Categories
Flipping

Flippers: The Best and Worst Renovations

Never over-renovate your flip!

You’ll shoot yourself in the foot if you end up spending too much on repairs or upgrades to the property. 

Your goal is to make money from buying a distressed house under market value, fixing it up to a marketable condition, and selling it at a price higher than the acquisition and renovation cost. So, it’s crucial that you hit the sweet spot of renovating the house just enough to achieve maximum ROI. 

But how will you know what to fix, and what to leave for the future buyer? Which renovations will add value, and which will only hurt your chances of making a higher flip profit? 

Here’s our guide to help you decide:

Know the Best Renovations

  • Competitive Scan

First and foremost, scan the other houses in the area where your flip is located. Research what else has sold and what factors they have in common. Figure out what the market gravitates towards and prioritize the same things in your renovations. 

  • First Impressions

First impressions are important for potential buyers. Anything that will add to your flip’s curb appeal will help attract attention, making buyers curious to see what’s inside. To achieve this: 

  • Have the front door stand out with a contrasting color
  • Maintain the landscaping (if there is any) with fresh flowers and plants
  • Power wash anything that looks dirty or faded
  • Repaint all trim work for a polished look 
  • Replace any old exterior hardware (e.g., doorknobs, mailbox, outdoor lighting, window frames)
  • Add shutters or blinds to avoid the house looking empty/unlived in
  • Kitchens and bathrooms

Kitchens and bathrooms are two of the most important features when it comes to buyers deciding on a house. They’re also much more expensive to overhaul, so many buyers don’t want to have to renovate kitchens or bathrooms themselves. 

But kitchen improvements can help recoup your investment by as much as 66%, so this is one area where you definitely want to spend. 

On the other hand, anything you spend on bathroom improvements can yield an ROI of up to 67.2%, so they’re also a good investment when planning the budget for your flip. 

  • Attics and basements

Attics have come a long way from being a horror movie location to, now, a great expansion and additional space in the house. It’s possible to get back as much as 73% of your investment when the property’s attic is converted into a bedroom or some kind of usable room for potential buyers. 

This is an expensive renovation though, so make sure you do the math properly to make sure it’s worth it for your flip.

Know the Worst Renovations

  • Competitive scan

When you check out other houses in the area, also pay attention to what won’t sell. Each area will have their own preference. Make sure you avoid having similar features as houses that have sat in the market the longest.

  • Extreme tastes

Focusing on renovating the property with elements that will appeal to the largest buying audience. Instead of decorating and renovating based on your own taste, fix it up with the general public in mind. Don’t put any design or functional feature that’s too specific and only caters to niche markets, like crazy, bold colors or wooden countertops. 

  • Home Offices

Even though work-from-home set ups are increasingly becoming popular since the pandemic, most people still don’t need a full-blown office at home. At the maximum, you can recoup around 43% of your investment by adding one to your flip.

If you see that home offices are actually popular in the property’s area, in particular, you can just have a home office that can easily be converted into a bedroom, should the future owner chooses to. An extra bedroom adds more value, too.

Profit is what you want out of your flip at the end of the day. 

To do this, you have to renovate objectively, with your ROI in mind, and not think about trying to turn your flip into a house you’d want to live in yourself. 

Begin with a solid renovation plan, and a carefully calculated budget, and make sure you don’t spend too much money in the pursuit of the “wow” factor.

Image courtesy of Pixabay

Categories
Flipping

Do Flipper TV Shows Help or Hurt the Industry?

Ah, the world of reality TV shows. Most of us have a love-hate relationship with these, as they supposedly mimic real life, yet need to be entertaining enough to make us forget about actual reality. But is that irony helping or hurting the flipping industry?

Over the years, reality shows centered around house flipping have remained amongst the most popular on TV. Just a quick search and you’ll see The Vanilla Ice Project, Fixer Upper, Genevieve’s Renovation, Flip or Flop, and My First Place – all exciting demonstrations that expose newbies to the real estate business.

So, are these shows a force for good – helping to encourage flippers and grow the industry as a whole – or are they making flippers’ lives more difficult?

