Is Flipping Worth it: Flipping And Renovating Breakdown

Is Flipping Worth It: Flipping And Renovating Breakdown

You have to fix before you flip, but there are many concerns that crop up when you’re in the renovating phase of the flipping process.

These include figuring out how much to spend on renovations while avoiding unnecessary updates to the property that won’t boost its value.

How much do renovations on a house flip tend to cost?

On average, renovating a flipped house will cost approximately 10 percent of the amount you paid to purchase it, as reported by Fit Small Business.

However, it’s a good idea to add 20 percent to that number to cover any unexpected repair costs.

This amount is good to bear in mind as it can prevent you from overspending on renovations and losing a profit.

But it’s important to break down renovation costs that can be valuable to your investment home in greater detail, as they can make flipping much more worth the time, money, and effort.

Calculate The After-Repair Value (ARV) Of The Home

Calculating ARV

The first step when deciding to move forward with renovations for your investment property is to figure out the ARV of your home.

This is important when house flipping because it helps you stay within your budget and avoid too many renovations. It also helps you to see what renovations are profitable.

ARV is the sum of the property’s price and the value of repairs that are made to it, as Fit Small Business explains.

To find out if the renovations you want to do will be a profitable project, you’ll need to calculate the repair costs.

So, if you spent $150,000 on buying the property and your repairs will cost you $30,000, and you think you could sell the property for $200,000, the value of the repairs you will make to the house would be $50,000.

However, since you’re spending $30,000 on repairs, you stand in line to make a profit of $20,000.

Avoid The Temptation To Renovate Too Much

You might be bitten by the renovation bug, causing you to want to make lots of different repairs and updates to your investment home before you sell it.

However, this might not be worth your effort and money.

Don’t Build The Best Home In The Neighborhood

Restoring Flipped House

One of the most important rules to follow when fixing your flip is that you shouldn’t try to build the best home in the neighborhood.

It can be tempting to go crazy when it comes to landscaping, pools, outdoor kitchens, and creating an upper level, but you need to take the neighborhood into account if you want to sell for a good profit.

Let’s say your investment property is in a neighborhood that’s worth $500,000. If you’re renovating it a lot so that it’s worth $700,000, you’re going to lose money instead of making it.

The reason why is because potential buyers who want to live in a home that’s worth $700,000 want to live in an area that’s worth that same amount.

They don’t want to live in the most lavish and beautiful house in the neighborhood that looks out of place.

If you renovate your home to be the most amazing one on the block, you will battle to sell your property.

Not all renovations are going to increase your flipping profits. You need to know which ones are actually worth spending on.

Is flipping worth it?

To ensure it is, let’s take a closer look at the home renovations that are worth doing to add value to your investment property.

Repairing The Lawn

Repairing Lawn

Curb appeal – you’ve heard this phrase said a lot when it comes to real estate, but the thing to remember is that less is more.

While you don’t want to spend a lot of money on a professional landscaping service, a few small tweaks to the property’s lawn can go a long way.

Specifically, just six applications of weed control and fertilizer, which costs approximately $300, will bring returns of $1,000 when selling your property, as a survey by the National Association of Realtors found (via Money).

The reason why is that first impressions matter. When your potential buyers walk into the property, the lawn is one of the first things they’ll see.

They want to be sure that the property is in good condition and won’t give them the hassle to upgrade or repair once they move into the house.

Garage Door

You might focus on the exterior walls of your house, but don’t forget about your garage door.

A report by Remodeling Magazine in 2018 found that upgrading the garage door is the home-improvement project that offers the best value.

The cost of replacing an old, battered garage door with an updated model can increase your home’s value by 98 percent of what it will cost you to install it.

Basically, this means that a garage door that costs you approximately $3,000 will only cost you $60 when you’re ready to sell the market, as Money explains.

While people who remodel homes have an average payback of 56 percent of the cost of the remodel, people who replace things like garage doors experience a higher payback of 75 percent, as CNBC reports.

And while you’re at it, consider insulating the garage door, as this can increase your investment property’s value by 4 percent, according to Nationserve.

Garage Interior

Man Repairing Garage Floor

While you’re improving the garage door, don’t forget about inside the garage! This isn’t just where people park their cars.

The garage can offer extra storage, so add things like a workbench, hardware for tools and hanging bikes, and give the whole area a lick of paint.

Remodeling’s survey found that 85 percent of home buyers want extra storage space in the garage so that in itself can definitely be enough to upgrade the space.

One of the reasons why extra storage space in the garage is so appealing is because it prevents clutter in the house, and it’s especially attractive to couples who have children and need more space for all their things.

