How much should I spend on renovations on average?

Question

Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.

KC Pake · Answer

• Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
• After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home’s ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
• Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
• The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
• Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.

Best of luck with your investments!KC

Caleb Brown · Answer

It depends. You want to base rehab on comps and the end goal. A flip will be nicer than a BRRR. Either one you want to base it on comps. There is no general percentage or base rule. Once you have the rehab you run #'s to see if the deal makes sense

Tanner Lewis · Answer

If you are just starting out, I HIGHLY suggest only buying something turnkey. I see too many new investors get way over their heads trying to figure out rehab in addition to learning how to manage it as a rental.

Theresa Harris · Answer

There is no rule or guideline as it completely depends on the condition of the home, the area and the types of finishes you do.  I've bought places that needed almost nothing done (eg caulk the tubs) to entirely new bathrooms and kitchens.  You need to look at what the sales price is of the home, cost of renos and after reno value to decide if it is worth it.  also factor in how long it will take to do the renos.

Alan F. · Answer

I rented to traveling nurses during the pandemic, the $ was not as important to me as was helping the community hospital. They were messy, dramatic and took an immense amount of work. It was like having teenagers again lol.

I do believe though that a properly managed MTR template can be profitable, just not in my house lol.

Nicholas L. · Answer

There is no rule of thumb

Properties need what they need

John McDonald · Answer

I completely agree with this. A specific niche that people don't look into is renting to traveling nurses. They keep the place clean, never miss the rent payment and there are always available renters near a major hospital. You will learn everything you need to from this single-property. An excellent property manager with years of experience is key-they most likely can supply you with a contractor.

Jake Baker · Answer

@Joseph Fenner

Here is a good rule of thumb that I use for my market in Jacksonville FL:

Light Cosmetic ($40-$50 x Sq. Ft)

Medium Cosmetic ($45-$55 x Sq. Ft)

Heavy Cosmetic ($55-$65 x Sq. Ft)

Studs Down ($80-90 x Sq. Ft)

Luxury ($150-200 x Sq. Ft)

Tanner Lewis · Answer

From what I have seen on the lending side, many BRRRRs are being done with rate-term refinances instead of cash-out refinances. They keep some equity in the deal, but it is still a small amount if you use a hard money loan for the rehab.

Ginny Adkins · Answer

It depends on your strategy. What is your exit plan? If you plant to flip what is the return you are looking for? If you are doing a BRRRR you need to make sure you have built enough equity that it covers your refinance which can be difficult in this current market. Whether it’s a percentage or a dollar amount, knowing your exit strategy will determine how much to put into a property.

How much should I spend on renovations on average?

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