The Good
These shows might be helpful to the market, as they introduce the real estate business to a wide audience, showing them the appeal and benefits of flipping houses.
They often reflect real-life house-flipping experiences, informally preparing people for what to expect – like how properties often have hidden repair costs. Fortunately, this also makes for an exciting narrative.
They may, therefore, help scare off people who realize that the trials and tribulations of flipping houses aren’t their cup of tea (or maybe not).
They’ve made flipping so widely-known that it’s not hard to explain to buyers and sellers the value of what you do (compared to other REIs, like wholesalers).

The Bad
The flipside of flipping’s TV popularity is that buyers and sellers alike may assume you’re in it to make a load of money, making negotiations more difficult.
These shows might very well be responsible for encouraging people to get into flipping before they’re fully prepared, i.e. committing to a huge investment, equipped only with information that was intended more for entertainment than education.

These newbie flippers will make mistakes on their pricing, leading them to overpay for properties. This makes it more difficult for experienced flippers to make money and stay in business.

In a worst-case scenario, these flippers end up negatively affecting the properties they work on – turning homes into worse shape than how they started, and with too much debt to be restored by anybody else.

The Conclusion
Real estate investing – especially flipping – can be quite lucrative, but that’s because it’s also quite risky. That’s something which reality flipping shows actually capture pretty well.

What they don’t communicate as strongly is the fact that, when you’re flipping houses, you really have to know what you’re doing, because it requires a huge financial and mental commitment from your end.

That said, it’s vital to know where and when entertainment deviates from reality. Oftentimes, these shows play down the risks (the cost and process of renovating and selling a house) and play up the benefits (the “insane” profits you’ll get in a short amount of time). So make sure you do your research if you’ve been inspired by one of these shows, so you don’t end up stuck with a half-flipped house that nobody wants.

Remember that the ones being featured on these series are experienced professionals – so make yourself as knowledgeable as possible before trying to follow in their footsteps.

Any stories about flipping TV shows impacting your real-life flipping business? Share them below!

Image Courtesy of Monica Silvestre

Categories
Flipping

Can You Make Money Flipping Blighted Houses?

Are blighted properties diamonds in the rough for property flippers?

Many investors were attracted to Metro Detroit when they heard about $500 houses for sale on eBay. Now, it’s more like $10k a home, but can you still realistically make money by flipping these?

What are blighted properties?

Blighted houses are abandoned properties in derelict or dangerous condition. They might have overgrown lawns, dilapidated roofs, broken doors and windows, or other signs of neglect. These houses have been deemed uninhabitable, and need either complete renovations or a tear-down to become livable once more.

Where are the blight areas in Metro Detroit?

There’s a big difference between a blighted property and a blighted area. You should be able to make money flipping a blighted house in a neighborhood with solid buyer demand, but flipping for profit in a blighted area is another story – so it’s important to know where you’re buying.

You can see plenty of blighted areas in the City of Detroit, due to the area’s history, which saw the population plummet by nearly two-thirds in the 70s and 80s. Residents left, causing a corresponding loss of tax revenues, resulting in significant cuts to city services. 

This led to neighborhoods full of neglected, vacant properties. You’ll see this in Brightmoor, Burbank, Ravendale, State Fair, Grixdale Farms, Petosky-Otsego, NW Goldberg, and Westwood Park, where roughly 30-40% of buildings are unoccupied.

However, this isn’t the case across the entire Metro Detroit area. You still have the “Ring Cities” surrounding Detroit, which don’t have these blighted areas. Overall, the Metro Detroit real estate market is generally healthy.

Are blighted property flips profitable?

So, many people are curious about the potential “flippability” of these houses in blighted areas. Can you make money from flipping them? We’ll have to go back to the basics of how a flip can be profitable in the first place.

What’s important when flipping a house? 

  1. You Need to Get It at a Good Price

Like any real estate investment, you need to acquire your blighted house at an excellent price to achieve a decent ROI. 

This applies to tear-downs as well–which is a common situation for blighted homes–where you actually just want the land that a house is currently sitting on. You’ll need to buy the property cheaper than a bare plot of land, because of the additional cost to demolish and remove rubble. 

