Learning from other’s mistakes
As a licensed real estate broker, I recently had to offer my opinion to a client as to a current market value for a home that had recently been renovated. On the surface, and from the photos and listing data, it appeared a professional flipper who knew how to flip houses had purchased this unique lakefront home in order to rehab and then place back on the market for a quick sale. It had been purchased only two years ago from an estate, the house needed work, and now after renovations were done, the house was back on the market – for more than double what the seller bought it for. However, upon going to inspect the house as a preview for my client, I instantly could see that the seller was no flipper. Rather, they were simply stupid, short-sighted sellers, who bought the run-down home in a good location, but then proceeded to over improve the house to their own personal likes. In property investor parlance, this was a “vanity project.”
Avoid personal taste decisions
In the first place, the entire renovation and materials used were highly personalized to the owner’s tastes. The granite countertops in the kitchen were not a style a flipper would choose. When buying property flips, you should always consider selection of materials that will appeal to the largest segment of buyers – not a small niche who might also happen to coincide with your own design sense. In the case of the kitchen counters, a highly stylized granite top was used – and a whole lot of it to boot – meaning, if a buyer didn’t like it, it would cost a ton simply to re[lace it. Otherwise, any buyer is going to learn to have to like it. Or pass on the house. Which, sadly in this case, most will do.
Adding insult to injury…
Creating further turmoil in this particular rehab, was adding a new radiant heating system to the entire house. While very energy efficient, this kind of upgrade is certainly far above the style of most homes in the area. Unless many other homes on an area of the property you’re considering flipping already have this upgrade – your investment in something so expensive is downright foolhardy. Especially if the house can’t take the extra cost, relative to the neighborhood it sits in.
What not to do
Another example of over spending in this particular rehab that screams “vanity project” is that the owners removed the former floor to ceiling massive stone fireplace to allow for their large, 100K plus kitchen redo, then added steel interior exposed girders for extra support afterwards. This smacks of an overzealous owner who is simply not in touch with the real estate market next door to them. This also told me they weren’t professionals when it came to flipping houses.
Ultimately, the seller must have run into financial issues, since they are trying to sell it, and also trying to recoup their renovation cost (in this case, probably close to 300K). Of course, this seller now owns the most expensive home on the block. And one of the basic tenets of property investing is to never get stuck buying or owning the most expensive home on the block.
To make matters even worse, this particular house is a Contemporary – which also negatively affects market value, since most buyers prefer Colonials. From the granite countertops to cherry cabinets and top of the line appliances, radiant heating, new floors throughput and new high end bathrooms added as well, the seller went seriously overboard in the renovations.
Setting the asking price
Another important point to remember when learning how to flip houses, is to never let your own vanity come into play when setting your asking price. The market always dictates the price. And most certainly not the cost of your renovation. In fact, the cost of your rehab should have no bearing whatsoever on the final asking price you set for the property come time to place it on the market. It is the comparable properties in the neighborhood that will ultimately help to set your asking price. As well as the final market value, once it is sold. Never go into a project with your own blank check for renovations. You must make the most tasteful design decisions at the right price. Rehabbing an upscale home with top flight materials makes a lot of sense. But doing so in an area of lesser priced homes would be foolhardy. The rehab would dictate a lesser grade of materials.
Remember too, that when it comes time to put your flipper on the market for sale, pricing it too high can have disastrous results. When a property is priced unrealistically high (for example, more than 10% over market value), most buyers don’t want to even make offers, for fear they are too “insulting.” Thus potential buyers may stream in to view your property, but you’ll end up with no offers on it. This is because you’ll have scared them off with too high an initial asking price.
The best renovations
Keep in mind the basic rehab areas listed below when trying to flip houses. These are the simplest ways of adding value to any rundown home. But always remember you’ve got to improve to the level of the next door neighbors – and not way above them. This is the safest way to keep your renovation costs in check.
The kitchen rehab
Keep things simple if possible. If you can get away with sanding and painting the existing cabinets, and then replacing the old appliances, do so. If not, keep your kitchen redo budget in line with like homes’ kitchens. Don’t forget that new track lighting, a new sink and new faucet can really spruce things up inexpensively. Laminate countertops are OK, unless everyone else on the block has granite. Then you must spring for the granite. Avail yourself of planning and design help from local home improvement centers.
Again, try to keep things simple. If you can just change out existing toilets, sinks and towel bars, you’re lucky. But sometimes old tile walls look terribly dated, and/or you’ve got to spring for a total gut renovation. Keep the material costs down by using Lowes or Home Depot materials. Some of their cabinetry can look as good as designer cabinets at half the cost.
If a house hasn’t had any plumbing upgrades in the past 20 years, you really need to consider changing out all lead pipes to the more recent plastic tube piping of today. While the labor cost is high, the materials cost is low. In addition, any dated plumbing fixture should be upgraded as well – from dishwashers to washing machines, and everything in between.
Carpeting is still the cheapest way to go – but it has no “wow” factor to it. Refinishing old wood floors is a great way to go – if the existing floors are hardwood to begin with. If not, consider using some of the new engineered hardwood flooring available on the market today. Or, one can simply upgrade with the “look” of wood, using laminate hardwood flooring. This is what most buyers today expect. Naturally, if you do go with any carpeting, keep it very neutral colors – beiges or grays, to appeal the largest group of buyers.
New interior paint
Like carpeting, stick with lighter, neutral, off-white colors. The more extreme the color you choose, the narrower the range of buyers who may fancy it. Also keep in mind that light equals bright. And bright is a flipper’s moneymaker. Remember too, that keeping the whole house the same shade of color keeps an evenness to the potential buyer’s eyes as they move from room to room. This makes for another positive impression on any house you’ll be flipping.
Putting it all together
If you utilize all these suggestions for the best property flipping renovations, you will invariably be playing it safe. I can’t overemphasize the need to keep your vanity out of your design decisions. Especially when it comes time to place your investment property on the market for sale, and setting a realistic asking price. A price that will absolutely invite many offers. If you can get buyers into a bidding war, you’ll have done your house flipping renovation job properly.
photos courtesy of brokersbestmtg.com, tmgnorthwest.blogspot.com, realestate.msn.com, cbsnews.com, ocregister.com, article.wn.com, vimeopro.com, foreclosuredatabank.com