House flipping can be quite lucrative if you know how to do it properly. According to research, house flippers were able to recoup an average return on investment (ROI) of 38.7% in the first quarter of 2019. House flipping can indeed be very rewarding.
What is the rule of thumb in house flipping? The first thing that you have to learn in rehabbing and flipping real estate is the 70% rule. The 70% rule simply states that any investor shouldn’t spend anything more than 70% of the After Repair Value (ARV) of a property when deciding to purchase a property for flipping.
It’s not a hard-and-fast rule though. In simple terms, don’t buy a property if the price is more than 70% of its probable price when you sell it. Thus, you’ll have to be meticulous in getting the estimated cost of repairs, rehabilitation, and other soft expenses before you decide on buying a property to flip.
Moreover, you have to be careful in computing for the ARV. The ARV is an estimate of a property’s value after all the repairs and upgrades have been completed. It’s basically an educated guess of the price for which you can flip the property after you’ve rehabbed it. You have to remember that residential real estate pricing is based on the selling price of the neighboring property most recently sold.
How To Increase Property Value
Once you’ve done the math and it checks out, you can then buy the property. The next crucial step would be to work on the property to increase its fair market value (FMV). Here are a few ideas on how you can go about this:
- Repaint Everything That Needs It
Experienced real estate investors and agents would agree that the first thing that makes a house look old is paint that’s fading, flaking, or sometimes even peeling off. Over time, whether a house is occupied or not, the paint acquires a duller, danker, or gloomier look. This gives off an obvious impression that it’s old and not very well-maintained.
If you’re going to flip a house, repaint everything from the interior walls to the kitchen cabinets and doors. If the exterior paint looks aged or sullen, paint it, too. Would-be buyers are more likely to make a higher offer if a house has a fresh coat of paint.
- Clear The Corners
The next thing you can do to rehab a flip and improve its value is to clean the house thoroughly. Two of the things that make a house look dirty and old are dust and particles that have collected and accumulated in the corners and crevices of rooms, walls, and surfaces.
Therefore, you must clean the house thoroughly. Make sure the room corners and even spaces between the floor and walls where dust usually collects and settles are completely cleaned up. Nothing can be more visually irritating than black sand-like dust trapped between corners, edges, and linings.
- Change Lighting
Another not-so-expensive idea to improve the value of your next flip is to change the lighting and fixtures. One of the most noticeable things about a house that speaks of its period or era is the lighting—bulbs, switches, and sockets.
Lighting technology and housing style tend to change every year. One look at the lighting, fixtures, and the housing of switches and sockets, and you’d be able to determine the time or period when the house lighting was last changed. So, change the lights and fixtures that have already yellowed with time.
- Upgrade The Kitchen
There’s a saying among real estate agents, though probably lore and not based on verifiable statistics on sales, that ‘a kitchen sells a house.’ Do note though that a couple or family planning to buy a house would indeed check how the kitchen looks like.
They’d try to visualize the many hours they’ll be spending in their potential future home. In the kitchen where they would gather to cook, they’ll be thinking of all the eating and merriment.
You can start by repairing the kitchen cabinets. Make sure the drawers are all sliding in and out well. You have to replace the knobs, too. They can make the place look old if they look like they’re purchased from an ancient era.
Check out the sink faucet, too. Some of them still have that single twist 1950s or industrial plant look. Others have the glassed faucet knob casing of the 1990s. As much as possible, try to modernize the entire look of the kitchen. Buyers will truly appreciate that.
- Spruce Up The Curb
First impressions last. As with most anything else, the first thing that people see is the front and external appearance. And if the landscape and façade of your next flip don’t look very attractive, it won’t create a good first impression on your prospective investor. Work on the lawn landscaping, the front door, and steps. Try to visualize that if you were the buyer, you’d be willing to write a check for the property even before going through that front door.
Treat It Like Your Own
If you want to improve the value of your next flip, treat it as if you bought it for your own family then work on it until you’re satisfied. Make sure that it’s worth every penny. Otherwise, it will be quite challenging to look for a buyer. Nonetheless, with all these tips given, you now have an idea of how to improve the value of your flip.
Carlo Sean works as a construction worker for many years. He has technical background and experience in crawl space encapsulation, home insulation, and floor tile and sealing. Carlo is a family man with three children. He also has a Pitbull named Wacky.