  1. You Need to Renovate Fast and Efficiently

At the heart of every good flip is a fast and cost-efficient renovation, which requires accurate prediction of the overhaul costs. If you’re a beginner, correctly budgeting for a blighted property flip can be quite tricky. There can be a lot of hidden, expensive problems within their walls! 

This is exactly what buyers of $500 houses didn’t realize–a deal on a blighted house is often too good to be true. Did you consider that it’ll be a knockdown? Is the layout of the house costly to change) even good?

If you’re buying a blighted house in a blighted neighborhood, renovations will probably be a nightmare. It’s not uncommon to experience break-ins, theft of materials, and vandalism (all of which equal additional costs and headaches) – and after all that, you still likely won’t be able to find a buyer at a profitable price. Which brings us to our next point about flipping blighted properties…

  1. You Need to Sell It at a Profitable Price

You need to sell it at a price that makes financial sense. Look for a price that’s 70% of its market value, minus repairs. It actually takes a special skill to find distressed properties and negotiating it down to a profitable price! So keep this example in mind: If the house will sell for 100k fully fixed up, and it will cost you 30k for renovations, then you should pay no more than 40k.

70% x $100,000 (market value) = $70,000

$70,000 – $30,000 (repairs) = $40,000 

If the math doesn’t add up–steer clear. You can end up spending more money fixing than acquiring, but don’t overspend and end up with a house too expensive for the area. Which leads us to our next point…

  1. You Need People to Want to Buy

You don’t want to be stuck with a fully-renovated house that nobody wants. Your flip needs to be sellable at the price you need, within the time you have, to a willing market, in the right area. 

Maintaining and holding a vacant property while you wait two years for a buyer doesn’t make financial sense. So make sure you’re confident that there is a market for what you’re fixing up, – which, if it’s in a blighted area, there almost certainly isn’t. (In the City of Detroit, some abandoned areas have steadily improved, but it’s still a slow process.)

It may be hard to believe, but you can still lose money, even if you’ve only paid a couple of dollars for the house. You may buy it for next to nothing, but end up spending so much money and time renovating it, that it costs you more than what you’ll sell it for. And what happens if people don’t buy it at all? This is why it’s important to know the difference between flipping a blighted house in an up-and-coming area, versus flipping in blighted neighborhoods.

If you have great experience in restoring and selling neglected properties, and you’re in an area that does have buyers, and you have enough contingencies in case it doesn’t fall through, then you’ll probably make a lot of money flipping blighted houses. Experts will benefit from its high-risk-high-return factor. 

However, it’s never a safe bet. If you’re a newbie, you might want to avoid this type of real estate investing for now (and stick to Ring City properties instead, where the risk is significantly lower). Flipping blighted houses is definitely not for the faint of heart!

Have you thought of flipping blighted houses? Or maybe you’ve done it already? It’d be great to hear from you below.

Image Courtesy of: Webdexter Apeldoorn

Categories
Flipping

Time vs. Cost: What Jobs are Worth Doing Yourself?

Don’t you love it when people watch house flipping and renovation TV shows and say, “wow, it looks so easy to flip houses for great returns”? But the reality is that flipping is a risky business that requires a lot of hard work, excellent project management skills, and savvy budgeting in order to succeed. 

One of the most important parts of flipping houses is the way you restore it for reselling. Some flippers like to do nearly all the renovations themselves to save on costs, but others would rather pay contractors to do it to save on time. Many also opt for a mix of DIY and professional contractors, but in this case, which jobs should you handle yourself, and which are best left to the pros? 

While it’s generally cheaper to DIY, those savings could be nullified if you do it wrong and end up with expensive corrections. And while some tasks might look easy, you need to give up significant hours of your own time to learn and accomplish them. So if we look at the time/cost benefit analysis, which jobs are worth doing yourself?

PLAN OUT THE RENOVATION

Before you start swinging a hammer in good faith, go over the whole property and list down all the repairs that it needs, taking into account the cost and lead times for each. If you’re going to DIY, you have to be able to accurately calculate their costs and realistically estimate the time it will take to complete, as well as the order in which projects should be carried out.

DO WHAT YOU KNOW, HIRE WHAT YOU DON’T

SKILL REQUIREMENTS

Fixing high-ticket areas like the roof, floors, and kitchen areas yourself can save a lot of money, because professionals usually charge a premium for these services. However, the reason for that is these tasks require a high level of expertise to do them well. When done poorly, constantly repairing them will outweigh the money you supposedly saved by doing it yourself. 

