Just because you add something to a flip doesn’t mean that something adds value. Keep your rehab projects as simple as possible, ensure that the result appeals to a wide range of buyers, and that you’ll finish your rehab before your loan comes due.
If you don’t keep the scope of your rehab as narrow as possible, disaster might be right around the corner.
• Fixed use rooms: Say a flipper has a property located in the yuppie section of town, the area’s teeming with young professionals. The investor thinks adding an office would be nice. They spend about five grand on built-in desks and shelving. The room becomes a beautiful configuration of fixed geometry. The efficient and fixed storages solutions should appeal to buyers in the area, right? Well, not exactly. Most buyers gripe about the fact that they can’t use the room as a bedroom, “we plan to have children, we can’t have them bouncing their heads off of all these hard edges.” Given the lack of an extra bedroom our flipper has to sell the home at a discount, the office didn’t add value. In fact it made his home harder to sell.
• Extensive reconfigurations: Say a rehabber wants to play architect. Her property has a generous section of vacant space at the end of the hallway. “Master bathroom? Everyone wants a master bathroom, right?” Images of dollar signs flash through her eyes, This reconfiguration will add 20 K to her total loan amount, but bullheaded she charges forward, knocking down various walls, diverting sewer lines, weeks and weeks pass, but things stay on schedule. But the ponderous city inspector has a problem, “the pipes you’ve installed are a centimeter too small. “Now to even list her home, she’ll have to rip the walls apart again and start from scratch.so Its unlikely she will resell the house before her loan comes due.
She will have to pay back that loan, even though her property isn’t listed yet. The likely outcome is she will default.
Are office conversions and luxurious master bathrooms inherently dangerous in and of themselves? Of course not. But do yourself a favor and follow a few basic rules when it comes to rehabs:
• Don’t convert a room for a fixed use: Offices aren’t inherently bad, but if you add built-in desks, or features that redefine the use of a room you narrow the number of potential buyers. Not only are such conversions expensive they rarely return much value when it comes to the resale value.
• Renovate only as necessary: So, a master ensuite is an essential convenience every buyer expects right? Not always. Updating existing bathrooms is one thing, but reconfiguring an entire layout, installing new plumbing and creating a new bathroom from scratch is quite another. Such an endeavor not only costs a pretty penny, but it also takes a long time, and it will probably add only a few extra thousand to the list price.
In short, avoid seemingly nice features might put off buyers and additional time-intensive projects will keep you from listing your home and thus paying back your loan.
So don’t undertake renovations that restrict potential buyers, or projects that hinder your ability to list your house.
Level 4 Funding LLC
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Dennis Dahlberg Broker/RI/CEO
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22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.