people interested in the property.
Look at houses that are on the market in the area. Which ones are selling the fastest? What improvements do they have in common? Now look at the ones that have sat on the market the longest. What do they have in common? Learn a lesson from both of these kinds of properties to determine how to maximize your return on home improvements.
2. Establish a Strong First Impression
Have you ever watched a television real estate show, like “House Hunters” on HGTV or “Million Dollar Listing” on Bravo? The one thing that all of these shows have in common is that when they are showing a house, they almost always show the potential buyer’s first impression when arriving at the property.
It is also clear that no matter what is going on inside a house, a negative first impression upon arrival is hard to come back from. The lesson is to make sure that your property has great curb appeal, so that the potential buyer looks forward to seeing what is inside.
Doing easy cosmetic fixes can make a big difference. Some house flipping tips to increase curb appeal include:
- Power wash the siding and ensure the structure is as nice as can be
- Give all trim work a fresh coat of paint
- Make sure window casings are in good condition
- Dress up the front door by painting it a contrasting color
- Replace old exterior hardware like door knobs
- Make the entryway symmetrical
- Install outdoor lighting
- Plant flowers and plants
- Install a new mailbox
- Adding shutters
Most of these are not very expensive, but along with your marketing plan they will make a huge difference in attracting the right buyer for the best price.
3. Kitchens and Bathrooms Sell the House
In the highly competitive residential home sales market, you cannot have a dated kitchen or bathroom and expect to get top dollar for your property. These improvements are the key to getting a good price for your house flip, plus they are crucial for getting people interested. High quality improvements to kitchens and bathrooms will surely decrease the days a property spends on the market.
According to US News, the average kitchen remodel in the United States runs $16,000 and the average cost of a bathroom makeover is $10,000. These are some of the best renovations for resale as they will make purchasers fall in love with your property, and pay for themselves.
Not every kitchen and bathroom needs a complete overhaul, but almost all require some updating. Objectively look at the existing kitchen cabinets. Do they need to be replaced, or can they be refinished, refaced or painted?
Just remember, when improving a kitchen, it is important to make it safe and family friendly. For example, make sure that all electrical outlets are properly grounded and are the required distance from water sources. Make sure the floor is slip resistant and that counters have rounded edges.
When it comes to bathrooms, it may be possible that the existing tile can be used, and the fixtures such as toilets and sinks replaced. Updating a shower door, or hardware in the room may be an easy fix. Like a kitchen, any work done must ensure that the room is safe for the buyer.
4. Don’t Impose Your Personal Style
Focusing on neutral design elements will appeal to the largest buying audience and help you sell the house quickly.
Be mindful of the style choices you make. Everyone has different tastes, but sticking with neutral colors and popular materials can help you avoid distasteful design choices. Be sure to look at properties around yours to understand common styles in the neighborhood so your property doesn’t stand out.
For example, you may think that bright green granite is a beautiful material for your kitchen counters, but most people will not agree with you. Big ticket items, like countertops, bathroom fixtures, carpeting and wall finishes should be in colors that appeal to the greatest number of customers.
Accordingly, soft, neutral colors should almost always be used. There is room to use bright colors and unusual materials as accents for the purpose of drawing attention to things, but they should never dominate. They should always be small touches, not the main focus of a room.
5. Focus on the Costs
One of the biggest mistakes we see house flippers make is not being mindful of renovation costs. Don’t invest more into the property than what the property is worth.
Flippers frequently get so wrapped up in projects that they stray from their business plan and drastically overspend on a property. When this happens, they are completely shocked when they do not make a profit on their flip.
It is very easy to lose track of costs and over improve a property, in a desire to deliver a certain wow factor. While you do want that wow factor, you need to be careful about how to achieve it.
Before starting a house flip, make sure you identify where you are going to spend a lot of money and where you are not. While there may be cost overruns, that is what the contingency fund is for. If you end up overspending your rehab budget and contingency fund, you will end up losing money on your house flip.
Contractor expenses must also be closely monitored. While many contractors are honest, not all of them are. Contractors frequently overbuy materials such as sheetrock, plumbing items, tile, etc. and get paid for the materials by the rehabber. The contractor may then return some of the overbought items to the store where purchased and keep the money.
In other cases, a contractor may have a dumpster placed at a rehabber’s home, but allow others that he is affiliated with to use it. The rehabber is then stuck paying extra for the increased weight. Trust your contractor, but also, keep an eye on the bottom line. Remember – the end goal is to sell, so focus on the best renovations for resale.