How To Flip For ROI, Not Architectural Digest

While a lot of the hard work for a profitable flip is done during sourcing, the renovation is the part of the flipping process that's most likely to drive up costs unnecessarily and reduce your final ROI. 

Time and again I've seen first-time flippers find a great deal on a property, only to squander their potential gains on unnecessary features. Money spent on a renovation does not always equal money a buyer is willing to pay for the end result.

How can you make sure you're renovating for return?

Start with the boring stuff

Making sure the electrical and plumbing are in good working order and up to code may seem obvious, but it's easy to overlook when you're mind is focused on countertops and backsplashes. The experienced flippers we've worked with know that mechanical issues are the quickest way to lose money on a home.

As one of our high volume clients put it:

"Making sure all mechanical systems are in order is vital. Buyers, especially first time buyers, can get scared off by things that pop up in the inspection report"

An inspector should have identified most mechanical issues before you purchased the home. Other issues may arise as you start breaking down walls, so build a contingency fund into the purchase price to ensure you can afford new air ducts or crossbeams if they're needed.

Bigger isn't always better

It's no coincidence that neighborhoods tend to have a uniform look. The features that make a subdivision attractive to buyers (e.g. location, school district) also tend to attract buyers that have very similar amenities and styles. For example, a neighborhood in a great school district will probably attract families, which means 1 bedroom homes aren't going to be popular.

The first suburb in the US, Levittown, was successful in part because it understood this uniformity of need.

"You can have the home in any style, as long as it's a ranch"

If you’re renovating in a neighborhood that has a lot of Victorian houses with brick fireplaces and wooden staircases, now is not the time to try your hand at building modern masterpiece. Likewise, if most homes in the neighborhood have 3 beds, 2 baths, and 1,800 square feet, don’t spend the money on an addition that will convert the property to a 5 bed, 5 bath mansion, even if the lot is large enough. You won’t get your money back when you go to sell it.

Design for the neighborhood

One of the quickest ways a project can get out of control is by over-finishing the interior of the home compared to the surrounding properties. If homes in the area typically have granite countertops and pre-fab cabinets, don't waste money on marble and custom woodwork. A quick scan of nearby sales will tell you what finishes the buyers in the area are expecting.

The same goes for paint colors. Stick with relatively neutral colors that buyers are looking for - gray is "in" right now - that complement the size of the rooms. Just by being freshly renovated, the house should stand out from others on the market, so don't go overboard with paint colors that could turn off buyers.

That doesn't mean your flip can't stand out a little. A few unique characteristics, like vintage mirrors or cool cabinet hardware, can go a long way towards making your home the top pick for buyers in the neighborhood.

A good use of a unique mirror to make a room stand out

All of the above should be built into your plan from the start, but it's very easy for new investors to get caught up in upgrades that they think will result in a higher price when the sell the home. By doing your diligence on the neighborhood, sticking to your budget, and focusing on the features that buyers are looking for, you can avoid frustration (and potential losses) when it comes time to sell.