113: How to Repair Rental Properties and House Flips
Buying rentals and flips can be an awesome money-making opportunity. However, buying the property is only one step in the process because you usually have to repair properties as well. Even if you buy rental properties that are in perfect shape, you will have to repair them at some point after you run into some less than stellar tenants. I have 15 rental properties and 14 active fix and flips. There is a big difference between how I repair my flips versus my rentals. On this episode of the InvestFourMore Real Estate Podcast, I go into how I repair my properties and what other investors should look out for when buying houses that need work.
How big of a remodel job should new investors take on?
Many of the houses I flip need a lot of work! I have completed remodels that cost well over $100,000. While you can make a lot of money on houses that need a lot of work, the risk is often not worth the reward. Below is a before and after video of a house I recently spent about $100,000 remodeling.
This house should make me money, but it was a huge project that took too long and cost way more than I thought it should. I also had to let a contractor go during this job, which big jobs often involve. When you take on a huge project, accurately judging how much it will cost and how long it will take is really difficult. The longer you hold a property, the more money the project will cost due to carrying costs.
Every day you own a property, you pay property taxes, financing costs, insurance, and maintenance, which can all add up quickly. A big project can also expose investors to market changes. I like to get all my flips bought, repaired, and sold within 6 months. A big remodel can easily double the time it takes to complete a flip, which makes the project riskier if the market decides to decline. If you are a new investor, I suggest trying to find houses that won’t involve complete gut jobs.
What kind of repairs should scare new real estate investors?
Someone emailed me asking which repairs they should be worried about when buying their first investment. Answering this question is tough, but I tried to do it on this podcast. Many things can cost a lot of money to fix:
- Mold
- Meth production residue
- Foundation issues
- Electrical systems
- Plumbing systems
- Structural issues
- Sewer lines
All of these issues can cost more than $5,000 to fix if they are serious, but they may only cost a couple hundred dollars if they are minor. There are other repairs to consider as well, like replacing windows, doors, roofs, HVAC, paint, bathrooms, kitchens, drywall, and more. These repairs can also be very expensive. As a new investor, the trick is knowing what repairs will cost and how serious they are before you buy a house. Even though I rarely, if ever, ask for an inspection when I buy a property, I do not suggest that for inexperienced investors. What I suggest to all new investors is getting an inspection, and if there are major concerns, have an expert in that field check out the issue. I talk much more about this on the podcast.
What should you repair on a rental versus a flip?
When I flip houses, I want them to be in really good shape. I am selling the house to a buyer who will be responsible for that property. That buyer will usually order an inspection and want the house to be in great shape. To get the most money, I sell to owner-occupied buyers who almost always get a loan. When the buyers get a loan, the house has to be in livable condition, meaning the furnace, roof, plumbing, electrical, walls, paint, and other items are all in good shape. I will replace furnaces, roofs, fixtures, kitchens, baths, doors, windows, flooring, and more on almost every flip.
When I buy rentals, I do not have to repair as many items. Renters know the landlord will be responsible for items that wear out or break. The tenant also knows that they are only living there for a set time. Because renters are much less picky than buyers, you do not have to spend as much money on a rental. I still want the house to be safe, meaning the HVAC is in good shape, the electrical system is safe, the plumbing is decent, and the roof is leak free. However, I may not have to replace all the fixtures, the kitchens, baths, the windows, or the doors.