You might be charged anywhere from $300 – $10,000 for a professionally installed drywall, while you can do it yourself for significantly less. Similarly, painting will cost you $2-3 per square foot if you get it done professionally, whereas you can do it yourself for just the cost of the paint – it also has a low skill requirement, so not much can go wrong if you DIY. 

So if you have experience in doing these, by all means, DIY. But being inexperienced will only leave you with wasted time, accidents, more repairs to fix, and a lower flipping profit.  

PAPERWORK REQUIREMENTS

Some repairs require specific building codes, permits, and inspections, like removing walls or installing new bathrooms. Better steer clear from DIY-ing these, unless you plan to leave your full-time job to be a contractor yourself. A professional will help you with the paperwork required and provide knowledge if the wall is load-bearing, or if you’d need more space for a bathroom. Their work is also insured, so if anything does go wrong, you’ll know that it’s covered.

A GENERAL GUIDE

Which jobs you do yourself should be based on your skillset and condition of the house, as well as permit requirements. Some jobs will require a licensed professional, like installing complete new plumbing, which you need a permit for, unless you want to get a citation from the city. A homeowner can pull their own permit in most states, without a license, because the homeowner is the one taking the risk. But if you do it wrong, you could have an electrical fire, etc., or end up failing your building inspection and being told to redo it.

However, this list should give you a general guide on when to DIY and when to hire a professional:

DO IT YOURSELF

  • Fix an outlet, doorknob, lights
  • Painting
  • Install baseboards
  • Install laminate flooring or luxury vinyl
  • Insulate open walls
  • Install a toilet (bowl)
  • Install minor PEX plumbing

HIRE A PROFESSIONAL

  • Additions
  • Replacing sidewalks and driveways
  • Replumbing the whole house
  • New electrical service panel and circuits
  • Replacing windows
  • Install solid hardwood flooring
  • Installing a furnace or central AC

Timing is everything with a flip, so work within your set of skills. Consider splitting the workload between you and a contractor who can compensate in places where you struggle. That way, you can focus on the things you know how to do, and still save yourself some money. At the same time, you’re not being slowed down by more complicated projects which will take you as a DIY-er much longer than a professional team to carry out.

What are the fixes you DIY when you flip a house, and which do you always leave to the pros?

Image Courtesy of Laurie Shaw

Categories
Flipping

Tips for Selling Your Flip Fast

Do you want to sell your flip as fast as possible?

Flipping has always been a popular investment strategy for those looking to earn some quick-and-dirty profit. You see a property that has great potential to be sold at a much higher price–after some improvements and renovations–so you quickly buy it, flip it, and sell it! And of course, the more properties you flip, the steadier your income becomes.

But how can you ensure that your flip will sell quickly? Each day that passes costs you money–there’s mortgage payments, utilities, taxes, and other expenses that you’d need to pay while the property is in your possession. How can you sell as fast as possible, to minimize the amount of time your capital is at risk?

Here are some tips to help you sell your flips fast:

1. Know Who’ll Buy Your Flip

Before anything else, you should first consider who your potential customers will be. Always keep this ideal buyer in mind, because all your efforts–from renovation to marketing–should be focused on appealing to this buyer. All their demographic details should be considered to rehab and market your flip effectively. What life stage are they at? What do they expect from a property? How can you evoke an emotional response to encourage the sale?

2. Make Your Flip Their Dream Home

Now that you’ve identified your target buyer, rehab the property according to their expectations. When they see the property, they should be impressed and immediately think, “This is it! This is what we’ve been looking for.” For example, people usually like significant upgrades in the kitchen, but be careful not to make your fixes too niche or “trendy”–buyers might not share your taste or style. They want to see their home, and not somebody else’s. So think about what your target market would want in their dream home, and deliver that.

3. Partner with an Expert Agent

This might just be the most important tip on this list. You need an expert real estate agent to ensure you sell your flip fast. They should have proven experience, especially in the specific area you’re selling in. A good agent can help you determine how to tailor a property to the needs of local buyers, and should be great at evoking an emotional response during property viewings. Once you’ve built the dream house, it’s your RE agent who will make that dream come alive in the mind of the buyer, so they form a crucial component of sealing the deal. 

