You’ve invested in a rehab project on a property that you’re pretty sure you can fix and flip for a decent return on investment. Renovations are going to start soon and you’ve worked out a budget which you really don’t want to go over. In fact, at every turn you’re tempted to cut costs in order to increase your potential profit on a sale. Be careful. You can make
sure that renovation costs don’t get out of control without making terrible mistakes that will actually lower the sale price in the future. Renovating a property requires a balance between smarts and efficiency.
How Serious is Your Fix and Flip Business?
It’s okay to fix and flip as a side project. Many people handle one or two properties a year, making a secondary income by doing a lot of the renovations themselves. The benefit is that you can keep dollar costs low. The cost is typically reflected in the amount of time you spend. How valuable is your time? And is the cost of your time really worth the money you’ll make?
Probably the most important factor for cost control will be the contractors you hire. Each job conducted should be budgeted out in advance and your goal is to keep to that budget. If you’ve got a great plumber who you enjoy working with, they should be able to tell you how much a job will cost and then only bill you what they estimated. Good contractors know what to expect when they embark on a job because they’ve done similar work in the past. Make sure you give them access to the site so they can give you an accurate estimate. And don’t re-hire contractors who aren’t reasonable when it’s time to bill you. Develop relationships with contractors that are consistent, both in pricing and in the quality of work they do.
Itemized Tasks and Jobs
Break down each job into individual tasks and make sure that the estimates are specific. Don’t just budget tens of thousands of dollars on a kitchen renovation. Price out the cabinets, appliances, countertops, floor, whatever you’re doing in there. Make sure the list is complete with itemized prices on everything.
It’s unlikely that you’ll complete every renovation without a couple of unexpected costs. You can’t control everything and things can go wrong. But as long as you stay involved and don’t cut corners, the work done will be worth more and you won’t have overpaid for a weak renovation.
Center Street communications are not intended to provide business, legal, tax, investment or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.