How Much Money Should you Spend Repairing a House Flip?

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22 flips currently in progress. 134 flips completed. 18 rentals properties.
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I have flipped a lot of houses and seen a lot of houses flipped. I have seen investors spend a lot of money on upgrades that made no financial sense. I have seen investors spend almost no money on a flip for even the basics like paint and carpet. When I flip houses, I spend money on the things that will make me the most money, but I also want the house to be safe for the new owners. Figuring out what to repair and what not to repair is tricky. Usually, when you decide to take on huge remodels, there is a much better chance for problems and delays, which cost a lot of money. I recently sold a flip that I added an addition to. The contractor I was using at the time suggested I add on to the house and quoted me a number to complete the addition. I was very clear that I could not go over budget, but of course, he was over budget and did not even finish the job. On another house I sold this year, I decided to make the bare minimum repairs and it turned out to be an excellent flip. There is no best way to fix all flips, but there are many things to consider on each house regarding what will bring the most money.

How does your market affect what you should repair?

The first thing to consider when repairing a fix and flip is your competition. If there are no other houses for sale in a neighborhood you are trying to flip in, you may not have to make the house very nice in order to sell it. If you are competing against ten other listings that are all in great shape and updated, you may have to update everything on your flip or undercut the others on price. In most cases, you do not want your house to be the nicest in the neighborhood. Not only can it be tough to sell the most expensive house in an area, but you will also run into appraisal problems.

The market you are selling in also affects how you market. I get asked all the time why I do not stage my flips. The reason is simple: I do not need to. Very few houses are staged in my area, and houses sell whether they are staged or not. If you are in a market where every house is staged or in a higher price range, you may need to stage your houses. When you stage them, you need to go all out. You cannot put a couple chairs in the house with a bottle of wine and call it staged. It is best to have a professional stager do the job or have your own very nice furniture to put in the property. When I have from 2 to 7 flips on the market at any time, it would take a lot of furniture to stage my properties!

Can you flip houses in any market?

Why did everything go wrong when I added on to a house?

I love houses and I love seeing them transformed into something much better than what they were when I bought them. I love to rearrange floor plans, add bedrooms, remodel kitchens, and change the entire feel of a house. Just because I love to do those things does not mean it makes sense financially. Rarely will adding on to a house be worth it unless you are in a very hot market with extremely high values. I like to finish basements on some of my flips, but often the cost to finish that basement is more than the higher price I will get. I have to be very conscious of what my budgets are and how much money I am spending on repairs. It is not just the cost to repair a house that is significant but also the carrying costs.

I was using a contractor for a lot of flips last year who started out well but fell apart. He was always over budget on costs and the time it took him to complete the repairs. I bought a house from a wholesaler for $56,000, which was dirt cheap, but the house was a mess! You can see the house in the video below:

As you can see, the house was almost a tear down. In fact, most people who saw it, including Nikki on my team, thought I was crazy to buy it. I wanted to remodel it, which would include new wiring, plumbing, kitchen, bath, heating system, flooring, paint, roof, etc. My contractor convinced me that he could add on to the house at a low cost, which would make it a 4 bed, 2 bath property, instead of a 2 bed, 1 bath one. He gave me a bid of $56,000 to do everything except work on the garage, plumbing, and HVAC (we have our own subs for those). I was very adamant that he could not go over budget or the addition would not make sense. Of course, he went over budget and was incredibly slow getting anything done. He got to the drywall stage before he ran out of budget money and said he could not do any more work unless I increased the budget. I was already pissed off at him for other jobs he had messed up, so I told him I would find someone else to finish. I ended up having another contractor finish the job, but we still had many problems from the original contractor:

  • He built the house too close to the garage for zoning requirements, which meant we had to cut off part of the garage!
  • It took about 6 weeks to get the electrical system to pass inspections because his electrician did not know what he was doing.
  • He failed to put insulation in the attic, which caused us to fail more inspections.

These are only a few of the problems we encountered with him. The biggest issue was he always wanted us to pay for his mistakes, including not making sure his crew was actually working. Most of the time we saw his crew, they were in their trucks listening to music, and this was confirmed by the neighbor as their normal working activities. We got the house finished and sold it for $219,900. That is a huge difference between what we bought it for, but we spent over $100,000 on the remodel, and after holding it a year, the carrying costs were astronomical. I made a little bit of money on this flip, but not much. I would have been much better off just doing the normal repairs and not adding on to the house. The bigger the job, the more problems I run into, the longer it takes, and the more problems I have with contractors.

For more information on how to flip houses, check out my book: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.

The moral of the story is I try to avoid huge remodel jobs on my flips unless there is incredibly upside. The only reason I made money on this house was our market continued to be red hot and increase the value of the house. Below, you can see the after video of the house:

How to find a great contractor.

How did I make a killing on a flip that I did almost no work on?

I recently sold another flip that I bought from a wholesaler this year that was completely opposite to the previous flip. I bought the house for $143,000, and it needed quite a bit of work. The kitchen, baths, flooring, paint, windows, and roof all needed a lot of work. I figured the house would be worth around $225,000 after it was repaired. I was planning to spend $40,000 or more on the rehab, and after carrying costs, that did not leave me a huge profit (less than $30,000 if everything went perfectly). I decided to try something different with this property. I was only going to fix the bare essentials. You can see a video of it below:

I decided not to replace the kitchen, baths, windows, or paint. I would put new flooring in, replace the HVAC, roof, and paint the outside where it had peeling paint. I made the minimal repairs and listed the house for $219,900. It went under contract for $250,000 after 7 offers were submitted! During the inspection, the buyers asked for electrical upgrades and the sewer line to be redone, which were both expensive. Even after making those repairs, my rehab budget was much lower than if I redid the entire house. Our market increased while I owned this property as well, but I don’t think it sold for much less than if I would have remodeled the entire house. This was in an area where prices maxed out at $250,000, and we would have had a horrible time getting it to appraise for more than that. We had one appraisal come in $20,000 low as it was, which we were able to get the appraiser to raise up to $250,000. Here is the after video of this house:

What did I learn from these two flips?

When flipping houses, you don’t need to make the properties perfect. There is a fine line between making them nice and making them too nice for the area or your budget. I always replace major systems that need work, like furnaces, roofs, or other items that will prevent a buyer from getting financing. I don’t always need to replace all the bath surrounds with custom tile, I do not always need to replace all the plaster with sheet rock, I do not need to make additions, I do not need to finish every basement, I do not need to re-side every house. On some houses, I may have to do a few of those things, but not always. When I talk to my contractors, they always want to replace everything and make the job as big as possible. I have learned that my contractors are not house flippers, and it is not their money they are spending. The costs on a flip add up very quickly, and if you over-improve properties, you may rehab all your profit away.

What you should repair on a flip or rental.

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