Wooden Deck

This might seem like a feature your investment property doesn’t need, but it’s not a luxury item that’s unnecessary – a wooden deck will boost your property significantly.

When homeowners installed a wooden deck (with measurements of 16 X 20 feet), they got paid back with 85.4 percent of what they’d paid to do the project.

This means that a wooden deck that cost around $10,000 to build added approximately $8,000 to the home’s value when it was sold, Remodeling Magazine states.

Why is a wooden deck so important to homebuyers?

A study conducted by the National Association of Realtors and the National Association of Landscape Professionals found that 48 percent of people surveyed said that decks improve livability, while 38 percent said that the second most common reason for upgrading a deck is to improve worn-out surfaces and finishes.

Minor Kitchen Remodels

Showing New Kitchen Appliances

It’s always said that the kitchen is one of the most important rooms in the house to upgrade when it comes to selling.

While that might make you think you need to install high-end upgrades, that’s a waste of time and money.

A Remodeling Magazine study found that minor kitchen remodels offered a return of 81 percent, but high-end kitchen remodels only offered a return of 59 percent.

The reason for this is because not all home buyers are looking for expensive or trendy kitchens. So, keep things simple.

Small changes to the kitchen can be more valuable. These include installing new flooring, buying new appliances, and/or upgrading the cabinets.

The great thing about this is that you can get most of the money you spent on renovations back in your pocket.

For example, the average cost of a minor kitchen remodel is $21,198, with a resale value of $17,93. This means that you could recover 81.1 percent of the cost, as reported by the Cheat Sheet.

Energy-Efficient Windows

Installing PVC Windows

These days, everyone wants to increase how green they are.

Energy efficiency is something that home buyers look for, but this isn’t just about solar panels and low-flow bathroom fixtures.

You should also pay attention to the windows in the home. 

While you might not really notice windows much, they are valuable because of how much money they can save when you replace them.

Energy-efficient windows that cost $10,000 can increase the asking price on a property by around $8,000, which is an 85 percent ROI, as CNBC reports.

PVC window profiles are better than those made of wood or aluminum because they offer greater heat insulation, therefore reducing one’s energy costs.

In addition, installing Energy Star-rated windows can cause you to save up to $500 in a year when it comes to cooling and heating costs, as Energy Star reports.

Plumbing Upgrades

Your home’s plumbing is one of its most important functionality elements, so you want to ensure that it’s in a good state.

If you’ve purchased a house to flip that has plumbing issues, you need to upgrade the plumbing, no question. This will also increase the home’s sale value. But there is a catch.

Plumbing upgrades should be done according to market requirements instead of your personal preferences otherwise they’re not really a valid renovation.

So, if you improve your investment property’s plumbing system so that it meets insurance requirements to prevent flooding, that’s a good renovation.

On the other hand, adding things like a hot tub to your home might not really do much in terms of value.

What plumbing upgrades are the most valuable to a house?

Here are some to consider.

Install A Tankless Water Heater

Man Installing Tankless Water Heater

These water heaters warm up the water when it’s required, instead of amassing tons of water, thus making your house more energy-efficient while reducing your electric costs.

You can find different types of these water heaters based on the size of your house.

You could install the tankless water heater to individual faucets, for example, or replace your current water tank with a tankless product to provide the entire house with hot water.

Thes heaters do cost a lot, however, with prices ranging from $500 to $2000. Real estate company Zillow found that it’s worth the money, though.

When property listings from January 2014 to March 2016 were analyzed, it was revealed that homes on the market containing tankless water heaters were bought for 4 percent more money than what had been expected, and were bought 43 days quicker, as Digital Trends reports.

Fix Leaks

Homebuyers are often advised to check for problems with water, such as by flushing the toilets to see that they drain correctly and by running faucets to ensure there’s a good amount of water pressure.

Fixing these types of plumbing problems is worth doing before a potential home buyer discovers them because they won’t want to accept the cost of repairing them.

In addition, Forbes notes that home buyers should request a price reduction on the house if there are leaky taps and faulty toilets.

Bathroom Remodel

Man Remodeling Bathroom

Along with the kitchen, the bathroom is one of the most important rooms in the house that you should upgrade.

A remodel with a few inexpensive upgrades can help you get 2-3 percent more for your house when you sell it, as reported by Consumer Reports.

These upgrades include new bathroom fixtures, new toilets, and re-caulking the bathtub.

Another stat, this time courtesy of The National Association of the Remodeling Industry, found that a bathroom remodel can help you recover 50 percent of your renovation costs.

