How to Avoid Over-Rehabbing a Property

Wed Jun 12 2019

We’ve seen some real adventures in flipping houses over the years. From chickens running around in the yard to black mold in the bathroom and everything in between. One of the properties that really sticks out in my head as one of our biggest mistakes, though, was a house that we went way overboard on.

Whenever people ask me what the worst thing they could do as a house flipper is, I always tell them over-rehabbing on a flip! If you accidentally overbid on a house or you start to go over-budget, it’s really tempting to just go with it and set your asking price higher when you get done. After all, won’t people be willing to spend a little bit more on a house that’s so beautifully renovated? Actually, no. I know from personal experience that they won’t.

If you’re flipping a house in a $300,000 neighborhood, and you put so much work into it that it’s suddenly a $450,000 house, you’re going to be in trouble. Why? Because people who are in the market for a $450,000 house are going to want to live in a $450,000 neighborhood. No one wants to live in the most expensive house on the block, especially if it’s so over-renovated that it sticks out like a sore thumb.

Unfortunately, if you get swept up in the temptation to over-rehab, you’re probably going to put so much money into the house that you actually need to get that higher asking price if you want to break even (let alone make a profit). So what can you do? Well, you can learn from my mistakes and follow a few simple tips.

Don’t Fall in Love

I feel like I say this a lot, especially when I’m talking to students at one of our Real Estate Elevated events, but it’s really true. Don’t fall in love with a house before you make a deal on it. I’ve been guilty of this before, and it’s always hard to figure out how to make up for it in the rehab budget.

So, the first thing I can tell you about not spending too much money on a property is to keep your emotions out of it when you’re bidding or making an offer. Set your maximum bid and don’t go any higher. If you do, you’re just going to have to figure out how to cut your rehab budget down or you’ll be eating into your profits. You can’t make up for it with the after-repair value, so don’t kill your profit margin before you even start rehabbing.

Avoid Add-On Rooms

When you rehab a flip property, work with what you have. Yes, you could theoretically get a better asking price for a house that has four bedrooms instead of three, but think about how much money you’re going to spend on that additional room.

Not only that, but most houses are built to be about the same size and style as the other houses in their neighborhoods. Adding on a bedroom is probably going to look weird, and it could price you out of the neighborhood in a hurry. Instead of trying to turn your flip house into a McMansion, work with it as it is and make improvements to what’s already there.

Get a First-Hand Look at the Comps

Looking at comparably priced houses online is a good way to get a feel for what your budget should be and how much you’ll be able to ask for the house after it’s done, but it’s really only the start. If you can, I always recommend scheduling an appointment to go walk through at least one of the comps near your house.

Why do you need to see it in person? When you look online, you won’t be able to tell whether it has laminate or real hardwood floors. You also won’t get a close-up look at which renovations have been made and which ones haven’t. Getting this firsthand look will give you a better idea of what your house needs to stand up to when you sell, which will help you budget for the right renovations.

Cut Corners Where You Can – Without Sacrificing Quality

Once you know what you’re up against with the comps, you’ll know where you can cut corners. If they have laminate floors, there’s no reason to put in all-new hardwood flooring. In fact, there’s a lot of really attractive laminate out there, and I really love to shop for it because I can cut down on my rehab budget while still making a really attractive improvement to the house.

Another place you can cut a corner without sacrificing the quality of your renovation is in the material for your kitchen and bathroom countertops. Everyone loves granite and marble countertops, but they can be really expensive. You can get a very similar, high-quality countertop in synthetic quartz that will save you a lot.

So now you know my top tips to avoid spending too much money on a flip property. If you follow these and keep a close eye on your rehab budget, you’ll be in a good position to make a really great profit margin on any flip house, even if the market isn’t super hot when you sell. Remember, you always make money flipping houses when you find a great deal on a property, not when you rehab it. So avoid temptation and you’ll be ready to make great flipping deals. Good luck!

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