When you are choosing real estate properties to flip, you will find that no property is alike. They are in various states of disrepair. Maximizing profit is your number one goal when fixing properties for resale, but not all properties will be profitable. Typically, this is a result of issues that are too large to handle for a profitable flip. This is a hard call, especially for new investors, because the same repair on two different houses will dig into your potential profit differently depending on your market and how many total repairs that a property needs. This list serves as a guide about which things are typically the most expensive to repair and may include hidden costs that cause you to say “NO” to a distressed property.
Exterior paint for a house is always more expensive than interior paint, sometimes as much as 50% more depending on the brand. If your distressed property has exterior paint that is peeling and cracking, expect your contractor to charge you a significant amount of extra labor to remove old paint and prepare the surface for new application. Additionally, some old houses have lead-based paint; removing and properly disposing of the old paint requires a specialist. Extreme cracking and peeling of the exterior should prompt you to have a long discussion with your contractor about the potential hidden costs of repainting your distressed property.
One of the best case scenarios when purchasing a distressed property is discovering that beautiful hardwood floors lie below old, musty, dingy carpet. Sanding and refinishing these gems are a treat for your checkbook and a treat for potential buyers, most of whom find hardwood floors charming. But what happens, when there aren’t wood floors and you need to replace carpet or put in wood floors. Flooring will take a big chunk out of your rehab budget, so make sure to inspect any changes that you need to make before signing on the dotted line. Although it’s not perfect, the general rule is that a decent middle-grade carpet, pad, and installation will cost about three times more than installing hardwood floors.
Furnace and Other Appliances
A new furnace will cost you at least $2500-$3000, but often more. Of course, it depends on the size and type of furnace you purchase. If your budget is tight and your profit margin is low, you may want to pass on a distressed property that requires you to replace the furnace or a central air conditioning unit. Kitchen appliances and hot water heaters are much less expensive, so replacing those won’t necessarily break the bank.
Most roofs need to be replaced about every 20 years. Most buyers do not want to move into an updated or fixed-up home and have to commit to spending thousands of dollars on a new roof. Many distressed properties are well beyond their 20 years, expect to pay for a new roof for the best resale opportunities. If your property needs a new roof and you have a small profit margin, you may want to consider passing and looking for a new investment.
Plumbing and Electrical
Small plumbing and electrical fixes won’t cause you too much trouble, but if you find that you need a complete rewire or plumbing overhaul on your distressed property, you may want to cry. Complete overhauls in both areas require tearing out walls or at least making a few holes and will cost thousands of dollars. Once you make small fixes, it may reveal more problems than you anticipated. It’s wise to pass on a property if you don not have the funds to bail you out of an emergency electrical or plumbing overhaul.
For most investors, foundation problems are the most troubling of all and will cause them to pass on a distressed property. Cracks and issues caused by settling and poor grading require major fixes. Expect most foundation problems to cost in excess of $10,000 and perhaps much more.
If you have considered these potential hazards and are thinking about starting a fix and flip project of your own, contact us for more information about quick and easy financing solutions.
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