When is enough ,engough - Rehab Cost?

Question

I wanted to know if how to determine when enough is enough for rehab cost to a property?

Scott Mac · Answer

You might find it educational to spend time visiting competing properties and understand what they are offering for the price.

Maybe for instance some units are renting for $850 a month and some are renting for $1400 a month, what are they offering for that price.

That will be the basis of what you need to do in your units in a macro sense without looking at the dollars.

Then you have to find out what these type of improvements are going to cost you either by talking to a contractor or if you're going to do it yourself understanding the price of the materials and the carrying costs that are involved by doing yourself which will probably take longer than a contractor because you don't do this every day.

In a nutshell I don't think there's a dollar amount that can be set on this with an online question, you just need more experience in it.

Good Luck!

Joe Villeneuve · Answer

Determine ahead of time what rehab you plan on doing for every property.  My list is:  Floors, painting, kitchen,...and nothing else.  That means if the property needs more than that, I don't buy it.  The list of "do's" is based primarily on costs I can control, and rehab I will get returns on.  Most everything else, is not controllable, and that means the cost is also not controllable.

David Atis · Answer

Great question, Richie. One way to determine when enough is enough is to start with your end goal: Are you flipping or holding long term? For flips, you want to ensure your rehab budget aligns with your target after repair value and leaves room for profit after all costs. For rentals, determine whether the rehab will increase rent, reduce maintenance, or boost long term value.

A good rule of thumb is if a repair doesn't increase value, rentability, or efficiency, it might not be worth it. It’s easy to over-improve a property beyond what the local market supports, especially if emotions creep in. Always weigh cost vs. return. Have a clear exit strategy to guide your decisions.

How are you planning to use the property?

Ghassan Jabali · Answer

Hello Richie,

I hope you're doing great. There is a lot of different perspectives and strategies in deciding how much you plan on putting into a property to renovate and rehab it compared to how much you expect to earn to cover costs for the rehab, closing fees, and gain a profit. It may ultimately depend on how much value and profit you expect to gain from those rehabs. As an example, renovating costs may be $10,000 to increase the property value by $20,000, with $5,000 in closing and other costs, could justify the time and cost if your goal is to make $5,000 profit if that is what you are aiming for. Compared to $40,000 to add $100,000 of value could give you a larger windfall. It may all depend on hard costs and projected profit to see if it is worth it or not. Either way, we definitely recommend doing renovations in some kind of entity structure, such as an LLC or Corporation for asset protection and tax mitigation.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Richie Martin · Answer

I appreciate the feedback and insight. Yes, experince, creative insight and digilence is all apart of the puzzel!

Richie Martin · Answer

Thank you..

David Atis · Answer

Great question, Richie. When you're flipping, it's all about the numbers. Rehab should only go as far as it increases your resale value enough to justify the spend. A safer baseline is the 70% rule, purchase and rehab costs combined shouldn’t exceed 70% of the ARV, though that varies by market.

Ask yourself:

• Will this upgrade increase the home's value or just eat into profit?
• Am I renovating to impress myself or the end buyer?
• Am I over-improving for the neighborhood?

Will this upgrade increase the home's value or just eat into profit?

Am I renovating to impress myself or the end buyer?

Am I over-improving for the neighborhood?

It’s easy to go overboard, especially when you're deep in a project and want everything perfect. But flips are a business, if a repair doesn’t help you sell faster or for more, it's probably not worth it. Stick to what's expected for the comps in your area and avoid emotional spending. Run the numbers often and check yourself before making each decision.

What stage are you at on your current flip?

Richie Martin · Answer

Initally Flip...

Richie Martin · Answer

Thank you for the feedback and advice...

When is enough ,engough - Rehab Cost?

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