Do you lean towards light cosmetic renovations or full gut renovations?

Question

I've been working with investors, and some prefer to do minimal work, while others prefer a blank canvas or a full gut. I'm curious about the reasoning behind the choice of renovations. Are there better returns for a full gut compared to light cosmetics?

Joseph Coleman · Answer

Aliyyah Carter I agree it depends on your situation. But here are a couple of things I have learned, -A full gut remodel is harder to estimate because you never know what is hiding behind the walls and what is required to bring it up to code. You could run into electrical problems, mice problems, water problems, foundation problems, mold problems and plumbing problems. Having a large margin of safety is a good idea. For a gutted remodel, I would strongly prefer to purchase a property that is already gutted as opposed to one that is finished.-A cosmetic renovation is very common with the flips I have seen. I purchased a live in flip that looked great only to discover the original work was covering up a lot of problems. For this reason, I think I will steer away from purchasing remodeled properties in the future unless I can knock down the walls to see what is underneath.-It seems there is also a personality component to this question. Thinking like a flipper is hard for me. I have a hard time using substandard materials and doing anything that I know is going to cost more in the future. So, it is hard for me to add value in a way that is profitable in the short term.

Jeremy Chaudet · Answer

In Philadelphia, we prefer to buy shell properties and fully gut-renovate them. This is because we focus on buy-and-hold rentals, and we have found that replacing all major systems and essentially having a brand-new house allows us to charge a premium rent and attract high-quality tenants who are more likely to stay long-term. In our experience, fully gut-renovated properties have lower maintenance and capex costs for the first several years of ownership, which makes them easier to manage.

Kyle Ebersole · Answer

Completely depends on what areas you are working with. Personally, I like the lighter flips as you can get in and out, less risk involved, less hold time on your money, less time for the market to shift, etc. Quicker I can get in and out, the less risky it is! But light ones are hard to come by because that is what everyone can do.

If I'm going to sink time and money into a full gut, I want to make sure its for a good return! Where in the Philly area are you working in?

Gi'angelo Bautista · Answer

I like full gut and additions because it can be customized into a dream home and I feel really good every time it's done. It's fun working with the architect and picking the finishes.

For profitability, cosmetic flips are better, but they are harder to find.In regards to risk, cosmetic flips are better. Full gut and addition are riskier so there should be a balance of risk between all projects.

Alan Asriants · Answer

You make money when you buy the deal

Whether a full gut or light cosmetic rehab is the highest and best use, a creative investor will go for both given the right returns

Alan F. · Answer

It really is all about the numbers, that being said no general statement covers everything. As 1 commentor mentioned in an older area full guts are the way to go. Keep in mind we are rehabbing & want to provide a quality product. Out west here houses aren't as old. Construction is rather regional, pretty much everything is stick built here. But I've done a couple of scrapes. so it all comes back to the numbers. Happy investing!

Bob Stevens · Answer

Its ALL about the numbers ,

Trent Dues · Answer

I'd say it's all about the amount of capital you have available, and the team behind you doing the work/ your own ability to complete rehabs. The profitability of a full gut job is astronomically higher if you get the property for the right price and handle a lot of the work yourself, vs paying close to full value and doing minimal upgrades.

Corby Goade · Answer

It's all relative- the more risk you take on for a bigger scope of work, the larger the return should be, but your ROI should generally be consistent regardless. Bigger reno= bigger rehab budget, longer timeline and bigger gross profits.

Aliyyah Carter · Answer

I like this method! You are saving so much money long-term and eliminating maintenance issues. I bet the tenants love your properties!

Do you lean towards light cosmetic renovations or full gut renovations?

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