Flips vs. Flops
Flips and rehabilitation’s of a “priced to sell” house can bring solid return on investment. It’s beneficial to understand the slight difference in flipping and rehabilitating a home.
To flip is considered…
- making needed repairs,
- modernizing its look and feel,
- quickly putting it back on the market.
To “rehab” is considered…
- making needed repairs,
- refurbishing anything that is outdated or inconvenient,
- putting a little extra time and heart into the property before selling it.
Agents, home inspectors, and appraisers are all in agreement that following simple do’s and don’ts can make all the difference in turning a profit or turning your dream into a real estate-themed nightmare. Let’s discuss the big four…
(1) Know Your Market
Know which improvements are essential and most appealing for the neighborhood. Invest your money in the “must-haves” and “can’t resists” that will most attract the potential buyers specific to your location. Modernized kitchens and bathrooms are the common denominator in most markets. Buyers are drawn in when these rooms are well appointed with clean work spaces and up-to-date finishes.
(2) Do the Numbers
You know how much you paid for the property, and you know how much you are willing to invest in improvements… but what about holding and closing costs? Make sure the numbers for the deal make sense, and don’t count on appreciation. Calculating interest owed on the purchase loan, property taxes, insurance, and title costs is imperative. In a flip where short turnaround can be crucial to your profit margin, it’s especially wise to allow for a six-month safety net when figuring out how much you may need to pay in interest, insurance and, tax costs. Thus, pay attention to how much you’re spending on the house while you’re holding it – a flip costs you each day that you own it. Never base your buying decisions on what other people are telling you. Do your own due-diligence! Don’t forget to price your finished flip right, it needs to be based solely on the comparable sales.
(3) Don’t Put Lipstick on a Pig
Although we’d like to think it’s the case, cleaned floors and a quick coat of neutral paint do not constitute as a flip nor a rehab. In fact, buyers’ agents will be watching for signs of a “white out.” Take a look at what houses for sale in the area look like and try to make yours nicer without overdoing it. Chances are that you decided to flip or rehab a home because you are handy with a hammer and enjoy the work, so let your skills shine. If you’re not doing the work yourself, quality is still imperative. Hire professionals who value good work instead of choosing a low-price leader. Try to have a written contract between you and your contractor that spells out exactly what is expected. Finally, don’t fool yourself into thinking that a deep-cleaned house is a flipped or rehabbed house. For your money, replace those veined counter tops, install new windows, tear out the old carpet, and truly repair anything that isn’t in working condition. Quality work adds value.
(4) Don’t Live in the Past
When it comes to modernity, don’t stop with the kitchens and bathrooms. You don’t have to change anything that looks more than ten years old, but you must know the difference between what gives a house its charm and what makes it feel old and unwelcoming. Choosing what is classic over what is trendy is a good rule of thumb. Trends may cycle through again, but classics will remain constant. For example, even clean shag carpet is a trend that most buyers will not want to pay for. Beautifully refurbished hardwood floors are a classic that buyers will not want to resist.
As a closing note, don’t underestimate the power of staging your new and improved property. It’s an investment with a high rate of return when considering saved holding costs and avoided price reductions. Now you’re closer to either making that profit or continuing the cycle of investment!