Whenever people ask me what the worst thing they could do as a home remodeler is, I always tell them over-rehabbing a property. If you accidentally overbid on a house or your remodel starts to go overbudget, it’s tempting to continue moving forward and set your asking price higher when you are finished. After all, won’t people be willing to spend more on a beautifully renovated house? This is never the case.
If you’re remodeling a house in a $300,000 neighborhood, and after making improvements the house is worth $450,000, you’re going to be in trouble. Why? Because people who are in the market for a $450,000 house are going to want to live in a $450,000 neighborhood. No one wants to live in the most expensive house on the block, especially if it’s so over-renovated that it sticks out like a sore thumb.
Unfortunately, if you get swept up in the temptation to over-rehab, you’ll spend so much money on remodeling that you’ll need to sell for a higher asking price if you want to break even (let alone make a profit). What can you do to avoid this? You can follow a few simple tips.
Don’t Fall in Love
This is one thing I can’t stress enough. Don’t fall in love with a house before you make a deal on it. Many people will get excited about a great property, and they’ll keep bidding until they win. This is never a good idea, as your rehab budget will take a major blow to make up for it.
The first thing I can tell you to avoid overspending on a property is to keep your emotions out of it when you are bidding or making an offer. Set your maximum bid and don’t go any higher than that. If you do, you’re going to have to figure out how to cut your rehab budget down or you’ll be eating into your profits. You won’t be able to make up for it with the after-repair value, so don’t ruin your profit margin before you even start rehabbing.
Avoid Add-On Rooms
When you remodel a property, work with what you have. Theoretically you could get a better asking price for a house that has four bedrooms instead of three, but also keep in mind how much money you would spend adding on another room
Most houses are also built to be about the same size and style as the other houses in the neighborhood. Adding on a bedroom is probably going to look strange, and it could price you out of the neighborhood. Instead of trying to turn your house into a mansion, work with what you already have and make improvements to what’s already there.
Get a First-Hand Look at the Comps
Looking at comparably priced houses online is a perfect way to get a feel for what your budget should be and how much you’ll be able to ask for the house once it’s done, but that’s really only the start. If you can, I always recommend scheduling an appointment to go walk through at least one of the comps near your house.
Why do you need to see it in person? When you look online, you won’t be able to tell whether the house has laminate or real hardwood floors. You also won’t be able to get a close-up look at which renovations have been made and which ones haven’t. Getting a firsthand look will give you a better idea of what your house needs to stand up to when you sell, which will help you budget for the right renovations.
Cut Corners Where You Can – Without Sacrificing Quality
Once you know what you’re up against with the comps, you’ll know where you can cut corners. If the comps have laminate floors, there’s no reason to put in all-new hardwood flooring. In fact, there’s a lot of really attractive laminate out there. I love laminate because it is a great way to stay within budget while still making an attractive improvement to the house.
Another place you can save money without sacrificing the quality of your renovation is in the material for your kitchen and bathroom countertops. Everyone loves granite and marble countertops, but they can be really expensive. You can get a very similar, high-quality countertop in synthetic quartz that will save your budget.
If you follow these tips and keep a close eye on your rehab budget, you’ll be in a good position to make a great profit margin on any property, even in a down market. Remember, you always make money remodeling houses when you find a good deal on a property, not when you rehab it. Avoid temptation and you’ll be ready to make great deals. Good luck!