The Top 10 Remodels For Your House Flip
1) Know your market
Investing in foreclosure properties is not for everyone. First, you need to have a thorough understanding not only of your local real estate market, but of financing and construction issues as well. Nerves of steel are also a must for this type of endeavor! You will need them quick and often.
So you purchased your first flip? Now what? Knowing which type of remodeling projects will yield the most return on your investment (ROI) will greatly increase the chances of your success and profit. But beyond knowing which types of remodeling projects are best for your investment, you have to know your local real estate market. Is your flip located in an affluent neighborhood? A middle class neighbor? Or a lower income neighborhood? Knowing and understanding this will dictate not only which remodeling jobs you want to do, but what type and quality of materials to use.
For example, in an affluent neighborhood, you wouldn't install vinyl flooring in the kitchen or bathroom, right? Potential buyers will want to see ceramic tile at a minimum. Marble or travertine would be even more desirable, if your budget permits. Conversely, you wouldn't install granite kitchen countertops in a lower income neighborhood where you will most likely have a fist time home buyer with a government secured loan like FHA. You may not be able to recover your (or more importantly make a profit) investment in this type of neighborhood if you overspend. Knowing your market is crucial to your success in flipping properties.
One of the biggest mistake that first time home flippers make is over-improving a flip and not being able to recover their investment. Not being realistic about the time it will take to improve the property and not budgeting properly are THE two biggest mistakes. If you don't have a construction background, it is highly recommended that you find a quality inspector, contractor or handyman and realtor to help you decide what to remodel, how long it will take and how much it's going to cost. Don't forget to add extra for unforeseen set backs like rot damage or plumbing problems which can't be seen until after you start construction.
2) Kitchen Remodel
It has been said that kitchens sell houses, and it's true. If you've ever been at an open house, you will agree. There is nothing that will sink your chances of selling a house faster than a kitchen which is too small or outdated.
When considering a kitchen remodel or upgrade, start with the layout. Is the kitchen completely separated from the living and dining rooms? Or is it an open design? Can you remove a wall to make it flow into the family room? Removing walls is not as hard as it seems, doesn't cost a lot of money and can dramatically change the look and feel of the kitchen and adjoining rooms. Most new homes are open design for a reason.
Next is cabinets. Do they need to be replaced? Or can the be refaced or refinished? You can save hundreds (even thousands) of dollars if the cabinets are in good shape and just need to be refaced or refinished. No labor costs for demolition, patching walls and installing new cabinets. Not to mention the time saved.
If you have decided to, or have to change the cabinets, your next step is to decide what type of cabinets to install. Again, keep your market and your budget in mind. Lower or mid-grade (not cheap) cabinets can save you money and still look great if you install a nice countertop. The money you save on the cabinets can be used to install a granite countertop for example, which will be a huge selling point.
Speaking of countertops, there is a wide array of materials and colors to choose from here as well. Does your budget and property call for ceramic tile, corian, silestone or granite? What ever you choose, go for a neutral color either dark or light, but not in between. It should contrast the color of the cabinets, not wash them out.
Your floor is the next most important consideration in a kitchen. Keep in mind that what ever wall color you use (neutral is key), it can and probably will be changed by the new owner. However, the floor will most likely not be replaced, unless you install some cheap vinyl. Having said that, go with a neutral color like beige or a stone like tile. What ever you do, DON'T waste your time and money installing a light color flooring! It will be replaced before the buyer moves in! Unless your buyer is single, with no kids and a neat freak, a light colored floor will attract dirt like a magnet. No one wants that and it will considered a negative selling point.
A quick note about lighting. A beautiful new kitchen in poor lighting is like winking a pretty girl in the dark. No one will know it's there if they can't see it. Recessed lighting is the norm today, but something as simple as a dimmer switch and an inexpensive light fixture to add mood will go a long way.
3) Bathroom Remodel
Besides remodeling the kitchen in your investment property, the bathroom is a close second when it comes to return on investment. A few dollars spent here can go a long way in selling your property fast. The nice thing about a bathroom is that it doesn't have to be extravagant to look nice. Most people are looking for clean, bright and modern. Even size doesn't matter much, unless it's the only bathroom in the house.
