After the house-flipping circus of the 2000s, real estate investors today face a different environment for quickly buying and selling homes for a profit. The mortgage loan approval process has thankfully become more responsible, and unqualified buyers are less likely to be taken advantage of by unscrupulous sellers and lenders. Additionally, housing prices have settled into more predictable and sustainable increases.
All this means that investors seeking to flip a property today will likely need to invest in some kind of remodeling or improvement to the home in order to make it competitive in the market. With that in mind, there are 10 tips that are most likely to maximize your profits when buying and selling a home.
Work With Familiar Contractors
It is a rule of thumb in the building trades that contractors offer deals for a large volume of work. If you flip homes regularly, the carpenters, electricians, plumbers, and other contractors can grow familiar with your needs and budgets and can work with you when your budget is tight. Further, working regularly with the same contractors can help ensure that the quality of work is good. This strategy works best if you are an established flipper with a track record, but even newcomers to house flipping can establish new relationships with good contractors if they present themselves as honest business people.
Time is money in the house flipping business. Profitable house flipping requires turning the property over quickly—preferably in a matter of a few weeks or at most a few months of purchasing it. Most investors aren't in a position to tie up money on more than one property at a time, and you cannot fund the next purchase and fix-up until you sell the current property.
Focus on Kitchens and Bathrooms
Kitchens and bathrooms are the two areas where most prospective buyers focus their attention. Virtually all buyers go immediately to the kitchen when the lockbox opens and the real estate agent begins the showing. Next stop: the bathrooms. If you choose only two spaces to remodel in a home, chose the kitchen and the master bathroom.
Improve the Kitchen Lighting
Dim lighting in the kitchen does little to show off your remodeling upgrades, and it can make the space depressing. It may even make potential buyers think you are trying to hide something. You can change all that with effective lighting, and it doesn't have to cost a lot:
- Boost the bulb wattage of existing fixtures (while staying within manufacturers' specifications) with LED bulbs. Be sure to choose a light temperature (measured in Kelvin, or "K") that provides a pleasing light; not too soft and not too bright-white.
- Replace dull center-of-room ceiling lights with recessed lights.
- Install pendant lighting, an always-popular choice in the kitchen because it brings the light source closer to the work surface and adds a decorative touch.
Refinish or Reface Kitchen Cabinets
Cabinets can comprise 50 percent or more of your kitchen's wall space, so make them look good. At open houses, real estate agents tend to hang out in the kitchen. Buyers start in the kitchen, loop around the house, and end up in the kitchen again to continue the conversation with the agent. Remember that the kitchen is the most important room to remodel, and the cabinets are the most important feature within that room.
But rather than spending $50,000 on new cabinets (yes, you can easily spend that much), reduce costs by:
- Refacing existing cabinets
- Striking a balance between attractive and rock-bottom cheap by using self-installed, ready-to-assemble (RTA) cabinets or IKEA cabinets
- Painting the cabinets, as applicable; in certain kitchen styles, painted cabinets are entirely appropriate, and will always look better than dark, dingy cabinetry
Expose (or Install) Hard Floors
Hard flooring, especially solid hardwood, is a trend that will never go away, and it is more popular now than ever. This makes it hard to understand why so many great hardwood floors were covered over with carpeting in the 1980s and 1990s, but if nothing else, this trend protected those floors for many years. If you flip up a corner of carpet on your property and discover solid hardwood flooring, you're in luck. Remove the carpet and sand and refinish the floors. The expense is modest, yet the payback will be great.
If you don't have hardwood underneath, install engineered wood flooring, laminate flooring, ceramic or porcelain tile, or luxury vinyl flooring (LVF). These days, any hard flooring material will be seen as a great improvement over carpeting.
Likewise, bathrooms should always have water-resistant hard flooring such as LVF, ceramic tile, or vinyl sheet flooring. It is shocking how often homes will have carpeting in the kitchen and bathroom, as this is always a turn-off for prospective buyers. In other rooms, a good-quality laminate flooring installed in place of old carpeting is a great investment. If the carpeting is in good condition and is a pleasing, neutral color, it is acceptable for living rooms and bedrooms, but if the carpeting is old or discolored, replacing it with a hard flooring will be a good investment.
Focus on Paint and Hardware
Cosmetic touches make a huge difference in how a house presents to prospective buyers, so money spent on decorative upgrades is almost always a good investment. A complete interior paint job, new door and cabinet hardware, and new light fixtures can give you a lot of bang for your buck. Just remember to keep styles and colors relatively neutral. Bold colors and dramatic effects may appeal to a small number of buyers but will likely turn off more of them.
Add Closet Space
A relatively inexpensive home improvement that can have a big impact is to build in additional closet space where it is logical. In a big spare room, creating a closet where none exists can allow the room to reasonably serve as a bedroom—a huge plus when presenting a home for sale. Keep in mind that bedrooms must have two forms of emergency egress.
Work on Curb Appeal
Buyers won't even enter the house if the outside turns them off. All that talk about curb appeal is 100-percent accurate. Fair or not, psychologists have found that it's human nature to assign superior qualities to a person with a beautiful face. It works the same way with your house: If its facade (or face) is stunning, potential buyers will be far more forgiving of deficiencies within the house—up to a point. New exterior paint cannot make up for sagging floors and broken windows, but it will soften the edges of poor interior paint or outdated appliances.
Most importantly, stunning (or at least acceptable) curb appeal will get those buyers through the front door.
- Focus on the entryway. A new door—or even a freshly painted one—can make a huge difference in how the home presents.
- Take care of the lawn. A weedy lawn with bare spots will ruin the appearance of the best home. Hiring a lawn service immediately after you buy the home, as your improvements are just starting, is a good idea. Be sure to keep the lawn green, and mow it before any showing. Keep hedges and other shrubs nicely trimmed. Lawn work is one area that you may be able to handle yourself to save money.
- Consider window shutters; they can be remarkably effective at improving curb appeal for minimal cost.
- Change out the exterior lighting fixtures and hardware. New porch light fixtures, door handles and knocker, and a new mailbox can make a home present much better from the street.
Do Some of the Work Yourself, If Possible
If you've been flipping homes regularly, you may have the necessary skills to do some of the home improvements yourself, and any money you save by not hiring contractors contributes to the profit margin. But this applies only if you are competent and are able to complete good, safe, professional-looking work and do so in a timely fashion. There is no profit in taking months to complete a project that a pro can do in days, and a bad DIY job may actually hinder your ability to sell the home. Poorly fitting miter joints on trim moldings or belt-sander marks on a refinished hardwood floor can repel buyers without them even realizing the reason why.
Forget About These "Improvements"
Once thought to be great investments, some improvements will do little to wow buyers, and you're unlikely to get your money back through a higher selling price:
- Slab granite countertops: Not only does the cost of slab granite drive up the total cost of your house flip, but designers say it's a fad that is long gone, largely replaced by engineered stone (quartz) as the trend of the moment.
- Piano finish floors: Piano finish flooring—that super high-gloss—does not appeal to a broad range of home-buyers. Stick to conventional lower-gloss finishes.
- Plank flooring: Wide-plank wood flooring is beautiful stuff, but its high cost usually will not be returned upon sale.
- Hot tubs: This is a trend that has come and gone, and for prospective buyers with small children, a hot tub on a deck or patio can be a liability. If the home has a hot tub that is in good shape, clean it up and have it serviced. Old hot tubs might be best to remove.