Having reasonable remodeling expectations from the outset will help to ensure a sound budget and a ultimately, a happy, profitable flip.
When it comes to the remodeling phase, be realistic in your approach with respect to the amount of upgrading you intend to actually do. In other words, it would be wise to ‘know when to say when’ while compiling your remodeling plans.
Put only the necessary amount of money into the types of upgrades that will do the following things:
Satisfy your obligation (as the flipper) to providea home that is functionally sound and aesthetically pleasing to the eye, and to do it with ethical renovation practices in place.
Many first-time flippers assume you have to spend a lot of money to make the house really attractive, or nobody will be interested. You don’t need to spend tons of money on ‘extras’ that, although may help the house look mighty snazzy, really only serve as ‘fluff’ that the customer is not going to care all that much about when the time comes to make a decision. Remember, your main task is to sell a nice, reliable product, and to make some money in the process.
Know When to Say When
So what exactly am I talking about here? Upgrades that are tasteful, yet remain within the bounds of reasonable remodeling expectations (like the simple bathroom remodel pictured). There are, however limits you should place on your remodeling budget.
The following are a few (actual) examples of flipping projects I knew of to illustrate what I mean by maintaing reasonable remodeling expexctations.
Copper VS. Standard Shingle Roofing
Installing copper roofing over a bay window – on a condo selling for $100,000 in a run-down neighborhood full of older homes selling for $60,000 – $80,000. Adding a bay window (not necessary here) where none existed is one thing, but to top it off with copper roofing too? Hmmn. Common shingles would have worked just fine, and for a lot less money. A pretty expensive upgrade that served no purpose whatsoever except to wow the customer.
Wrong Addition for the Wrong Type House
A one-story house in a nice, stable neighborhood where houses sell for around $135,000, a flipper decided to add an upstairs bedroom and bath. In doing so, he knocked out the whole rear part of the roof, built a slightly-sloping roofline, and squared up the walls with a few windows lining the rear. Hard to describe, but it looked rather terrible. From the rear, it looked like an ugly, flattened-out mailbox with windows.
The house sat vacant (for sale) for several months before selling way under what the remodeler wanted. Was it because it was so doggone ugly? My guess it was, which certainly explains why it took so long to sell. The thing is, he could have gotten the same result (upstairs 1BR/1 Bath) utilizing a shed-dormer style for less money with much nicer overall looks. That, in turn, would have probably resulted on a faster sale to, using reasonable remodeling expectations.
Hardwood VS. Carpet
And finally, a house located in a blue-collar area needed considerable fixing up. The flippers spent $3300 on refinishing hardwood floors when simply a nice grade of carpet would have certainly been fine. It looked really nice, but at what cost to their bottom line? I’d say about $1500 too much.
Too Tight-Fisted Can Hurt You As Well
Conversely, it is also possible to go the other way in attempting to keep a really tight grip on your remodeling budget. Spend on your upgrades accordingly. Certainly don’t overspend, but remain open to the possibility that you’ll need to things you may not have initially wanted, or needed to do. In your attempt to keep a tight reign on unjustifiable remodeling one may completely overlook critical areas that simply have to be addressed – no matter the cost.
Again, among some of the many remodeling disasters I have come across over the years, consider these examples:
A house selling for $300,000 in an upscale/trendy part of town was tastefully updated and had all the looks of a successful flip. The one (glaring) problem, was that there was no landscaping whatsoever. Zero! There was not even a hint of green grass growing in front of the house at all. All that was present was the dirt (and a slight depression) left over after removing the old shrubs. And to add insult to injury, the driveway leading up to the house was left just as it was previously, an old, well-worn rock drive. The curb appeal was quickly hurting the sale of this particular house.
I don’t know how the sale ended up, but I would suspect the flipper had to do some extra work to get the house sold. Better to address exterior issues early in the remodeling process.
‘It Needs a New Furnace Too??’
This actually happened to someone I know very well. He bought a house and figured he would put about $50K in it, and make around $40K when it was all said and done. He even managed to get a contract on the house before he was done remodeling. After finally finishing the renovation, a home inspector hired by the owners-to-be, came in and did his thing.
Too bad (for my friend), because the inspector found a laundry-list of items that needed to be addressed before the new owners would even think of finalizing the deal.
One major obstacle was the old HVAC was left in place. The new owners understood they were to have the house ‘completely updated’, with all new mechanicals (electric, plumbing, HVAC) in place. My friend quickly realized he could not sell the house until this item (and all the other ones too) was met. He did update with a new unit, and corrected all the other items, for a price.
He did eventually sell the house and made a profit, though much smaller than what he’d hoped for. He was lucky he bought a house with a lot of room in it to absorb any unforeseen problems. It would prove to be his first – and last – flipping adventure.
Finally, here’s one that’s hard to believe – but true. A very nice house in a relatively upscale neighborhood was remodeled and put up for sale. An interior designer friend went to check it out one weekend as she lived previously in the same neighborhood and knew the house well from her childhood.
Walking through the house she noticed that what little remodeling that had taken place looked amateurish and sloppy (her account), and that little had changed from what she remembered the house to be. She went into the kitchen and noticed that the original cabinets had been painted, and, according to her, not very well at that. But what really alarmed her was that the original old countertop had been painted too!
At this point, if you think a new countertop might look better, then you probably should just spend the money and replace it. Needless to say, she left wondering what in the world those people (present owners) were thinking.
Nobody would seriously consider paying a lot of money for something that’s still in need of considerable upgrades – especially in the kitchen – one of the most important rooms in the house.
Again, the point is, certainly be aware of where you stand at all times during your remodeling phase, and keep a firm grasp on how the money is being spent.
Do spend money on upgrades that will sell the house. Use stock items as much as you can during renovation to save some money.Not only that, but the convenience factor, selection, good quality, and multiple trades under one roof really do make the large home-improvement stores very attractive.
Don’t spend money needlessly on upgrades that look wonderful, but are not enough to sway the prospective home owner into actually buying.