System to determine what level of rehab to do

[Dan Rosenberger]

Does anybody have a system or process they use to determine the extent of rehab to do on a flip?  

For example there might be one category of everything ok, would qualify for a mortgage, but nothing special.  

The next level might involve paint, flooring, making everything nice, but not luxury. 

A higher level might add high end faucets, granite countertops, stainless appliances, etc.

How do you decide what items to do when compiling your scope for a project?

[J Scott]

You need to run the analysis for each of these scenarios (and any other scenario you can conceive of) and see which one generates the most beneficial outcome.

For example, you may run the numbers for getting a property into rental shape (perhaps $20K in rehab with an ARV of $130K) and determine that you'll make $15K profit.

Then you run the numbers of the same property, but assuming you get it into tip-top rehab shape (perhaps $50K in rehab with an ARV of $200K) and determine that you'll make $35K profit.

Then you run the numbers of the same property, but assuming you add a second level and bump out the back of the house (perhaps $200K in rehab with an ARV of $400K) and determine that you'll make $80K profit.

You now have several rehab scenarios, and the different profit potentials of each.  You can probably also assign a level of effort and risk to each scenario.  If you're looking for a project that is low level of effort and low risk, you might decide that the $15K profit scenario is the best.  If you're trying to maximize profit, and think the amount of time and risk required to get the $80K is reasonable, you might choose that scenario.

Do this with every scenario you can think of.  Some probably won't make sense at all (too low return for the risk involved); some may be similar risk/return profiles; sometimes you might have one scenario that sticks out as the clear winner.

Do the one that makes most sense...