It outlines the most important elements to focus on: modernizing fixtures and updating any items that are old and broken.

One of the most important bathroom upgrades involves vanity. It can be expensive because it includes things like the faucets, countertop, and sink.

However, most home buyers want a vanity that has a comfortable height and granite countertops, so that could be worth purchasing, as Aaron Glen, owner of remodeling firm in Illinois, tells Home Light.

Décor

Making changes to the home’s décor and design can be a valuable task. If the décor is outdated or based on personal taste, this can be off-putting to potential home buyers.

A good rule of thumb is to focus on neutral colors and avoiding trends that will change.

This also enables home buyers to picture themselves in the home. In addition, neutral colors instead of the latest bold ones will appeal to most buyers.

Other solid décor tips for boosting home value include:

Remove The Carpeting

Removing Old Carpet

If you have wall-to-wall carpeting in the house, this can be high-maintenance. Just think of how much of a hassle it is to deep-clean carpets.

A good idea is to replace it with hardwood flooring. Not just popular for people who want a luxury home, the National Association of Home Builders found that 87 percent of home buyers within the $100,000 to $149,000 price range are looking for hardwood floors, as Kiplinger reports.

Add Outdoor Lighting

Your yard can be a wonderful entertainment space, but don’t neglect to install outdoor lights, both in the yard and in the front of your home.

The National Association of Realtors found that landscape lighting can cost up to $5,000 but home sellers can recover 50 percent of that expense, as Best Life reports.

In addition, you don’t need anything too fancy to make a great impact.

If your investment property is in a neighborhood that has high levels of crime, a well-lit yard will definitely be appealing to home buyers in the area.

Indoor Lighting

While you should avoid buying expensive lighting fixtures that can go out of style, focusing on simple and practical lighting in the home can help to increase its value.

Make the switch to LED lighting with dimmer switches as these are appealing to home buyers who want to create the right mood in their space.

In addition, the use of LED lighting in your home can increase your home’s value by 1 to 3 percent, as Consumer Reports states.

Replace The Roof

Man Replacing Old Roof

You might be wondering if it’s really necessary to replace the roof on your investment property before selling it.

If it’s in shoddy condition, then it’s better to go ahead and do it, also bearing in mind that if you don’t do so potential homebuyers could negotiate a lower price to make up for the roof’s condition.

Typical issues that can result in the roof needing to be replaced include cracked shingles, if the roof is 20 years or older, or if it looks damaged or old.

If you’re unsure about whether or not your roof really needs to be replaced, a roof inspection can help to clear things up.

The good news is that replacing your roof can boost your home’s value substantially.

A report by Remodeling magazine found that installing a new roof can increase your home’s resale value by an average of $12,000.

In addition, you can recoup up to 62 percent of the installation costs.

Backyard Renovations

Backyard Renovating

Earlier in this article, we touched on the importance of having a good front lawn as that’s the first thing potential buyers will see when they view the house.

However, don’t neglect the backyard. This is the space that they will likely want to turn into entertainment or relaxing area, so you want to keep it clean and appealing.

Small touches, such as a fire pit, can be very valuable.

A fire pit that has a patio area and gas burner costs an average of $6,000 but will allow you to recover approximately $4,000 of that cost when you sell your home, as reported by the National Association of Realtors and National Association of Landscape Professionals.

Having a well-kept patio can also help you to boost your home’s value.

The above report found that a concrete patio that’s 18 inches by 20 inches will set you back around $7,200, however, you’ll earn back 69 percent of the costs.

A study conducted by Remodeling magazine found that 87 percent of home buyers want a patio, so it can definitely help you to sell your house.

Related Questions

What Home Improvements Are Not Worth It?

Unnecessary improvements to avoid spending on include swimming pools, high-end kitchen and bathroom upgrades, home office renovations, and personalized or quirky spaces (such as turning the study into a wine cellar).

You’d also be wise to skip the sunroom, one of the most expensive renovations.

How Can You Ensure Your Renovations Suit The Neighborhood?

Don’t just see what houses look like at a glance.

Check out houses that are on the market, focusing on the ones that are selling quickly and what they have in common.

This will give you a good idea of the types of renovations that your home can benefit from.

Conclusion

Is flipping worth it?

By focusing on the types of renovations you should make on your investment property to boost its value and avoiding going overboard with unnecessary upgrades, you can definitely increase your ROI and make a profit without breaking the bank.

The key is to get on board with the types of renovations that will be most valuable, such as those outlined in this article.

In addition, by concentrating on what home buyers in the area are actually looking for in a new home, you’ll be in a much stronger position to find a buyer when you’re ready to flip your fix.

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