Everybody sees these type homes on the market, they’re nothing new. Deciding on what properties out there could and should be your next “fix and flip” project is a little harder to see, but here goes. There are some $1M properties on the market right now that are bargains and some $100,000 homes that are overpriced. How much will it cost you to fix things, update items, improve the front of the home, it’s curb appeal, the kitchen, etc? Some of the best logic that I’ve heard and seen came from my clients and one in particular said to always look at the deal backwards. If a home cost $250,000 but probably needs an additional $100,000 invested into it how much will it sell for realistically…$300,000, $400,000, $500,000? Where does it make sense to jump in or stay away? What one of my clients explained to me was what’s the realistic “top dollar” that we can sell this home for all fixed up? He wanted to view the project from the end, not from the beginning.
How do you know what the top dollar would be for a home all fixed up? The answer is that you really don’t. How much are other similar homes selling for in this area? You might be able to find that answer and probably the easiest way is by the sales price…what did it sell for dollar per square foot? That’s a pretty good starting point and something that appraisers look at too. Find recent sales in your area, no more than in the last 6 months and no more than about a half a mile away and no more than 1 bedroom bigger or 1 bedroom smaller than the property that you are evaluating. You’ll have to add or subtract for properties that might have a better or worse view, better or worse lot size and shape, newer or older, etc. to get an idea on what your property in consideration could perhaps sell for all fixed up.
Fix what’s broken first. This seems to be a point of confusion to may people and this is where you may lose your shirt. You should, buy a home with inspections, estimates for repairs and/or reports. If the home you are looking at doesn’t have these for you already then go get them yourself. I kinda fixed most of the stuff myself but don’t have all of the receipts is never a good selling point. If you can’t wrap your head around this point you will lose your shirt. Don’t know any buyer who has ever wanted to hear that come out of a seller’s mouth. Fix and/or replace whatever is an issue, ugly or says “no” to a potential buyer. Issues are items like; a shared road easement, unpermitted items, illegal additions, sewer pipes that are leaking or won’t pass an inspection, etc. Ugly items are shag carpeting, dark wood interior, old wall paper, light blue colored sinks, toilets and bathtubs, etc. Items that most buyers will say “no” to are older than normal heaters, roofs, decks, appliances, kitchens, etc.
Documentation is crucial for your home sale. Nobody wants to buy a used car from someone who doesn’t have any receipts so why would a home buyer want anything less than that? Permits produce a paper trail, licensed contractors produce a paper trail, blue prints and plans are a paper trail, etc. You’ll want to work with your Realtor to create a “disclosure packet” for potential buyers to read and review and one important item in there should be a short cover letter that explains and summarizes the story of what you’ve done to the home; where it was when you bought it and where it is now that you have fixed it up. Some of these things that I’ve mentioned seem pretty obvious to you and me but that doesn’t mean everyone thinks like us. It’s always easier to give information that to accept it especially when it’s your checkbook and your decision on your next home purchase or sale. If you follow these steps and look at what the realistic “top dollar” will be for a “fix and flip” project then this might help you with your decision making process and eventual sale. Best of luck!