By Mike Baird
When it comes to rehabbing flip houses, you might not think that you can over-improve a property. In fact, you might think that adding the latest and greatest appliances, updating the floor plan and doing a ton of landscaping might even bring your property value up above market value. Don’t bet on it.
Believe it or not, if you over-rehab a house, you can seriously hinder your chances of selling it quickly and at your asking price. Why? People look at specific neighborhoods because they have a certain look and feel, and because they can afford the houses there.
If you’re rehabbing in a $300,000 neighborhood, and you rehab a house to the point that it should be worth $500,000, what do you think is going to happen? People in the market for houses in that neighborhood won’t be approved to spend an extra $200,000, and nobody shopping for a half-million dollar house will be looking there. In other words, you’ll have just priced yourself out of the neighborhood, and you won’t be able to do anything about it except reduce the price of the property and hope for the best.
So how can you avoid rehabbing your way out of selling a flip house at a good market price? Here are a couple tips I’ve learned over the years that have definitely helped me.
Get to Know the Comps
First, take a look at comparable properties (comps) in the area. If you can, book an appointment to tour one or two of them. If not, just take a really good look at their listing photos and information. What kind of flooring do they have? Are they going with hardwood, laminate or carpet? Do they have updated appliances, and how nice are they? What do the kitchen and master bath look like?
Your goal when you rehab a property should be to meet (or slightly exceed) the quality you find in the comps nearby. Basically, you want to make your house look more enticing than other properties, but you don’t want to add so much flair that it doesn’t fit the neighborhood, or your improvements drastically increase its price.
Stick to Your Budget
I can’t tell you how many times I’ve seen new house-flippers make this mistake: they fall in love with a design idea, but they’re starting to go over-budget on their rehabs. Instead of re-evaluating and scaling back, they say, “It’ll improve the market value, and we’ll make our money back there.” Wrong.
Like I said earlier, you can’t count on getting a higher price for your property just because you went with hardwood floors, granite countertops and a claw-foot tub. Sure, those details are important if you’re flipping in a high-end neighborhood where people expect the best, but even then those won’t bring the house up above market value — they’ll just help you get to the same asking price as other comparable properties nearby.
Remember, you’re not trying to make your money by making your house the most expensive property on the block. You’re making money by getting a great deal on a distressed property and then staying within your budget to get a good profit margin when you sell it at a similar market value to other properties in the area.
If you keep these two tips in mind, you’ll have a much better chance of doing just the right amount of rehab work to make your property stand out, in a good way, so that you can sell it faster and at a good profit.