In our previous article, we introduced finding property and funding your project. Now it’s time to look at the rehab and renovations you’re planning and how to sell your property once it’s completed.
For first time fix and flippers, renovations may seem like the “fun” part of flipping a house. You can take part in demolition, choose new fixtures or appliances, and see the progress of the build firsthand. But the reality is that the renovation is where the majority of possible problems can come from. Your renovation plan must be airtight to ensure that you stick to your budget and schedule and get the house back on the market as soon as possible.
Renovate or update?
There are a lot of sources that say house flipping is easy. The truth is that every property is different and every neighborhood has a different value. You need to think about how to maximize your Return on Investment (ROI) and not overplan or overspend your budget.
There are two important options for your flip: renovate or update.
A renovation is when you remove what is there and replace it with something new. In a kitchen, that would include removing all old cabinets and fixtures and rebuilding the kitchen with all new cabinets, fixtures, appliances, and more.
An update is when you keep what’s there and give it new life by adding a coat of paint. You still may replace the sink and lighting fixtures, but overall you’re leaving the area like you originally found it.
Choosing between a renovation or update is a budget choice. If the existing cabinets and fixtures are in good condition, it’s cheaper to keep, clean, and repaint everything. This will help maximize your profit. If you have the budget or the area requires a renovation, then it will help increase the value of the house.
Consider improvements that have the best ROI. In older properties, renovate the kitchen because the area won’t have the layout that modern homes have. The next place to look is the bathroom. Changes to these two areas can add a lot of property value, but don’t go overboard and make projects for every single room.
Proper renovations and rehabbing isn’t just about replacing everything. Sometimes painting the walls, adding or removing carpet, and replacing fixtures add more value than adding another bedroom that doesn’t fit the original floor plan.
When you make your plan, don’t think you have to assign work to every room in the house. You will end up maxing out your budget. Ideally, you should focus on the rooms that will the most foot traffic.
Working with contractors
Unless you have renovation experience, hiring a contractor is the best way to ensure that your renovations are completed according to required building code. Finding a contractor doesn’t have to be difficult. The internet has made it easier to browse homes, and you can also use it to find possible contractors.
Sites like houzz or Angie’s List can give you possible leads. You must vet any contractor thoroughly. Don’t think just because they have a high ranking that they’re the best for your project. Take multiple bids and compare them carefully. Most contractor bids should be around the same price because these contractors are offering real bids. Don’t think the cheapest bid will end up saving you money; it could actually cost more money because of poor work.
You’re going to have to plan out the schedule to complete the entire renovation and work with your contractor on the details. A reputable contractor should be able to review your schedule and offer helpful advice. If they’re trying to get you to change materials for something more expensive for a random reason, be a little wary. After reviewing the build scope and the schedule, both parties should be in agreement.]
Ideally your contractor will be able to complete renovations on schedule, but they could encounter situations that cause delays or setbacks. They might find mold, water damage, plumbing in poor condition, or more. With older homes, there might be issues hidden behind walls and flooring. If you end up with a complication, be calm and work through it with your contractor. It’s going to cost more money, but you can’t sell a house with unfinished renovations for a profit. You also can’t ignore these problems because a home inspection will discover these issues, and that could make a potential deal fall through.
At the end of construction, have your punch list ready. A punch list is a checklist that confirms each project was completed correctly by your contractor. If anything isn’t completed or has issues, point it out to the contractor so it can be fixed. Make sure every project is completed before signing off.
Keep a schedule, stick to your budget
It’s going to be exciting when you’re working on the project. But it’s very important that you stay on schedule. There might be some delays that are out of your control, but being aware of when and why are essential.
Along with your schedule, you will have a budget for every job. This includes materials and labor. You must be strict with your budget. To maximize potential profit, you’re flipping for the best ROI, and that means making smart decisions.
Don’t make mid-project changes. Deciding to switch from one bathroom light fixture to another might seem like a small change, but it could ripple outwards and affect your schedule.
Sell for a profit
After you complete your renovation, you have a choice: sell the property yourself or hire a real estate agent to sell it. The choice is up to you. The end goal is to sell the property quickly to pay back the loan and any outstanding bills and pocket the extra as profit. Seasoned fix and flippers take that profit and roll it back into their next project.
Selling yourself might net some additional money, but you’re going to be responsible for the entire transaction. A first-time fix and flipper shouldn’t go the “Sell by Owner” route unless you have a lot of real estate experience. A real estate agent will take a commission on the sale of the house, but you can be more confident that there is due diligence on the sale.
If you found the fix and flip experience to be a positive one, look at starting a new project. As you gain more experience, bigger projects won’t be as daunting and you’ll be able to share your knowledge with others.
Start smart, end smart
Even if you’re careful, there’s a chance you’ll make a mistake somewhere during your first fix and flip. That shouldn’t get you discouraged because you will learn through that experience. Education is always the greatest tool against possible problems.
Fix and flipping isn’t for everyone, but anyone willing to take on the challenge will learn how to be successful.
These tips are only the beginning of your fix and flip career. With more projects, your expertise and knowledge will grow and you’ll start looking for more complex investments that pay off.
Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. Please consult your tax advisor. All calculations and information shown here are for illustrative purposes only. All third parties listed above are for demonstration purposes only and are not affiliated with LendingHome. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.