This is the big question that a lot of people have. And like everything to do with real estate the answer is “it depends.” Since every house is different it is impossible to give a flat number that will apply in every situation. The best I can offer after more than 10 years of experience is a range of 40-160K. Not much help, right? This is why when you are getting started and you talk to investors its really tough to get a true idea of what a project will cost.
The best way for you to get this question answered is to find someone who will walk you through a house before it is started, go over the numbers with you and explain why they are spending the money they are spending. With the projects I work on I am always balancing the expense with the return and the number we are looking to resell the home at. All of these have to align in order for the project to be profitable and worth taking on.
Here are the factors I use to determine the budget:
1. What type of neighborhood is the property in?
There are some neighborhoods where the homes are more entry level. The standard may be a 3 bedroom 1 bath. There may be not a clear value increase if there are more bedrooms or bathrooms added. If that is the case then I know that I likely don’t want to create a home that is an outlier with a higher price and features that buyers are typically not looking for in that area.
2. Comparable sales of houses in the neighborhood?
When you are looking at neighborhoods you may see some variation in cost that can be due to several factors. The one thing that you cannot control is the motivation of a seller. In some instances, a home may look good online but when you actually walk through there may be deferred maintenance or aged items that you would not see online. This can affect pricing.
3. What is the extent of the renovations that are needed?
There are varying degrees of renovations needed. There are homes that you can purchase at a low enough price and invest a small amount of money into. Think new carpet, vinyl flooring, and paint. Maybe replace a counter top or add new appliances, and you could be ready for the market. Or there are properties that may need structural improvements, additional square footage added. This could go along with large ticket items like a roof or siding. The range between these two types of projects is not only limited to the budget but it will also affect the project costs in terms of time it takes to complte. The longer the project takes, the higher holding costs will be which will affect the overall profit.
As you start to look at the actual cost from projects that you are considering or that others have completed, these areas will become more apparent. It is typical when you are just getting started to take on projects that may be on the more moderate to conservative budget side. Therefore, those will typically have a lower resale and potentially a lower profit. The only true way to learn and progress is to just get started.
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Amber
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