You guys have been with me through the thick and thin of 3 top-to-bottom home renovations. Through this series I hope to share with you some of the tips and tricks that have helped me save everything from money to my sanity (for the most part).
I thought I’d start this series at the very beginning of the renovation process. Before you buy the house, dream of the renovation, or pick up a hammer you have to plan. Yes, it’s a four letter word and all that entails, but it’s an absolute must.
To me the most crucial part of planning a big ol’ remodel is constantly keeping in mind that above all it’s an investment. Whether you’re flipping a house or buying your forever home, your renovation is doomed from the start if you sink money into the house that you can never get back out.
So here’s my tip of the week – make a good investment up front, when you buy the house.
How do you do that? Here are a few pointers:
1. Don’t overpay for the house.
It’s easy to fall in love with a house and get swept away with that “I have to have it” feeling. Before you begin negotiations with a seller, set a limit on the amount of money you’re willing to spend on the house. To come up with that “top number,” either do research on your own or talk to a realtor about what comparable homes in that neighborhood are selling for. And if you’re a flipper, it’s especially important to avoid spending too much because you won’t have the benefit of time to naturally increase the value of the home. When we buy flips, we know the absolute maximum amount per square foot that we can afford to pay and we use that as our benchmark – anything below that is a good deal.
2. Be educated about what your renovations will cost.
I will talk more about this in later posts, but if you know from the outset that you will be renovating all or part of the home it is in your best interest to speak with a contractor about costs associated with the construction or, if you’re planning on doing the work yourself, then you should do some intensive research on what you can expect to pay for materials, fixtures, permits and any labor that you might need to hire out. Do all of this research before you put in an offer.
3. Have a solid idea of what the home can ultimately sell for.
What are renovated homes in the area selling for? If you don’t know the answer to this question then put on the brakes and do some research. It’s imperative that you know the value of the product you will eventually be selling.
4. Keep in mind hidden expenses.
When you’re calculating the net profit you will make once you sell the house, keep in mind the hidden expenses such as realtor fees, carrying costs (mortgage, interest, PMI), closing costs, homeowners insurance, taxes and utilities. It’s especially important if you’re flipping a house to keep track of these costs since they eat into profit very quickly.
Next week’s tip of the week . . . How to Pick the Right House.