Rules of Renovation Reviews How to Avoid Over-Rehabbing Your Properties

When you’re in the house-flipping business, it might seem like going the extra mile in remodeling a house would work out in your favor. Totally overhauling the kitchen, putting wood floors throughout, completely renovating the master bath: the more work you do, the higher you drive the value of your home. Maybe even above market value! But this strategy actually backfires more often than not. It’s possible to over-rehab a property.

Putting too much work into a house can get in the way of a quick sale at a fair price. Buyers tend to look in certain neighborhoods not only because they like the look of them, but also because the houses are within their price range.

For instance, let’s say you’re renovating a $250k home, and when you finish your improvements, they should put the value somewhere near $500k. But if the rest of the homes in the neighborhood hover around $300k, no one is going to pay nearly twice that for your home, no matter how updated and beautiful it is. Homebuyers looking in that neighborhood most likely wouldn’t be able to afford that even if they wanted to — you’ve just priced yourself out of the neighborhood. Your only option at that point is to sell it at a loss.

So here are some suggestions for how to avoid this pitfall and ensure that your house-flipping is profitable.

Don’t Go Over Budget

Don’t get so attached to a design idea that you can’t figure something else out when the budget gets too tight for it. Learn to roll with the punches, rethink your vision, and cut back when you need to. You can’t depend on getting higher offers just because you revamped the floor plan, installed top-of-the-line appliances, and got the yard professionally landscaped — it’s all about what other similar houses nearby are selling for.

Certainly, if you’ve chosen to revamp a property in an upscale neighborhood, these high-end details do matter. But even so, there’s still a cap on what the market will bear — the comparable properties nearby set the limit on the list price.

Remember that the last thing you want to do is own the most expensive home in the neighborhood. It’s not the post-improvement sticker price that’s important; it’s the difference you get when you compare that price to what you paid for it initially plus all the work you put into it. The right way to flip houses is to find a cheap fixer upper, make repairs and renovations within your budget, and then sell the house at similar price to other homes in the neighborhood. It’s all about the profit margins.

Look at Comparable Homes

Do your research on the comps nearby. Walk through them if you can. If you can’t, study the listing information. Remember the importance of the kitchen and master bath — are the appliances updated? What kind of flooring is throughout the house?

Your objective should be to match the quality of other similar houses in the neighborhood. It’s okay to go a little bit above, because you want your house to stand out and be more appealing than the others, but it’s a fine line to walk because you still want it to fit in and hover in the same price range.

Are you interested in learning the right way to rehab? Sign up for a free Rules of Renovation course today!