Correctly Estimating Your Fix-and-Flip Renovation Budget

My House Flip Isnt Selling Now What
So, you’ve found a great distressed property priced below retail, and based on your estimated ARV, it looks like the deal might have a healthy profit margin. But before you can make a decision about paying the asking price for your fix-and-flip property, you’ll want to know what upgrades and repairs are required to make the flipped property competitive with comparable homes in the area.

Before you sign on the dotted line, visit the property and conduct a thorough walk-through. Be sure to write down your observations, taking photos for reference if needed. You may be tempted to rely on memory, but each repair or improvement to your fix-and-flip property impacts your future ROI, which impacts the maximum price you can pay for the property, so it’s important to be as precise as possible. There are many free home inspection apps for your phone or tablet you may find useful for recording your findings. With a home inspection app you can easily keep track of each needed repair or upgrade with a simple key press for each item on the list.

To get an accurate estimate of what it will cost you to renovate your fix-and-flip property, be sure to take a full inventory of the condition of the following aspects of the property’s exterior and interior:

Estimating Exterior Improvements

ROOF, GUTTERS & FLASHINGS

Will the property require roof replacement or repair? If you see a number of worn and curling shingles, it’s likely the entire roof will need to be replaced. Also check for damaged and missing flashings and gutters, as they will also need to be repaired or replaced if they are missing or in bad shape.

SIDING & TRIM

If power washing will not be enough to beautify your fix-and-flip property’s exterior, you will have to budget for renovation of the siding. If the siding is in good condition, but the paint is aging, you may only need to invest in a new paint job, but if you see signs of rotting wood or crumbling bricks or stucco, be prepared to budget for the cost of new siding. The appearance of the home’s siding and trim will be a major factor in creating  great curb appeal, so if you want buyers to be attracted to your finished project, this is not an area to skimp on or ignore.

WINDOWS & DOORS

Examine the windows from inside and outside of the property. If problems are minor, such as crumbling or missing weatherstripping, a repair might be all you’ll need. But if the frame, sash or glass is damaged, warped, or broken you will be looking at the cost of window replacement.

Replacing all of the windows in a house is an expensive undertaking, but the good news is, window replacement projects account for one of the highest ROIs on a remodel, making new windows one of the most efficient uses of your renovation dollars.

A front door is a real focal point for buyers. If you have it in your budget, a brand new front door can definitely be worth the expense. If you’re on a tight budget, you should at least spruce up your fix-and-flip property’s entry door with new paint in a contrasting color, and install fresh hardware.

Just like a new front entry door, a new garage door can really impress potential buyers. For relatively little money, a garage door upgrade will give your fix-and-flip property the curb appeal it deserves. If you are on the fence about whether to paint the door or replace it, know that historically, the amount you spend on a garage door upgrade improves your property value to an equal degree.

LOT/LANDSCAPING

Is there stagnant water puddling on the property? Depending on the severity of the problem, you may need to install a yard drain, sump pump or other water drainage technology.

Check for tree roots growing near structures or breaking through from underneath pavement, and examine the condition of pavement, decks, patios, and any out buildings. Be sure to take into account the cost of improving or removing any unsightly or unsafe outdoor features.

Is there evidence of insect or rodent infestation? Be sure to budget for pest abatement.

As a general rule, you can expect to spend 5-10 percent of your fix-and-flip property’s ARV on landscaping. The good news is, you  can expect to get all of that back immediately in increased value. For a $200,000 home, that would mean a $10,000-$20,000 landscape upgrade; for a $500,000 home, it would be $25,000-$50,000. For detailed information on how much you should budget for landscaping, read Anchor’s blog post, “How Much Should I Spend on Landscaping My Fix-and-Flip Investment Property?”

FENCING

Does the property need a fence, or does the existing fence need demolishing, repair or replacement? This is where your comp analysis can be very helpful. Did recently sold homes in the area have fences? If so, it might be a must-have for local buyers and you may want to consider budgeting for this.

CURB APPEAL

Is the property attractive to prospective buyers? After you have invested so much time and money making the inside of your fix-and-flip property look amazing,  it would be tragic if buyers are turned off before they ever step foot inside.

A negative first impression will prevent buyers from imagining themselves coming home every day to your flipped house, so it is critical that your property has great curb appeal, helping potential buyers look forward to seeing what’s inside.

Estimating Interior Improvements

STRUCTURAL

Pay close attention to any evidence of foundation issues, large cracks in walls or floors and any evidence of water damage, possible roof or plumbing leaks, wall framing and insulation issues. If there are room additions, are they permitted and built to code?

Structural issues can be very expensive, so pay close attention to this area of inquiry and make sure the property’s purchase price reflects the cost of any and all remedies for which you will bear the cost.

PLUMBING / WATER HEATER

Identify composition and condition of plumbing and test water pressure and clarity at the tap. Check to make sure toilets, sinks, drains, faucets and traps are functional? Check the water heater to make sure it is functioning and properly situated according to local code.

HVAC / FIREPLACE

Examine the heating and cooling systems and determine if duct work is functional. Identify whether an existing fireplace, wood stove or pellet stove is properly installed to code.

ELECTRICAL

Is the electrical panel up to code? Note condition of main panel and its circuit capacity. Do switches and receptacles work? Check ceiling fans, light fixtures and smoke/CO detectors.

If light fixtures are damaged or do not measure up to local comps, be sure to make room in your renovation budget for new fixtures. You may be tempted to overspend on lighting,  so this is an area to pay close attention to.  High-priced light fixtures that appeal to eclectic design tastes may not have the affect on buyers you hope for. When it comes to replacing your fix-and-flip property’s lighting, stick to classic fixtures and let buyers swap those out for exotic or trendy fixtures after they’ve purchased the house.

Also take note of the condition of the switchplates and electrical receptacle covers. To create a put-together look in your flipped home, make sure you don’t have a mixture of  colors and styles that don’t compliment one another.

FLOORING / TRIM

When potential buyers open the front door and walk into your renovated house, the style, material and condition of the flooring will be one of the first things they will look for. If local comps feature upgraded wood or laminate wood flooring, and your fix-and-flip property is carpeted, you may find your property sitting on the market longer waiting for a buyer who is specifically looking for carpet.

There are many affordable flooring options you can install that will wow buyers without breaking your budget. If you are installing new flooring, be sure to pay attention to the baseboards and moldings as well, as the condition and quality of them will instantly please or repel buyers.

APPLIANCES

Are dishwasher, garbage disposal, range and oven, built-in microwave, washer/dryer included and operable or in need of repair or replacement? This is another area that can be highly impacted by local comps. Are homes in the area selling with brand new, matching appliances. If so, you should consider making room in your budget to upgrade appliances if they are aged and/or mismatched.

 

Once you know the condition of the property, you will need to get an accurate repair/construction estimate. If you are not a contractor and you do not have experience with rehab estimates, you will want to have a licensed contractor provide a reliable estimate.

For more information on evaluating a fix-and-flip property’s as-is condition, read Anchor’s free publication, “Evaluating Fix-and-Flip Property Value and Condition.”