When you buy houses to flip, you need to be extremely careful on how you improve them. I remember when I first started in this business, I used to over-improve my properties and there was NOT a return on my investment. But the question I had was, “how do I know the exact sweet spot where I can get a return on my improvements and not over-improve?”
The bottom line is that there is no exact point in remodeling that can actually be calculated for a perfect return on your investment. When your buyers walk into the property, they all have different hot buttons that make them write an offer. That is the main reason that there is no perfect formula.
So, after buying and selling almost 200 properties, I developed a few “rules of thumb” that I’d like to share with you so you can get the absolute BEST bang for your remodeling buck:
1. Check out the photos of the comparable sales
The first thing you need to do is check the photos of the most recent sales within a close radius to your property. Go through the photos and really study the condition of the properties and then see how long they sat on the market. The ones that sold fast are the ones where you need to pay close attention to the photos so you know the kinds of things to duplicate (new kitchen, bath, light fixtures, etc)
2. Figure out a small budget for a few “extras” to make your house stand out
One mistake that I used to make in the beginning was to NOT have any wow factors in the houses. I would just make sure they looked new and clean and I thought that was enough. Many cases it was enough, but some cases it wasn’t. There still were other newly remodeled houses in the area that I was competing with.
You want to spend extra on a little “wow factor” that will make the buyer remember your property. You have to realize that your house may be 1 of 40 that they are looking at, and if they see yours in the beginning, they may forget it when they are further down the line in their search. If you can put up a fancy backsplash in the kitchen, unique faucet, or a really cool sink/vanity in the bathroom that isn’t standard, your buyers will remember your houses because of that “extra” thing. You have to stand out! You DON’T want to load the house with tons of “extras” because you will just be flushing money down the drain.
3. Talk to a savvy agent that knows the area well
Don’t forget about those good agents that specialize in the area. Tell them about the house that you are working on and run them through. They will be able to gauge what you should do based on all of the knowledge they have about what houses are selling in the area and what they look like. I’ve told some of my agents my ideas for a house and they’ve said things like, “you really don’t have to go that extravagant for this area,” or “buyers in this area EXPECT granite counters in the kitchen.” These are just a few examples of things your realtor in the area can help you out with.
In conclusion, I just want you to understand that this is not an exact science, but an art that will be finely tuned after you do a few deals. If you are buying right and leaving yourself enough breathing room on your profit margin, a little over-improvement on your first few deals won’t kill you.