First, toilet replacement is a must. For some reason, people just have a hard time accepting an old toilet even if you replace the seat and scrub it down to look new. A new toilet just sells better, period.
Next is the vanity & sink. This is almost also a must. Unless it's in REALLY good shape, it's a worthwhile investment to replace the sink and vanity to a modern cabinet and a light colored sink. As in the kitchen, you don't have to spend too much on the vanity (cabinet), but be sure you get a nice sink. If your property is a condominium or in a trendy part of town where younger, single people will be your potential buyers, consider something modern and trendy like a glass or copper sink. Again, knowing your market is crucial.
THE most important selling point in your bathroom is without a doubt the tub and or shower enclosure. Not the tub or shower pan itself, the surrounding walls. If your budget permits, this is where you will want to spend most of your bathroom budget dollars. A beautiful kitchen will surely be forgotten when your potential buyer walks into a bathroom with old, outdated and ugly tile on the wall. Or worse yet, vinyl panels surrounding the tub. Your purpose is to sell fast, and a nice clean modern bathroom will help achieve a fast sale.
At bear minimum, if your tub enclosure is tiled and your budget doesn't permit replacement, consider refinishing the tub and tile together. It's inexpensive and looks great, not cheap. Just be sure to install a nice shower curtain before your open house to help sell the look and not so much the material. If your budget does permit, replacing the tile with a neutral colored tile, like a stone imitation or travertine will go miles at the open house. No need for a shower curtain here.
Flooring and wall color is the same as the kitchen. Flooring is important, color not so much.
4) Plumbing Re-piping
Okay, so you have a nice kitchen and bathroom. What's the next question to come out of a potential buyers mouth? "Does it have copper plumbing?" I hear this every day! Now that the buyer has gotten past the aesthetics of a nice interior, they will start asking the more objective questions. If you've done your homework this far and have enticed the emotional side of a buyer with a nice kitchen and bathroom, investing in some of the more unseen major systems of the house, like plumbing, will bring you a good return on your investment. Partly by helping close the sale.
Does your property have copper or galvanized plumbing? If it's copper, nothing else to say, but be sure to point it out to potential buyers. If on the other hand it's galvanized, first you want to have the system inspected. If the plumbing is still in good shape (no rust on the pipes or in the water) and you have good water pressure, it might be worth leaving it in place. However, keep your potential buyer in mind. If you are in an upscale market, galvanized plumbing is a no no. An affluent buyer will expect copper plumbing and will not want the hassle of re-piping. A first time home buyer will be more forgiving.
If your budget permits, this is definitely worth considering. Not always crucial, but worth considering.
Even the most inexperienced home buyer can tell you if the roof is in bad condition. This is one of the items that's visible from your car as you drive up to a property. You might even consider it curb appeal. A potential buyer will not worry much if it looks okay. However, a bad roof screams "problems, run" more than a bad neighbor.
Luckily, unless the roof is in really bad shape, repairs will usually suffice in this area. If you did your homework when you bought the property, and had the roof inspected, hopefully you won't have to spend too much money on roof repairs or replacement. A word of caution, this is where you want to be sure to hire someone with experience. Not only will a bad roof repair attract the attention of the buyers home inspector, it will be a liability to you if it leaks a month or two after the buyer moves in. You might not be liable, but why chance it? A few dollars spent here will be a return on your peace of mind more than on your investment.
6) Window Replacement
Window replacement has recently (at least here in California) become the norm in flips and even just as upgrades for existing home owners. Window replacement companies are coming out of the wood work. No pun intended. However, with so much competition comes affordability.
New vinyl or aluminum windows in an older house will not only make the house look better, but is a great selling point and can bring a good return on your investment. Though not as important (from a ROI point), in some neighborhoods, old leaky windows in an upscale property can ward off potential buyers.
A word of caution: The building code requires a minimum openable section of the window in bedrooms to be 20 inches wide by 24 inches high for emergency egress (escape). Don't make the mistake of having to replace your windows a second time.
7) Electrical Main Panel Upgrade (to 125 amp breakers)
Unless your investment property is early 1900's, there is a good chance you have a breaker panel and not twist-on fuses. If you have a breaker panel, you should be fine most of the time and won't have to spend too much on this system.
