Does an over-improved flip seem like a contradiction to you?
While many people consider flips to have low cost and low-quality materials the reality is there are so many people who actually over improve their flips in relation to the neighborhood. And what’s so important about this is that it happens to new flippers AND experienced flippers alike. So how can you avoid this? By setting up a process at the very beginning so that you truly know what renovations are necessary and which one can be skipped.
When putting together a detailed budget for a flip most people already have the house under contract. So that means the actual renovation numbers may still be in question. That is why it’s key to make sure you have a good handle on how to protect yourself (and your budget) by using the information you have and knowing what to adjust,
One of the very first things I do when assessing a project is figure out how much I can spend on the renovation and still generate a reasonable profit. By approaching it differently I’m then free to make decisions about how to move forward. For example, a bid may be a bit more than another, but the contractor will agree to get the project completed sooner. If the number works, I don’t have to simply choose the lowest number.
Another reason this approach is helpful is because if I do come in below the estimated budget and the house sells for the comparable value then the budget savings becomes profit. But no matter how you decide to approach the process there’s some tried-and-true tips you’ll want to include.
Let the Comparable Sale Properties Be Your Guide
The number 1 key is don’t over-renovate. Only include upgrades to the house that add true value.
As important as location is when it comes to real estate when renovating, its all about the comparable homes. Making renovations above and beyond what the neighborhood supports are to be avoided.
It is very easy to over improve a property and end up with a completed project that looks great but isn’t receiving any offer because it is simply overpriced for its location. Occasionally buyers may consider spending a small amount more for an improved property, they are not likely to spend a significant amount more than those homes that are surrounding it when there isn’t any sale information to support it.
Remember, not all improvements are equal when it comes to adding value. With some spaces, like a home office, you can highlight this space with staging rather than investing in making permanent changes that may not appeal to every buyer.
Make a Good First Impression
How many times have you pulled up to a house and been “wowed.”
Or have you driven through neighborhoods and the houses with a few exterior upgrades really stand out? That’s the impact you want to create with your flip. Without over spending.
The exterior of a home is important because you want to capture people’s interest so they want to see more and are drawn to come inside. Fortunately, there are a ton of ways to do this and they just need to be included in your overall plan. The last area you want to short change is your exterior. Think of including these simple tips in your renovation plan:
- Installing a new front door or painting it
- Installing new outdoor lighting
- Adding fresh mulch or potted flowers
- Installing a new mailbox
- Adding shutters (or not)
- Freshening up a metal railing
- Laying down a welcome mat
This first impression area can also extend into the house. Including a bench, entry table or hooks will establish functionality in a high traffic area. Something that is often on the top a buyer’s wish lists.
Don’t Impose Personal Style
Including neutral design elements will appeal to the largest buying audience. And that is the number one thing to remember when making design decisions.
What not “to do?” Choose design elements that are taste specific or ones that reflect a personal style. When in doubt, always go with classics. A deep green counter top may have made for a great photo on Pinterest but may not be something buyers will appreciate.
You may like a colorful and graphic tile for the kitchen backsplash, but others may prefer a white subway tile. Larger items like countertops, flooring and cabinetry should be in colors that align with what buyers are looking for. Leave the taste specific finishes for the new homeowner.
Manage the Costs
Don’t invest more into the property than what the property is worth. Frequently people get caught up in projects that they wander from their business plan and budget and suddenly find themselves trying to catch up. When this happens, they may find themselves with a project that has no profit.
Before starting a house flip consider putting a preliminary budget together. This is to make sure you identify where you are going to spend the majority of your budget. While there may be areas where expenses exceed the plan that is why you include a contingency line item for those unexpected expenses. Just be mindful that if if you exceed your budget AND your contingency you’ll be in a position where you may end up losing money on your project.
Monitoring contractor expenses and only ordering the quantity of materials needed is also a cost saving tip. Should there be excess materials make sure to have those returned so the budget can accurately reflect costs.
Time is Money
The longer the property is held, the higher the costs incurred.
The longer your house flipping project takes, the less money you are likely to make. That is why it is so important to be well prepared to start from the very beginning with a solid plan.
Everything related to the property will cost money. If you financed your project you’ll have interest accruing every day. If you paid cash, your money is not earning returns on another investment. Real estate taxes, insurance premiums and utilities will be part of these costs too. Every cost should be accounted for a will directly impact your profit.
Keep it on Track
Because there are many different trades that work on house flips you’ll want to make sure that you have your schedule planned ahead of time and that everyone is on the same page when it comes to following the schedule.
For example, electricians and plumbers will need to complete rough-in work but in order to do that, they need the framing installed. Once the electricians and plumbers are done next comes insulation then drywall. At the end of the project the electricians and plumbers will need to return for their final installations of lights and fixtures. Each of these tasks requires that the prior task be completed. Everything is connected.
If this process is not clear and outlined before the project begins you can lose a lot of time. Which can extend the entire project. If you consider that on a standard flip you may have up to 10 or more different trades working on the project quickly. Delays happen but minimizing them is the best way to manage the extra expense.
Remember, all of these suggestions are to keep the project profitable. With a well managed project you are more likely to be able to move quickly onto that next project. That’s what this process is all about. Building momentum so you can create the business and life that work for you.
Ready to take that next step when it comes to flipping?
That’s why I’ve got additional resources to help you get the information you need to move forward on creating your flipping life.
Make sure you have the Fixer Upper Checklist so you know which areas are key to added value in a home.
There are several videos available on finding houses, renovations, and funding on the Threshold Homes YouTube Channel. Check out your favorite flipping topics and new videos weekly.
You can’t close a successful and profitable flip unless you start. What is your biggest challenge with getting started house flipping? Let me know. It may be an area I’ve also had questions about myself. I’m here to help so drop me a DM.
Want to buy a property and renovate it?
Get my checklist that will help you — 8 Things I look for When Purchasing a Home. Just click here to download it.