You’ve watched numerous episodes of Flipping 101 and Zombie House Flipping and are ready to buy a studio apartment in Tustin for a quick turnover and a hefty profit. But house flipping involves far more work than what’s shown on television. So, before you pull out that paint brush, find out what you need to know to get the best value for your renovations.
Don’t Over Renovate
The real estate mantra “location, location, location” is the key to successfully buying and selling both long and short-term properties. It’s easy to over-renovate and end up with a product that is beautiful but overpriced for its location. And while some buyers and renters will happily spend more for those stainless-steel kitchen appliances, many others will balk at a higher price tag if properties in the area are not selling for a comparable price.
Look at houses that are on the market in the area. Which ones are selling the fastest? What improvements do they have in common? On the flip side (pun intended), what similarities do the lesser chosen ones have in common? Once you discern lessons from these properties, you will be able to wisely undertake your home improvement strategy and maximize your return on your investment.
Make a Great First Impression
Potential buyers or renters wear their first impressions on their sleeves. Think back to any house flipping show that showcases somebody’s reaction during the first look at a possible home. That first impression matters–if your curb appeal is absent, no one will want to see the inside. Leave home shoppers wanting more by undertaking a few cosmetic fixes that won’t break the bank. They include:
• Power washing the siding
• Painting all trim work
• Making sure window casings are in good condition
• Dressing up the front door by painting it a contrasting color
• Replacing old exterior hardware like doorknobs
• Installing outdoor lighting
• Planting flowers and plants
More Ways to Increase Your Property’s Value
Maintaining a potential tenant’s interest after they walk through that newly painted door is critical. Buyers care most about the kitchen, bathroom and communal spaces–such as a deck or a finished basement–so focus your attention there. If you can’t afford a major renovation or extension, you can still improve your property’s value by giving extra attention to the spaces within the existing footprint of the house. Instead of a complete kitchen renovation, consider adding molding to the cabinets and replacing the hardware. Replaced lighting, new light switch plates, and a fresh coat of paint will make a major difference in the bathroom. Finally, think about making your unit energy efficient and learn what government-funded initiatives are available for investors looking to increase home values on a budget.
You can also see what remodeling strategies have worked in the past. The five remodeling projects that delivered the highest rates of costs recouped, according to data from Remodeling Magazine’s 2020 Cost vs. Value report, were: manufactured stone veneer (95.6%), garage door replacement (94.5%), a minor kitchen remodel (77.6%), siding replacement – fiber cement (77.6%) and siding replacement – vinyl (74.7%.)
Above all else, you don’t want to spend more than your property is worth. One way to avoid this is by using the 70% rule. Simply put, it’s a way to help you determine the maximum price you can pay for a fix and flip the property to turn a profit. It states that you should pay 70% of the After Repair Value (ARV) of a property, minus the cost of necessary repairs and improvements.
So if that Tustin-based studio’s ARV is $150,000 and it needs $25,000 in repairs, then the 70 percent rule states that you should pay $80,000 for the home. $150,000 x 70% = 105,000 – $25,000 = $80,000. Buying a property for $80,000 that will be worth $150,000 may seem like an excellent deal, but you have to remember all the costs involved in a fix and flip.
Hire a Good Team
As viewers you may not see everything happening behind the scenes of your favorite HGTV show, but you can be sure a huge team is behind it. The same principle applies to your house flipping venture. You need to hire a skilled team that understands the real estate market and will work with you every step of the way to help you make good decisions that match your price targets while keeping to a strict budget. Call Pan American Properties today at (888) 754-9700 or email us at [email protected] to learn more.