However, if open your electrical panel and see orange breakers, you will (and should) spend some money upgrading or repairing. A company by the name of Federal Pacific Electric, which is no longer in business, made these panels which were defective and prone to cause fires. No joke, there are still thousands of these panels installed today and not too many people know about this hidden danger. The short of it is that the breakers don't shut off when they are supposed to, causing the wires to burn up inside the wall and cause fires. If you have this panel, you have two choices. Replace the panel or replace the breakers. There are companies now which make replacement breakers for these panels, but they are not cheap. Still, it's money worth spending.
The second consideration regarding the electrical system is old fuse panels. Most lenders will not lend money on houses with old fuse panels. Normally money spent on upgrading electrical panels will not bring you as good a return on your investment as a kitchen or bathroom, however, in this case it can kill your deal fast. You might not get a good return by spending money here, but if it gets the house sold, then it's a good return.
8) Central Air Conditioning and Heat
You would think that this item would be higher on the list, but it's not. Well, that depends again on your property and location. First time home buyers in a middle class or lower income neighborhood will not pay as much importance on central air conditioning and heating as in a more upscale location, where central air and heat is a must.
If you've done your homework and know your local real estate market and potential buyer, you will know whether it's worth investing in central air. At a minimum however, heating is required by law in all houses. Even replacing an old heater can be a good selling point and bring a good return on your investment.
If your investment property has an old floor heater, do yourself and your buyer a favor, replace it with at least a wall heater. Floor heaters are no longer allowed in new construction and most companies will not even service them. Besides being difficult to clean and a fire hazard, the grill gets very hot when used and can burn your feet if walked on bare-foot. This might be one of those things you HAVE to spend money on, so plan early in your project.
9) Exterior Paint
This is another item you would think would bring the biggest return on your investment. However, in flipping properties, sometimes you get lucky and the exterior (especially if it's stucco) might not need more than a power wash and repainting of the trim.
The issue of repainting depends on what type of wall covering is on the exterior walls. Do you have wood siding or stucco? If it's wood siding, repainting the house is definitely a worthwhile investment and will yield a good return in that it will give the house curb appeal.
Just as with the interior of the house, neutral colors is the key here. A bright yellow or orange will not sell in any neighborhood and won't bring any return. Keep in mind that while you might think it's cutting edge, you're not going to live there, or next to it. Go with a warm beige or light pastel on stucco. White trim goes good with any color, is a safe bet and you can buy it in bulk, cheap.
A caveat: Replace damaged and rotted wood when necessary. The termite inspector will catch rotted or damaged wood anyway and only delay your sale. Not to mention, he will charge a lot more to replace it and won't paint it when he's done.
10) Exterior Landscaping (Curb Appeal)
One of the easiest and cheapest (yet very important) investments you can make on your flip is landscaping. This is probably more important than any other item on this list and can yield the biggest results, in that it will attract people to your house. You may not be able to put a dollar figure on your return like that of a kitchen or bathroom remodel, but if no one comes inside the house in the first place because it looks like a crack house from the outside, it won't matter how much you spent on the interior.
Something as simple as trimming overgrown trees and bushes and adding colorful, inexpensive flowers can really brighten up the exterior of your property making it more inviting.
BONUS! - #11) Master Suite Addition or Remodel
Here's an up and coming investment in flips and even the new home and remodeling industry. Master suite remodels to accommodate the aging population. With more and more "baby boomers" entering retirement, accessibility to master bedroom suites and bathrooms is becoming more popular and a good selling point.
Again, depending on your location and target market, investing in first floor master bedrooms and bathrooms with handicap access, wide doors and larger bathrooms (for wheel chairs) can bring huge returns on your investments. Other things you may want to consider on this type of remodel is pedestal sinks, lower mirrors and outlets larger closets and remote controlled everything.
In closing, the real estate market is bound to take an upswing in the near future and savvy investors like yourself can take full advantage. However, one last word of caution. Do your homework. Know your location, your market and your budget. An most importantly, find a good contractor who's not going to rip you off, do a poor job and leave you in a bind. The trick to making money in flipping property is not only knowing where to spend your money, but spending it fast and selling your property fast.
Courtesy of www.inspectaproperty.com
(Tony Escamilla is a licensed general contractor and construction inspector. He has inspected over 6,000 properties for investors and remodeled several properties to be "flipped".)