September 18, 2020
Undergoing a fix and flip renovation isn’t easy. On top of having to oversee an entire property remodeling process, you have to find a real estate dream team, come up with a business plan, and stay within your own budget and schedule – all while trying to keep your cool.
However, as all experienced real estate investors will tell you, this isn’t even the hardest part.
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The majority of the work you put into your fix and flip is before construction even starts. As Benjamin Franklin once said, “fail to plan, plan to fail”. And with any fix and flip investment, this is the mantra you should have. So, in order to maximize your ARV, you need to choose fix and flip renovations that optimize your ROI. To help you do this, we’ve put together this house flipping renovation checklist. Let’s get into it:
What is ARV and how is it calculated?
Before we get into your fix and flip repair checklist, we’re going to define ARV (after repair value). This is because defining your ARV is essential to your success.
The after repair value is a property’s value after it’s been renovated, fixed up, repaired – however you want to define it. This is determined by referencing nearby properties with a similar age, condition, size, or build that have recently been sold. Investors typically try to find three to six of these comparable factors when determining a property’s ARV.
How do you calculate a properties ARV? By using the formula below:
ARV = (Property Purchase Price) + (Value of Renovation)
By setting an ARV, you can also set your maximum bid amount and renovation budget. Moreover, it helps you determine the selling price and potential profit margin of your fix and flip.
Check out our Private Money Loans Explained guide for more details and examples of an ARV.
Fix and flip repair costs – how to stay within budget
Before deciding on what changes your investment property needs, you have to decide whether you want to renovate or update.
A renovation requires you to remove what is already there and replace it with something new. For example, if you’re renovating a bathroom, this would mean replacing the shower, the sink, bathroom cabinets and more.
On the other hand, an update means keeping the rooms more or less the same but giving it some new life with a lick of paint. You may replace the sink or lighting fixtures, but the bathroom is mostly kept intact.
If you want to keep your repair costs low, the improvements you consider should maximize your ROI. Renovations and rehabbing isn’t about replacing everything. For example, changing the flooring or repainting your kitchen may add more value than adding an additional bedroom.
Don’t think you have to overhaul every room, you’ll just max out your budget. Instead, focus on rooms that get the most foot traffic from potential buyers.
What to renovate when flipping a house?
So, what renovations – or updates – can you make to maximize the ARV of your fix and flip? A lot of this depends on the property itself. However, here are some ideas to get the ball rolling:
Before deciding on what changes your investment property needs, you have to decide whether you want to renovate or update.
1. Update or renovation of the kitchen – Kitchens are the first room you should consider renovating. In modern times, kitchens have evolved into a home’s central gathering place. Moreover, unlike a living room or a bedroom, they show their age. Review the floor plan to see if it’s as modern or efficient as it could be. If not consider moving appliances around or even adding a flourish like a kitchen island. However, for smaller updates, perhaps update the fixtures and replace the sink and/or cabinets.
2. Bathroom fixtures, finishes and water efficiency – Bathrooms should be the next room you update to add value to your flip. Replacing bathroom fixtures or updating old sinks and toilets with more water-efficient models are a sure way to increase your ARV. However, re-painting also goes in a long way in bringing a bathroom from the ‘80s into 2020.
3. Strategic lighting changes – Replacing a property’s lighting fixtures is one of the most effective ways to increase a home’s value on a budget. Consider adding dimmer switches in the bedroom for an extra flourish or updating lightswitch covers. These changes are relatively inexpensive and can be done without a contractor present.
4. Add an extension to increase living space – This is a tricky one. It’s costly and, in the majority of cases, it doesn’t increase a property’s value that much. However, if done correctly, it can be just what a home needs. If you think this could improve your fix and flip, make sure you confer with your realtor to ensure it adds more value than it costs.
5. New paint or flooring – These basic home improvements are simple and cost effective. Unlike adding an extension, new painting and flooring will usually always increase your ARV. However, if you do decide new flooring is necessary, ensure that you don’t go fully hardwood or bamboo as this could blow your budget.
WE LEND OFFERS A RANGE OF PROGRAMS TO SUIT EVERY TYPE OF RESIDENTIAL REAL ESTATE INVESTOR.
Fix and Flip Renovations: Final Thoughts
What fix and flip renovations maximize your ARV? It depends.
There isn’t a ‘one size fits all’ formula when it comes to property renovations or updates. In order to maximize your ARV, ensure you really take your time to meticulously plan your renovations. Moreover, once you decide on your renovations, your budget, and timeline, stick to it.
While experienced house flippers will be able to walk into a distressed property and know exactly what improvements to make, first time investors may need some outside help.
Therefore, it’s essential you assemble a real estate dream team that you can lean on for advice – a contractor, a realtor and a private money lender. By using their advice, choosing renovations specific to your flip and following the advice of this fix and flip repair checklist, you’re sure to maximize your ARV when you eventually close.
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