In today’s tight market – competition for homes, combined with inventory and labor shortages has made it more important than ever to keep an eye on what you can control. That would be how you spend your money – from the price, to repairs, marketing. Below are tips to help you save money on the front and back end of your deals.
Purchase, Sale and Holding Phase: Easy Costs You Can Control
Most successful flippers have one or more sources for finding underpriced homes: the courthouse steps (divorce or probate court), real estate agents, wholesalers, bank foreclosures, direct mail programs, and auctions. The 70% rule that states you should never pay more than 70% of a house’s after-repair value (ARV), minus the cost of repairs and renovations. Determining an accurate ARV will tell you how much how much you can sell it for, which will determine how much you can put into it. From there you have an idea if you should buy it and how much to offer. So how do you come up with the ARV? Mashvisor recommends:
- Choose the right home for your flip. A house built before 1990 that needs cosmetic work (paint, cabinetry, appliances, hardware, removal of dated accents like popcorn ceilings or shutters or lattice work). Ideally, the home will not need major renovations requiring new plumbing or electrical work. Try to stick with the original footprint and avoid any move walls that are non-load bearing. Avoid a home that requires foundation repair. In essence – cosmetic work. Put your money where buyers’ can see it in updates.
- Choose an area where homes are moving relatively quickly. Find a market where you won’t be waiting too long for qualified buyers since you are responsible for the property and all the cost associated with holding it, until it is sold
- Have an inspector meet you at the property. Ask the inspector to help you identify major issues & expensive repairs on your property such as the structural, roofing, HVAC, electrical, etc. then focus what features might be outdated or not up to code so that you can address them while you’re fixing the place up
- Estimate the property’s current value by using a real estate appraiser. An appraisers are experts at identifying defects or issues affecting a property’s value.
- Estimate the value of the renovations. Get several contractor bids and ask for an itemized list of repairs. Use a building materials calculator for the materials you’ll need. Check pricing through local hardware and lumber stores. Do not over-renovate! Make sure the repairs and upgrades you are making fit the market you are in. Do not make your project the most expensive, fanciest property on the block.
- Perform a Comparable Market Analysis (CMA). Your agent can provide this or you can find comps of similar homes (size, age, rooms) that sold in the last 4 months, located within 1 mile or the property or in the same block or neighborhood.
- Do not forget to estimate operational costs. Those include buying cost, the cost of money, holding costs, and selling costs. REI/kit gives a rough idea on how much you can expect to pay for each of these “fixed” costs.
If you determine the ARV with the estimated renovation cost and purchase price do not match the comps, this may not be the project for you. If you decide to more forward stick to your remodeling budget.
Consider getting a real estate license.
The cost and the time will differ from state to state. But the money saved will be on the fees which can be 6% of the sales price. A license will also get you access to the MLS.
Saving on Rehab Costs
- Use prefab countertops and cabinets. Look at discount flooring and tile stores.
- Shop outlets and salvage yards.
- Use large tiles to save on installation labor
- Re-glaze tiles
- Refurbish, repaint, reuse.
- Use a single dumpster to save on multiple haul-away fees
- Handle the ordering, purchasing and picking up of materials yourself. Save the money the contractors/subs would charge for the time to do that.
- Only use your DIY skills if you have good ones. Be honest with yourself. You will not save money on a job not done well.
- Use a project calendar and expense tracker to keep your project on schedule.