If you’re going to be a real estate investor, you’ll want to save cash wherever you can. That’s why this article is going to be so important to you. You need to know how to properly renovate houses; by properly, we mean in order to turn a profit on the investment, you’ve got to do it right. There are key things to do for every single deal you create that do not change no matter what the property.
Different types of deals work better for different types of investments. There are also some key things that you should do on every single deal that you generate. Many investors don’t remember or know to do these key things. There are also certain rooms that are more important than others, one in particular. The following tips are going to help you become a better real estate investor, but more importantly, reap in a great profit on your next real estate deal. You won’t want to miss these!
Whether you’re re-selling to a new buyer who plans to live in the home himself, or planning to become a landlord of the property, you’ll want to read these tips. By reading this article, you’ll learn how to avoid the pitfalls that many before you have made, and that many continue to make. The goal of the article is to help you succeed on your very next real estate deal.
Find a home that only needs cosmetic improvements:
Arguably, you want to find a property that only needs cosmetic work. Properties that only need cosmetics are a lot safer than those that need more TLC. Why? There are far less opportunities for things to go wrong. Homes that only need aesthetics are gems for real estate investors for that reason. Depending on the house itself, it sometimes can be worth spending a lot of money to fix up cosmetically. Especially if the house has a whole lot of room.
You have to choose the right deals to renovate. If you choose the wrong ones, you won’t make a profit. At best, you’ll break even. Worst-case, you’ll lose money. For the most part, renovating an ugly home into a gorgeous one usually is a waste of time.
You don’t want to follow this rule to the death, because sometimes there are exceptions. One common mistake that investors make is thinking they’ve got to knock down the house and start over in order to sell it. They see a property that is awful aesthetically and think that everything in it must be replaced. This is far from the truth.
You want to avoid replacing whenever possible. Shows like HGTV love to give the idea that renovating equals hammers and bulldozers. Not so. For the most part, all you need to do is refinish things. For example, when possible, only do the cosmetic work. Of course, if the plumbing is working (but just barely), and really truly needs to be replaced, you don’t want to cover up the problem. Fix that. But when possible, avoid gutting a room entirely. You’ll want to avoid the homes that need the insides and outsides completely re-done.
Be able to tell when a home has potential profit or not:
Let’s say you find a property that appears to be a great potential deal. However, there’s so much junk in it that you can’t tell Adam from Eve when determining if it’s worth your time, and if it will bring in a profit or not. Most of the time, a decrepit property will not turn a profit. There are some exceptions.
For the most part, though, this type of property will only be successful if it requires only cosmetic exterior or interior work. This type of property will only need new carpeting, a few minor repairs or replacements, a little bit of landscaping, a fresh paint job, and the like. Sometimes, all the property will need is a serious cleaning out.
How much, and what type of landscaping does the property need?
At times all you’ll need to do in terms of landscape is open up the house. This means, there may be a great view blinded by overgrown landscaping. You don’t need to be landscaper. You can hire contractors to make it look good. Some people want to do it all on their own. Realize that you can’t. Don’t try to become a landscaper. Your job is to figure out what the property needs, and hire the right people to do it. Know what your skills are, and don’t try to become something you aren’t. Hire people that can do a fantastic job in terms of the landscape of the property.
Realize that the entryway is key; make improvements accordingly: The entryway is extremely important. You may encounter a home that has an awkward entry, and needs a new design. Don’t think that changing the entryway won’t make a significant different in profit. One change you’ll almost always want to make is removing wood paneling. It’s incredibly outdated. Even small details like this can make or break a couple grand in profits. Of course, this is a little bit more than cosmetic but in terms of profit, you’ll be glad you made changes like this to outdated things. That doesn’t mean gut a completely dated 70’s kitchen. If the entire house is dated, don’t pour money into it. Sometimes it’s the simple things like switching out hardware that can make the whole difference. You want the house to flow nicely.
You’ll never regret investing into the kitchen:
Kitchens sell a house. The kitchen is arguably the most important room in the house. Sometimes all it needs is a new backsplash, new cabinets, new appliances, and a new countertop. We’ll repeat it. Kitchens sell a house. You’ll almost never regret spending time and money in the kitchen, and that’s where most of it should be spent.
