No matter what name it goes by, buying a home, fixing the problems both large and small, and reselling it is something that we all love to do. Taking what was old, dilapidated, run down, dated, and/or under-improved and making it cool, hip, and modern is pretty much every real estate person’s dream.
But all of the HGTV mojo aside, flipping houses teaches you a lot — mostly through the mistakes you make — and I can honestly say that the number of times I have bought/renovated/sold houses has made me a far better agent for my clients than anything else I have ever done as a Realtor.
Here are just a few of the lessons I have learned:
You Make Money When You Buy — AND When You Sell
The old adage goes something like this — “you make money when you buy real estate, not when you sell.” Which is another way of saying that you have to acquire the property correctly in order to make the money when you sell it. Paying too much when you buy a home prevents you from making any money when you sell it.
But a great deal of effort goes into selling a property, too. From staging to timing to negotiating, knowing how to maximize value on the sale side can be equally important. Often times, those less versed in the art of selling leave significant monies on the table unnecessarily. Spending some time understanding the fundamentals of marketing a property correctly can increase the yield by 2-5%.
HGTV is the Devil
Yes, I watch it — and yes, it is addicting. Everyone in my family, including the 5 year old, loves the before and after shots and seeing the tearful homeowners when they walk into their new, completely rebuilt, award winning and fully furnished renovation.
But it is a total fantasy being passed off as an easy reality.
The expectations that are set about a) how easy it is to find properties to renovate, b) how inexpensive it is to renovate the homes, c) how risky it is to do so, and d) how hard it is to find great contractors is borderline criminal.
The reality is that finding — and acquiring — good deals is extremely difficult. Likewise, renovation is both more time consuming and far more expensive than most understand. The number of horror stories I hear versus the number of fairy tales has got to be 10 to 1 (or worse!)
Don’t let HGTV set your expectations.
The Market Overestimates the Costs of Cosmetic Repairs and Underestimates the Cost of Structural Repairs
If I had a nickel for every time a client was scared off by a home that needed paint and carpet or thought that a basic kitchen renovation would cost $50,000, I would have a lot of nickels.
Conversely, if I had a nickel for every time thought it would cost $500 to ‘open up the kitchen into the living room,’ I would have quite a few nickels then as well.
For whatever reason, people tend to see damaged sheetrock, stained carpet, and kitchen cabinets from the 1970’s and assume the worst. In reality, these items can be purchased and installed with relative ease and at low costs. But when you begin to open and/or move walls, things get expensive quickly. Anything structural requires all of the trades in order to complete the task. Moving a wall is only somewhat complex, but when you move a wall, you generally need to relocate plumbing and electrical as well as re-do the sheetrock, paint the entire room, and fix the floors.
So if you plan to open walls, add baths, or finish additional space in a home, make sure to pad your estimates.
Know Your Values AND Your Costs
Back to my pile of nickels — if I had a nickel for every time I heard a seller tell me how much something costs as a justification for a higher price, I would have a really big pile of nickels.
The argument goes something like this — if I put in an exotic granite for $25,000, then my home is worth $25,000 more than my competition. Or, if I put my floor joists 12” on center instead the customary 16” on center and it cost me $3,500 more, then the home is worth $3,500 more than the competition.
I’m sorry, but it doesn’t work that way — the market does not necessarily value things in the same way that owner’s do.
Those who make the most money in real estate inherently understand that the cost of an item (or a material) and its value are not necessarily one and the same. Sometimes, a simple but cool $50 light fixture can impact value far in excess of its cost much in the same way that a $30,000 surround sound system will rarely pay you back.
Knowing how to make these types of choices wisely is an art and those who get the cost/value ratio the best, generally make the most money in their renovations.
Without a doubt, the renovations we have done personally have made us far better advocates for our clients. Having lived it — breathing in the dust, dealing with lenders, organizing the contractors, hearing the feedback — sharpened our sense of how to best buy, renovate, and sell.
It is this knowledge we pass on to our clientele each and everyday.