Over Improving Your Flips? Don't Do It
Mastering the art of rehabbing comes from the ability to not over rehab your properties and still get top dollar. I firmly believe that the profit you will make on any given project is in the purchase of the property. No matter what kind of investment you take on, you will be looking to buy at a discount and sell for a profit. One way to throw away your expected profit is by over improving your rehabs.
Warning Signs of Over Rehabbing
Remodeling the property like you are going to live in it.
Fall in love with the property
Aren’t aware of your market and the condition of houses that have previously sold.
You don’t know the ROI for specific changes your making
Justifying an improvement with a non-monetary return
Falling in love with a property goes back to our last post in regards to controlling your emotions. It is hard to control your emotions no matter what stage of the game you are in. Falling in love with a property is very easy and as discussed hard to control. Whether you love the area, the actual home, the neighbors or you are just dying for a property. Whatever the reason may be, always fall back to the numbers that you put together and see if the project is going to work for you. Remember we are in this business to make money, not just create beautiful houses.
Remodeling the investment property as if you and your family are moving in is another warning sign that you are over improving. This is where your market research comes into play. The best way to avoid this is to find comparable properties in your farm area who’s homes are listed for sale. Go to these open houses and see what type of finishes they have in the home, what condition the home is and the design of the interior. This will help you dictate what your farm area is calling for in terms of finishes. For example, you don’t want to spend 20 dollars on one piece of door hardware if you are selling a home for 125,000. You have to remember that you are not being cheap in these situations; you are just making good decisions.
Before you start doing rehabs, I want you to research which improvements get the best return for your money. This will ensure that the improvements that you are making with see a good return for the money you invested. Remember every improvement you make on the property is an investment and you want to be able to get that money back when you sell. Some improvements that you will see a good return on are:
So make sure you know exactly what your improving and know that you will be able to get your money back when you sell.
Another warning sign is when you begin to justify a home improvement by anything other than monetary reasons. If you begin adding to your scope of work just because you feel that it will look good in the home, you need to take a step back and question your decisions. We are trying to improve the curb appeal of these homes, but we have to keep this under control and only do what the market is asking for. Only doing what the market is asking for is hard to determine, but with practice and experience, you should be able to get a good feel of your market and what is needed to get top dollar for your home.
Know Your Market
A common theme among all of these warning signs is the ability to know your market. If you take time to study comparable homes that are on the market and understand what finishes your market calls for, you will be in a much better position to make your improvement decisions. Remember for most house rehabbers they are solely focused on a small sub division until they master rehabbing and begin to scale. This makes it much easier to evaluate your current market and improve a house based on what your subdivision is asking for. You just want to make sure you are aware of what grade property you are rehabbing and not put your rehabs in the hands of others on your team.