The closing day of purchasing your flip property is always an exciting day. Over the last 30-60 days you have done research, executed a contract, performed inspections, lined up purchase funds, chosen an attorney, bought insurance, all awaiting this day. Nervously you attend the closing and sign all the documents with anticipation of scoring your profitable deal. Shortly after completing your purchase a new reality will arrive, that you must now renovate or repair the property. The process of renovating or repairing the property can be as much a challenge as acquiring the property. This blog will walk you thru 5-keys of renovations and repairs for flip properties.
The 1st key with renovations is your contractor. Building a strong and open relationship with your contractor leads to long term success. Renovations typically are the biggest expense in any flip property and having a contractor that doesn’t know his numbers can turn a profit into a loss quickly. Rookie investors should always have a written contract with a fixed price for their renovations. By having everything in writing you are protected in making sure your costs are in line with your expectations and the contractor does not have to guess what needs done. Over time I have seen experienced investors build a relationship with their contractor where everything is a handshake or trust deal. These investors just tell the contractor what they want done and the contractor bills them at the end of the job without an agreed upon contract. Typically these contractors are billing for man-hours plus materials plus profit with sometimes the investor paying all material costs on an account set up with the material supplier (i.e. Home Depot or Lowes).
The 2nd key is your HVAC contractor. In my experience there are a wide range of contractors in this field, that vary from a friend’s friend who does it part-time on the weekend to large well-known and advertised companies. I have found the sweet spot to be right in the middle. Look for the small business owner that might employ two or three technicians but is also in the field himself handling the work. This contractor should still be licensed and insured. Typically the large outfits have higher prices due to overhead and the part-time or individual guys, don’t provide confidence to your buyers. Your HVAC contractor should warranty their work in addition to providing you information for the manufacturer’s warranties. Having this information to provide to Buyers instills confidence in the work that has been done to the property. Under no circumstance should you allow a contractor to put a refurbished or re-purposed unit in at your properties regardless of cost savings.
The 3rd key is called the value proposition. Basically determining which renovations are worth the investment. To determine where to invest renovation funds depends on the comparable sales in the neighborhood. Your goal is to make you property look and feel equal to or slightly better then the comps you used to value the property. For example if every sale has granite counter tops and hardwood upgraded flooring then your property should have the same. Typically a minimum renovation will always include new paint and a flooring focus (new carpet, hardwoods, tile, etc.). I always like to have one wow item in each flip that the comps don’t have, easy examples could be stainless appliances, granite counter tops, upgraded flooring, a tile shower, new lighting/fans, faucets. If you have to make budget decisions at some point, Buyers have always indicated that upgrades in the kitchen and bathrooms are the most noticed and paid for. Adding crown molding but leaving black appliances is a mistake. Always address everything structural – roof, foundation, framing, plumbing, electrical. These items have the highest likelihood of a Buyer walking away from the purchase regardless of how good the cosmetics look.
The 4th key is landscaping and exterior. Until you find go to contractors always be on the lookout for a good landscaper and shop price. Not only will they be handling the initial clean up and installs they will need to handle mowing and trimmings until sold. I shoot to have the landscapers performing a mow, trim and blow every 10-14 days during growing season. The initial goal of the clean-up is to keep everything aesthetic and visual – many times reducing the number of shrubs, plants and trees can aid in the aesthetics. As far as exterior find a power washing company to clean the outside. This same company should be able to perform a soft wash to the roof which will clean the debris build up from shingles and gutters. If possible have someone in the attic looking for any potential leaks during this soft wash. During this wash have the driveway and sidewalks cleaned as well.
The 5th key is the inspection and property disclosure. Most states require residential properties to have a property disclosure filled out an provided to a buyer during the sales process. This form will ask questions about any problems the property has had during the history of the property and repairs as well as age of mechanical items. These forms are usually fairly easy for someone who lived in the house but for the investor can be challenging. I always fill them out to the best of my knowledge taking advantage of choosing “no representation” choice as much as possible. Also consider in a remarks section putting language that states you never occupied the house and that you recommend the Buyer have an inspection of the property.
Quick Flipping Tips:
- Painting should always be quoted per heated SF and include walls, ceilings and trim.
- If replacing the condenser, replace the air handler at the same time.
- Use LED lights instead of fluorescent, cost savings not worth it for the appearance.
- Don’t replace a garbage disposal, either straight pipe it or leave it for inspection.
- Always attempt to negotiate a credit instead of repairs on the sale of the property.
Author: Nick Sowers
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