Smartly managing a rehab budget is critical to maximizing the return when flipping a property. Money should be spent on areas that most impress home buyers. Budget management is a zero-sum game. If money is wasted in the wrong places, there won’t be wiggle room in the budget to invest in the repairs and refreshes that increase the home’s resale price. So where should you spend in your flip?
Priority areas that spark a high return for a fix and flip property
A home has three main areas where prospective buyers expect to be wowed. First is the ever-important curb appeal. Second and third are kitchens and bathrooms.
The baseline requirement for ensuring excellent curb appeal is making sure the outside of the house is clean and not in obvious disrepair. An outside clean may require pressure washing, cleaning or replacing gutters, or fixing any peeling paint or buckling siding. Make sure the driveway is in good shape.
Healthy, beautiful landscaping always makes a strong impression. Get rid of any plants that are dying. Adding plants that have some color creates visual interest. Repainting the front door and/or trim in contrasting neutral color adds a welcoming tone to the home.
If the front step or path are beat up, it may be worthwhile to lay down new stones or tiles. Replacing the front path doesn’t have to be expensive, and it spruces up the entrance setting. A simple garden statue or inserting solar lights along the front path are low-cost options to add some personality to the front of the house.
Last, look at the outdoor fixtures like a door handle, knocker, and mailbox. They may need a good cleaning, or they’re another opportunity low-cost opportunity to freshen up the look of the house.
Kitchen and bathroom improvements
The key to presenting an impressive kitchen is new appliances. Appliances provide some of the highest ROI in the resale price relative to their cost. Brand new appliances invariably make the kitchen feel expensive. Replacing backsplashes and cabinet fronts are also high-impact changes.
The same principle applies to upgrading bathrooms. New plumbing fixtures and vanities impart a sense of fresh modernity at proportionately low expense. When selecting a new vanity, look for good storage design as well as aesthetics. Buyers want storage. Flattering lighting and new, spotless tiling in the shower puts the finish on a bathroom that carries more than its weight in boosting resale value.
A dingy-looking exterior, kitchen or bathroom can wreck the presentation of the house. All three areas deserve a good portion of the rehab budget and attention.
Improving elements in the bathrooms is another key upgrade to focus on. First, focus on cosmetic improvements such as vanities and countertops. Once you’ve added a few updates, hone in on the plumbing. Although not cosmetic, plumbing fixtures that have been improved or replaced can make a significant impact for potential buyers.
Best practices for any part of the house
The following guidelines are best practices to keep in mind when deciding what patch, repair, or replace:
- Cosmetic improvements that don’t cost a lot relative to their impact on buyers’ favorability ratings are the sweet spot of money well spent.
- Keep spaces and openings, bright and light as possible.
- Use neutral shades for walls and trimmings, interior and exterior. Avoid leaving a bland impression by using different, yet complementary neutral shades. Keep in mind that many shades qualify as neutral. Here’s a slideshow of 10 neutral shades that run from the expected neutral colors to neutral shades of red to lilac to brown.
- When deciding whether a fixture, like a door handle or sconce, should be repaired or replaced, ask whether the fixture dates the house or adds some charm. Get rid of anything that dates the house.
- Anything that requires going under the floor or into the walls is going to blow up the rehab budget. Hopefully, the property inspection done before the house was chosen already revealed whether any significant rehab would be needed.
A couple of common mistakes to avoid
Most new buyers make at least one of these mistakes when flipping a house:
- Confusing cleaning for rehabbing. A super clean house with five-year-old appliances and lousy lighting is still a house with five-year-old appliances and bad lighting. Nothing’s been improved or enhanced on the property that justifies asking for a resale price higher than the purchase price.
- Decorating the home according to their personal tastes and assuming potential buyers share those tastes. BMC recommends buyers use a neutral palette so potential buyers can envision their own décor preferences when they walk through the house. Decorating a property in a clearly defined style shrinks the pool of buyers who show interest in the house. Most people will have a hard time seeing past a detailed, emphatic interior design.
Let potential buyers know what’s been done
Losing control of the rehab budget is the surest way to shrink the profit margin on a flipping a house. Misusing the rehab budget can be equally disastrous. The numbers may be in budget, but there’s still no real value invested in the property if significant repairs and replacements haven’t been made.
A post-rehab, pre-sale inspection report will let potential buyers know exactly what’s been done. Reviewing the inspection report with a potential buyer is a logical time to address and clarify how the changes made and not made have already been priced into asking price.
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About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans over that time period. We specialize in financing all types of residential and commercial property investments throughout Texas. Using a common sense and value added approach, we strive to incorporate these principles into our underwriting and closing processes. We are a Dallas Hard Money Lender, but we do business in Austin, Houston and beyond!
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving clear title and a complete file. The process generally takes from two to three weeks, but can be accelerated where circumstances require it.
We are an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.