Why is it so important? When an agent walks around the home, they factor in the kitchen higher than any other room in the house. There’s more time spent in this room than any other room when an agent is assessing a house. If you’re married, the woman is going to factor in the kitchen as one of the most important things when considering the house. As a real estate investor, when renovating the house, keep women in mind. They’ll likely be the ones choosing; the kitchen and bathrooms should be the apple of the eye in the home.
Choosing the flooring: The flooring is also one of the most important aspects when renovating. Many buyers want carpet upstairs, and hardwood floors downstairs. Typically, it’s fine to choose a mid grade floor. If your intent is to rent the house, you’ll want to use laminate floors. If the house is in a fantastic neighborhood, opt for more expensive flooring. In not-to-nice areas, you’ll want to go with the least expensive. You’ll always want to assess the area of the home when choosing flooring. If you purchase a house that already has great flooring, re-finish it. Don’t replace it. A great choice if you have to entirely re-do the flooring is Pergo.
Repair before you renovate (and avoid renovations when possible):
Spackle over any cracks in the wall, re-paint if needed. Again, most of the time this is all that is needed. If the wall has lots of cracks in it, don’t immediately pull out a sledgehammer. Refresh and accentuate, not replace. If a bathroom needs re-tiling, do so. But sometimes, all you need to do is clean the grout around the tiles. Too many investors take a look at an outdated bathroom, and rip the whole thing out. It can be as easy as replacing a vanity. Repeat: focus on refreshing, not replacing.
Be forewarned that when you start repainting and replacing, you may notice some disgusting things. For example, if you rip up the laminate bathroom tiles, you may find some eyesores under there. Other times, you’ll get lucky. Sometimes when you rip up carpet, you’ll find gorgeous hardwood floors that only need refinishing. Be sure that you put the little things in your budget such as new locks, new light plates, and cabinet hardware. Those things seem like such small things; while they are, they can add up to a lot of money. Be sure you total these all up to see how much it’s going to cost. In a small house, it may not make much of a difference. In a gigantic house, it can equate to thousands of dollars.
A word to the wise about renovating a rental:
Don’t choose the most expensive materials for every single project, or every single room. Many times, an investor will go overboard to make everything “top of the line.” This is not always necessary. Most often, it isn’t. Not every little thing needs to be the absolute best. Use your judgement. On walls, you’ll probably want to go with a gloss or semi-gloss rather than flat, as stains will wipe right off.
If you’re not trying to sell the property, and you just want to rent it, you do not need the best of the best for every single thing. Things are going to get ruined. For example, walls are going to have to be spackled anyway, when they move out. The point is, yes you should choose a semi-gloss or gloss, but not the most expensive one in the store. Always remember to choose a pre-made paint. Each time you mix a custom paint, the color will not match perfectly. In these cases, you’ll have to end up re-painting the walls each time depending on how much spackling is needed when they move out.
Learn to cut corners the right way when fixing up a potential rental property. This means don’t cut corners on the important things. You need to learn where to skimp, and where not to. For example, hardwood or laminate floors are more expensive than carpet. But carpet will be ruined on Day 1. It will have to be replaced every time a tenant moves out. Of course, it may not always need to be entirely replaced if there are a few stains, but the next time you try to rent it, the new tenant is going to try to drive the price down based on the carpet. And, who wouldn’t Nobody wants a stained carpet.
Think of it as a creative process!
That’s what it is after all. If you’re in the real estate business, it should be because you enjoy it. You should enjoy watching a really ugly home turn into a gorgeous one, and get a great feeling afterward. You just need to make sure that those changes aren’t going to drain your pocket. In order to not have your pockets drained, you’ll want a house that only needs cosmetic work. You won’t have to break the bank, and you’ll reap a nice profit.
Again, if you love instant gratification, this business is not going to be for you. It can take months for a project to even close, and then you’ve got the months or year it will take to renovate it. You do not see results right away in real estate. Repairing or renovating a house is nothing like you see on HGTV. There’s no drama (for the most part). There are no incredible before and after photos. For the most part, it’s pretty boring, but a cool process.
As mentioned, if you’re investing correctly, you won’t be knocking down walls. If that’s what you’re expecting to do, you might want to get into the construction business. To be successful in real estate, you have to know how to save money in order to turn a profit. Money does not get saved by turning every investment into a totally different house. Adding properties that need to be re-done actually hurts your portfolio. Repair before renovating!