Despite the fabulous displays of rehabbing and staging homes on ‘reality’ TV, the most experienced and savvy real estate investors typically avoid trying to be over-achievers when it comes to property renovations. Why is that? How do they tackle rehabs for rentals and fix and flips?
The Mindset of Success
The biggest way that the most objective real estate investors are different from the amateurs and flops is that they approach property renovation with a business mindset. Warren Buffett says “investment is best, when most businesslike.” This is a business. It could be a hobby. But most people don’t get paid for their hobbies. If you want to actually do well in real estate, you have to be business minded. That means watching costs and profits.
A big mistake most new investors make is trying to over-achieve when it comes to repairs and rehabs. It is easily one of the top three reasons investors fail and lose money. Remember, you are not going to live in the property. The key is doing what is necessary and profitable to rent or resell a property, not just to wow with looks. That would be like a real estate agent turning down a listing because they didn’t think a client’s home was up to par. They aren’t going to live there. Their job is just to sell it to someone. Everyone has different tastes and plans and needs.
Top Property Renovation Mistakes to Avoid
- Spending too much on improvements
- Improving items which the next buyer will replace, and discount the price for
- Overspending on items a tenant is sure to break
- Taking too long to finish a remodel
- Renovating according to your personal tastes
- Devaluing the property by poorly reconfiguring the layout
- Adding features that give little ROI when you go to sell i.e. swimming pools
Don’t forget these two factors:
- Buyers will revamp the property to their personal liking
- Renters will put a lot of wear and tear on a property
You can put in gold plated toilets, but if the new buyer likes silver, they are just going to throw it out. Hence they aren’t going to pay more for your property. They may actually lower their bid due to the need to replace the toilet. Most renters won’t pay more because you have a $2,500 fridge versus a $700 fridge. Over a period of years those tenants will cause wear and tear on the unit. Which price fridge do you want to replace?
How to Nail a Profitable Renovation
- Conduct thorough research on recently sold properties
- Set a standard of improvements that will quickly yield a renter or buyer
- Get multiple quotes and select a reliable contractor
- Create a tight scope of work and deadline for completion
- Know your budget, allow for overages on necessities
- Commit to providing a healthy, safe, product which fits local renter and buyer budgets
Overspending and taking too long on a property renovation can get you in trouble. The property may never sell or rent, and you will eventually run out of money. Do provide a safe and healthy place to live. Yet, make sure you can make a net profit on the rates end users have proven to be willing to pay for comparable properties by location, square footage, and bedroom count. Stay objective, stay profitable.