By: Nicolas Terry
The lure of a fixer-upper can be compelling, This Old House notes: Purchase a property in need of some love, rehab it yourself, then sell it for twice what you paid. However, many would-be real estate flippers underestimate the cost of remodeling or their own home improvement skills and comfort level. To make the numbers work in your favor, you need an honest estimate of the neighborhood value, and a comprehensive, priced-out plan of work for the remodel that details what you will do and what you will outsource to a contractor.
You’ll need to crunch the numbers to determine whether you can afford to purchase and remodel a Cincinnati home. This Old House recommends listing out all work that needs to be done, following a thorough assessment of the home’s condition. List out materials, supplies, contractor fees and labor costs (including the cost of your own labor). Add another 5 to 10 percent to your costs to account for unexpected problems that can arise as you work. Next, subtract the total costs from the home’s value when remodeled, using estimates of recently-sold neighboring homes as a baseline. The remodeled sale cost minus the fees represents the price you can pay for the home. If this number is greater than or equal to the home’s market price, purchase it. If the number is less than the home price, it’s a remodel you cannot afford.
Justin Pierce warns that many DIYers do not accurately account for the labor costs of home remodels. Even if doing it yourself, your body will feel the hard work. For major remodels, a contractor might be a better use of your money, and contractor directories like Tenlist can help you identify Cincinnati contractors that specialize in remodels, green building, historic homes and other areas. A skilled remodeling contractor should add home value that offsets the fee.
Not all homes can be flipped. Real Estate experts generally caution against purchasing a home that needs major plumbing or electrical repairs, roof repairs, foundation work or other so-called invisible upgrades. These are both costly and invisible to the buyer, so are not likely to increase the home value very much. Likewise, do not enter into a deal that does not include an inspection clause. Especially when buying an older, neglected home, the inspection clause is your lifeline. At best, the inspection clause will help you create your road map for remodeling and firm up the faith in your investment. At worst, the home inspection will uncover a major problem, such as termite presence or black mold, and give you the means to walk away from that deal.
If the home is in a bad neighborhood, even a classy remodeling won’t save you. Cincinnati newbies might be tempted by the low prices of a home near the University of Cincinnati, envisioning flipping the house to a U of C professor. However, it’s good to check data about the neighborhood to know about potential buyers/renters. For example parts of Over-the-Rhine don’t currently attract the interest of students or young professionals.
Nicholas owns several rental properties and enjoys “flipping” houses. He shares his experiences by blogging about them.