Taking underappreciated, older homes and making them profitable can be extremely rewarding – if you have a plan. For individuals who have a knack for appreciating beauty hiding in the mundane and have the skills necessary to turn basic property spaces into highly functional ones, there are a lot of profits to be made.
While there is practically no end to the various strategies you can use during a property renovation, it is critical to have the right action plan in place to manage your investment risks. Luckily, there are multiple approaches that can be followed to turn unwanted properties into someone’s dream home.
Pick the Right Location
Probably the most essential element in a successful property flip is its location. Be sure to look at the surrounding areas before buying. Evaluate the reputation of local educational facilities, the safety record of the neighborhood, and how far you are from amenities like parks and shopping malls.
These features contribute considerably to the overall desirability of a home and most importantly its resale value, and profit margin. In addition to the neighborhood’s features, the property itself needs to be scrutinized. Look at factors like its structural integrity and basic architectural designs that could potentially be improved on.
Understand Your Potential ROI
Before investing in a property, it is always best to conduct a profitability analysis on it. A good step to begin with is determining a rough estimate for the home’s After Repair Value (ARV). This is the projected worth of the house after all repairs and renovations are completed.
Accurate estimations of ARV can assist you in setting your maximum possible purchase price that would still bring you a positive ROI, assuming all project-related costs are calculated correctly. Besides the purchase price of the home, the cost of renovation materials, labor, permits, and any loan interest or property taxes should be part of this calculation.
Building inspections are key for accurately calculating your estimated expenses while also helping you avoid unwanted financial setbacks during construction.
Weigh All Financing Options
Even for a relatively simple property renovation project, it is important to adequately weigh all of your financial options. Each form of financing comes with its set of pros and cons.
Standard home loans may offer competitive interest rates to clients, but they typically require a much larger down payment and less flexibility. In contrast, private lenders can provide funding with considerably less hoops to go through. However, they demand higher interest rates which can eat into profits long-term.
It is crucial to examine every option of financing in detail, especially how each one will affect the financial health of your business and your project requirements.
Make Your Renovations Count
Property renovations can significantly affect its resale value. But before you start tearing down walls, remember that not all renovations will have the same impact on a property’s value. While almost any improvement can have some form of positive impression, some offer a more reliable return on investment. In most cases, kitchen and bathroom upgrades are a great place to start and offer the most reliable returns.
Also, think about where you will be sourcing your materials since this can definitely save you money during a project. Consider purchasing items from clearance warehouses or online marketplaces. These often offer great deals on different fixtures and appliances that will help keep your renovations more cost-effective.
Put Together a Solid Team
Demolition and renovations on larger properties often require multiple people to be on-site to perform different tasks. Attempting to do all the work yourself, while appearing to be the most cost-effective solution, may not be a wise choice for most projects. For example, elements like electrical and plumbing work should always be reserved for licensed trades professionals.
Ensure you build a reliable team ahead of time. This should be made up of electricians, plumbers, carpenters, painters, general contractors, and any other specialists you may need down the line. It’s always good to have a list of contacts you can rely on for any of your future projects.
Sharpen Up Your Negotiation Tactics
When offers start coming in, remembering the value of your property in the market becomes extremely crucial. Emotional value can cloud reasoning, so make sure to look at any offers you field without bias. Remember to consider not just the price, but also the financial standing of the buyer and the proposed closing date as well.
Knowing how to properly negotiate real estate deals is critical. Always establish a flexible strategy when setting your ask prices while being willing to find a reasonable deal for both parties. Knowing and contacting a reputable real estate agent can be a great investment when it comes to this part of the process. They can help get your projects across the finish line while making sure you get the best possible ROI from your project.
Start Bringing In More Profits
For individuals looking to build a career in real estate investments, flipping houses post-renovation can be a great path forward. By skillfully navigating the process – identifying promising locations and implementing value-added improvements – you can maximize your returns and quickly move on to your next project.
In collaboration with Michael Alladawi
Michael Alladawi, CEO & Founder of Revive Real Estate, is a Southern California real estate veteran with a proven track record as a builder, investor, and respected home flipper. Michael created Revive Real Estate to share his industry knowledge and help homeowners maximize their profits when selling their homes. Michael’s passion for his work is as big as his desire to create lasting partnerships. For Michael, it all comes down to how much value one offers, both in business and life relationships.
