It’s time! You’ve either acquired your first property through a tax lien or you’re doing an old-fashioned fix and flip. And.. The property needs some work. The key to a successful fix and flip is knowing what rehab projects will add to the value of the property without breaking budget. A common mistake that many new real estate investors make is going overboard on the rehab. New granite countertops, a full bathroom remodel, some new floors, the works. Before you dive headfirst into your rehab, take a look at these do’s and don’ts.
The Do’s of a Fix & Flip
- Know the local market
- Analyze the numbers
- Create a budget
1. Know the Local Market
When rehabbing a property, it’s crucial to look at other local rental listings to see what the status quo is. Does every listing show gleaming granite countertops? If so, it may be smart to factor them into your budget. However, you’ll probably find that many listings boast simple updates. Knowing the market can help you decide what renovations are necessary for your property to sell, and which ones are overkill. Using a search tool like Zillow, can help you get an idea of other similar properties.
2. Analyze the Numbers
The point of investing in real estate is to make a profit, right? To do so, you’ll need to know accurate numbers. Comparing the resell value to the purchase price, and factoring in the anticipated rehab costs will help you get off to a good start. Knowing these numbers can help you determine your budget as well. If you purchased a property for $50,000, and it has a resell value of $90,000, it’s safe to say you could put $20,000 worth of renovations in and still make a good profit on your investment. Whatever the margins are, it’s important to know what you’re working with to ensure a successful flip.
3. Create a Budget, and Stick to It!
Once you have estimated the numbers, it’s time to create a budget. Take a look at the needed renovations and what they cost. Will these repairs exceed your budget? If so, the property may not be worth the investment. On the other hand, if the numbers work, create your budget and stick to it. We recommend including a little extra room in your budget for unexpected repairs. While we all want to assume the best-case scenario, sometimes things come up. Including this extra cushion can keep you from exceeding your budget.
Rule of Thumb, Don’t Go Overboard!
The easiest thing to do as a new investor is to get caught up in perfecting your first flip. Many new investors go overboard by wanting to add all of the bells and whistles with the rehab, but it isn’t always necessary. Knowing the local market, analyzing your numbers, and sticking to your rehab budget is a surefire way to know what renovations will help you, and what will hurt you.