House Flipping Tips: Where to Spend and Where to Save
With the housing market still going strong in the Minneapolis area, now is a prime time to get into the game of flipping houses. House flipping entails buying a fixer-upper home, putting in the work to remodel it, and then selling it for a profit within 12 months. Due to the high demand for entry-level homes, low interest rates, and a tight market, house flipping is at a 10-year high. RealtyTrac reports that in the first quarter of 2016, 6.6% of home sales were a flip. Many flippers are seeing healthy double-digit returns at an average of $58,250—the highest since 2005. There is certainly money to be made if you’re willing to put in the work!
House flipping is a numbers game from start to finish. Before putting an offer in on the house, the flipper must determine what they expect to spend on renovations and repairs, as well as what they expect the house to sell for once it’s fixed up. The general wisdom is to take 70% of the estimated “exit” value for the home (what it will sell for when you put it back on the market) and then subtract the cost of remodeling to get the maximum price you should offer upfront for the house.
Every decision about what to update during the process of renovation should be made with an eye toward return on investment. Some updates run a high price tag, but don’t pay out very well on the other end. From house-flipping pro Julie Desrochers, here’s our advice on where to spend and where to save when you’re flipping a house.
Location, Location, Location
You could find a cheaper house in a less popular neighborhood, but the ultimate value of your flipped home will suffer for it. In Minneapolis, stick as close to the city as possible. There are many beautiful old homes in Minneapolis that have gorgeous bones and great potential for renovation.
In the suburbs where there’s more space and newer homes, no buyer will want to pay a premium for a flipped home when they can custom-build a house for themselves. But people who want to live near the city have fewer options for updated homes, creating the perfect niche for house-flipping. More potential, less competition.
Bathrooms & Kitchens
Every home buyer today wants a modern kitchen and modern bathrooms. Renovated kitchens especially are a HUGE selling point, and will be the single biggest thing you do to boost your ROI. Update all appliances to stainless steel models, install quartz or granite countertops, select white or painted enamel finishes for the cabinetry, replace the flooring with a nice hardwood, and consider adding a backsplash. In the bathroom, update the floors with patterned tile (very on-trend right now) and replace tub, toilet, sink, and fixtures/hardware.
Adding Bedrooms & Bathrooms
If it’s possible to convert any spare rooms into an extra bedroom or bathroom, do it. Adding bedrooms and bathrooms to the house adds equity that will automatically allow you to list the home at a higher price point. A 4-bedroom home is always going to sell for more than a 3-bedroom home. Particularly if the master bedroom doesn’t have an existing attached bathroom, see if there’s a way to convert a walk-in closet or linen closet to create a master suite.
Open Floor Plans
Open floor plans, especially on the lower level with the kitchen, dining, and living room space, are very popular amongst buyers. Look for opportunities to merge rooms and open up more space. Take out a wall between the kitchen and dining room, or between the dining and living rooms to create an open plan living area.
As long as the existing windows are in pretty good shape, don’t shell out the money to replace them. Installing new windows would cost you a pretty penny – upwards of $10,000 for high-quality insulated windows – but you would hardly see a fraction of that returned in the selling price.
Don’t get too carried away on choosing the highest-end materials for your renovations. When retiling the bathroom, for example, you could spend $4/tile or you could spend $20/tile. Either way, you’re going to achieve a similar final effect, but the $20 tiles are going to add up a lot faster. To a buyer walking through the home, the difference between the $4 and $20 tile is not visible, so they’re not going to be willing to offer a higher price for your investment.
If you’re thinking about flipping a home, give careful consideration to whether you’re doing it for the right reasons. While the profit margins are compelling, make no mistake: house-flipping is hard work. If you don’t enjoy the process for its own sake, you may find yourself in over your head.
Good luck and happy flipping!