4. Price It Competitively

Just like in most industries–pricing is everything. So make sure you price your flipped home at a competitive level, if you’re looking for a quick sale. Your agent should help you figure out the perfect price, though you can already get a good idea from researching the neighborhood yourself. How much did other flips sell for? How long did the property stay on the market?

5. Stage it–Show it Off!

It’s important to stage your flip in the most impressive way you can to help buyers visualize themselves living in the property. Even now, with virtual showings becoming more popular in the era of the new normal, it’s still just as important to stage the property well. But this doesn’t mean you should over-decorate the whole house. Instead, focus on bringing out the best features of the main rooms: the living room, master bedroom, dining room, and kitchen. Set the scene so that your target buyer can imagine their family in the space, making sure that the dream you’re selling is consistent with your audience’s needs and wants.

If you follow these tips, you should be able to generate a lot of interest in your properties amongst local buyers, allowing you not only to sell your flip fast, but put yourself in the best position to receive multiple competing offers, as well. And that’s exactly what every flipper wants to maximize profits and quickly move on to their next project.

Any other tips you’d like to share with your fellow flippers?

Flipping has always been a popular investment strategy for those looking to earn some quick-and-dirty profit. You see a property that has great potential to be sold at a much higher price–after some improvements and renovations–so you quickly buy it, flip it, and sell it! And of course, the more properties you flip, the steadier your income becomes.

But how can you ensure that your flip will sell quickly? Each day that passes costs you money–there’s mortgage payments, utilities, taxes, and other expenses that you’d need to pay while the property is in your possession. How can you sell as fast as possible, to minimize the amount of time your capital is at risk?

Here are some tips to help you sell your flips fast:

1. Know Who’ll Buy Your Flip

Before anything else, you should first consider who your potential customers will be. Always keep this ideal buyer in mind, because all your efforts–from renovation to marketing–should be focused on appealing to this buyer. All their demographic details should be considered to rehab and market your flip effectively. What life stage are they at? What do they expect from a property? How can you evoke an emotional response to encourage the sale?

2. Make Your Flip Their Dream Home

Now that you’ve identified your target buyer, rehab the property according to their expectations. When they see the property, they should be impressed and immediately think, “This is it! This is what we’ve been looking for.” For example, people usually like significant upgrades in the kitchen, but be careful not to make your fixes too niche or “trendy”–buyers might not share your taste or style. They want to see their home, and not somebody else’s. So think about what your target market would want in their dream home, and deliver that.

3. Partner with an Expert Agent

This might just be the most important tip on this list. You need an expert real estate agent to ensure you sell your flip fast. They should have proven experience, especially in the specific area you’re selling in. A good agent can help you determine how to tailor a property to the needs of local buyers, and should be great at evoking an emotional response during property viewings. Once you’ve built the dream house, it’s your RE agent who will make that dream come alive in the mind of the buyer, so they form a crucial component of sealing the deal. 

4. Price It Competitively

Just like in most industries–pricing is everything. So make sure you price your flipped home at a competitive level, if you’re looking for a quick sale. Your agent should help you figure out the perfect price, though you can already get a good idea from researching the neighborhood yourself. How much did other flips sell for? How long did the property stay on the market?

5. Stage it–Show it Off!

It’s important to stage your flip in the most impressive way you can to help buyers visualize themselves living in the property. Even now, with virtual showings becoming more popular in the era of the new normal, it’s still just as important to stage the property well. But this doesn’t mean you should over-decorate the whole house. Instead, focus on bringing out the best features of the main rooms: the living room, master bedroom, dining room, and kitchen. Set the scene so that your target buyer can imagine their family in the space, making sure that the dream you’re selling is consistent with your audience’s needs and wants.

If you follow these tips, you should be able to generate a lot of interest in your properties amongst local buyers, allowing you not only to sell your flip fast, but put yourself in the best position to receive multiple competing offers, as well. And that’s exactly what every flipper wants to maximize profits and quickly move on to their next project.

Any other tips you’d like to share with your fellow flippers?