Whether you are buying a property to rent or buying a property to flip, you are likely going to need to do some renovations. Knowing which ones to do and which ones to skip are imperative to making your investment worthwhile. Putting too much money into a rental will keep the house from having a positive cash flow. Putting too much into a flip will reduce your profits, or even cause you to lose money on the deal.
Here are five tips for making sure you spend the right money to maximize your profits.
1. Think about the materials you use: Very rarely should you buy either top-of-the-line or the cheapest materials available. Expensive materials will cut into your bottom line, while cheap materials are lower quality, which will provide you with a lower return on investment. Always think about the location of the property and what other homes in the area have. If you are buying to flip and all the other homes in the neighborhood have granite counters, then it makes sense to put in granite counters. When renting, you need to remember that renters often do not take care of a property in the same way as an owner, so you want the property to be livable, but it doesn't have to be of the highest quality.
2. Look at repairing before replacing: Although there will definitely be items that need replacing, always see if cleaning and repairing is less expensive. Only replace what needs replacing!
3. Think about curb appeal: A buyer's or renter's first impression will make a big difference in terms of your bottom line. Spending some money on the landscaping of the front yard is a great way to make a first impression. Houses that look nice from the outside will rent for more and have more tenants interested in renting. The same holds true for selling. You will always have more buyers looking at your home if the outside catches their eye.
4. Kitchens and bathrooms are most important: Ask any real estate guru, and they will tell you that a nice kitchen and nice bathrooms help sell properties. Outdated kitchens and baths will make it difficult to sell or rent a property. Do what needs to be done to make these two areas looks modern and fresh. Easy ways to do this is by painting cabinets and replacing the hardware. If you have to get new cabinets, try to stick with off-the-shelf cabinets rather than spending money for custom-built units.
5. Paint is your best friend: A fresh coat of paint can go a long way to making an older house look new again. Paint is an inexpensive way to make a big change. Never wonder if you should repaint a room. The answer is yes! Just be sure to paint it in a neutral color that appeals to the widest audience.
Of course, no matter what you do, you'll want to be sure that you've stuck to a budget. Prior to getting started, know what the renovations will cost and have a budget in mind. I recommend that you always estimate 10% more for unforeseen issues. If you have to make adjustments, cut out less essential updates. If you follow the best practices for renovations and stick to a budget, you should be able to avoid going over.