return on investment renovating

Renovating for a Return on Investment

The fundamental question people face when embarked on renovating a house is where to spend the money that will generate the highest return on your investment. A Harvard study shows that people buying houses look first at the kitchen and bathrooms. While renovating the kitchen and bathrooms is going to be your biggest expense, it will command a higher sales price after the rehab is completed. It’s important as “Property Flippers” that you have somewhat of an idea as to what improvements will not only generate a higher sales price, but also get the home sold fast. Timing is a key element when flipping homes.

"In investing, what is comfortable is rarely profitable."

There will times you need to step outside of your comfort zone to acheive significant returns on your investments. Know your boundaries, educate yourself, then start taking small steps out of the comfort zone. The best investments can turn into the worst if you are not educating yourself along the way.

~ Robert Arnott

Higher Returns | Bang for the Buck

Just because the property needs extensive work does not mean you will yield a higher return. In some cases, just doing a facelift such as painting, refinishing surfaces, and upgrading appliances will return more bang for the buck than a complete full remodel. When selecting your design elevations, it is important not to overbuild or build something unique to the design of the house.

Renovate With Style

You do not want to lose the integrity of the house by taking a Craftsman style home, and while in the rehab process, use Colonial style features. If you are replacing the flooring in a rustic, Tuscan style home, then using a contemporary tile flooring would really look awkward and out of place. If you are not willing to change all the features to match, then keep the existing style of the home flowing.

rehabYou want to stay within the area when considering style and color choices. If you are in a high-end neighborhood, then renovate the home with high-end products. Same goes for low-end neighborhoods. Do not spend thousands of dollars on Thermador appliances for a house in a neighborhood that is considered lower end. There is no added value to the home and it would be difficult, if not impossible, to recoup any of the cost.

Renovations should be based on the area and price ranges near the subject property you are renovating. Do your homework before creating a budget to rehab the property. We recommend you look at the latest sold properties and really pay close attention to the 3 homes that sold for the most in order to set the bar for your project. You should then be able to create a scope of work and put together a budget that makes sense.

Know your Market

In a strong market, people can still over-renovate. Market conditions also play a role in cost. In a hot market, more than likely there are a lot of other investors and homeowners renovating their houses. This in return drives up labor cost. In a down market, you have to keep to a very tight budget due to falling house prices. It is all about timing in either market. Property flipping is not for the weak of heart. The business of flipping houses is stressful and making a wrong decision could be critical to your success. Keeping an eye on the local market trends is a good way to ensure you make solid choices appealing to future house-hunters.

House Flipping is Full of Hidden Costs

If you think a project is going to go as planned, think again. Be prepared for the unexpected and know that house flipping is full of hidden costs. Projects can take longer than planned, creating more holding costs, extra payments or more prorated taxes. If you need permits and think you can get away without getting one, still get one. Housing inspectors are likely to show up at the door if they see contractors working on the house. Pulling apart walls to expose work you have already done just keeps adding more cost and more time to a project. We recommend you do not take chances; just do it right the first time. When putting together your renovation budget, you should add in the neighbrood of around 10 to 20 percent for any unforeseen costs. The more experience you have, the less you need to add. One of the worst things you can do in the middle of a renovation is run out of funds or have to go back to your investors asking for more.