With Texas Fix and Flip Loans, you might wonder just how much you need to spend on rehab. Should you spend a lot or a little? What’s the right balance?
Let us consider the following story, of 3 flippers in one neighborhood, to answer that question.
Our first flipper in this story has plenty of savings on hand to spend a boatload on repairs. She knows there’s a bunch of cash-rich yuppies moving into the area, and given the market she decides to go all out.
She adds marble countertops imported from the Florentine hillside, custom plumbing fixtures from a French sculptor whose name no one can pronounce. She sources old Victorian paneling in mint condition and wood floors made from near-endangered Brazilian trees.
She assumes all these posh amenities are what is needed to meet the expectations of buyers in the area. The open house is abuzz with camera flash as photos are taken of the Instagram worthy interior. But no one puts in an earnest offer. Buyers complain that there is a far more reasonably priced house just around the corner.
Which bring us to our next flipper who is just down the corner. This flipper took out a small loan and thus spent very little on repairs.
After a quick walkthrough of their home, they notice the post-apocalyptic carpet and decide to spend their limited funds replacing it. However, they don’t have the funds to replace the avocado green countertops and mustard yellow cabinetry, but in the end, the house is livable right?
They list the house at the median sales price in the area, but potential buyers complain, “well there’s a house up the block going for a little more, and its uh, more modern.”
The last flipper in this tale is listing that other house. Before they started work they did some walkthroughs of homes for sale nearby, all the while recording the features and amenities common to homes in the area. When they repaired their house, they kept their vision in line with what they’ve seen in other nearby houses.
They bring the countertops into the 21st century, color the walls in a neutral shade, and put down sturdy laminate flooring. In the end, buyers are impressed both by the houses’ modern amenities and its reasonable price.
This investor wisely repaired the house so that it was similar to homes nearby and applied for just enough financing to bring the house up to a marketable standard. By making reasonable repairs, they were in turn able to list the house at a reasonable price.
So in this tale of three flippers whose house sold first? The last one.
Unlike the first flipper mentioned, they didn’t make assumptions about the market. They also had a sense of the features that were standard in the neighborhood, so unlike the second flipper, they didn’t skimp out.
When it comes to flipping, don’t waste money bringing a house up to “magazine standard,” because no one in the neighborhood will be able to afford it. Don’t skimp out and just bring a house up to a “livable,” standard, buyers won’t be impressed.
The standard you should achieve with every flip is the “market standard.”
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Dennis Dahlberg Broker/RI/CEO
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.