Investment Property: What to Repair when Flipping a Rehab Investment

One of the most common forms of real estate flipping occurs when the investor finds a good deal on a property that needs repair, fixes the issues, and resells the home at its retail value for a (hopefully) substantial profit. As with anything, rehabbers come in all shapes and varieties, and the degree to which they are involved in repairing the property varies accordingly. Some will make minimal repairs, spending practically no money at all, while others may spend $50,000 updating systems, installing hardware, and so forth. So how does the investor know how much effort to put into repairs?

The answer is not a simple one. Generally speaking, it will depend on the neighborhood in which the property is located. The rule of thumb is: don’t try to make it the nicest home in the neighborhood; just be sure it fits in, and give it the best presentation you can. In other words, if you are in a neighborhood where none of the houses have a garage, don’t spend thousands of dollars building one. Someone looking at a home in that neighborhood is probably not looking for a garage. On the other hand, if all the homes in the neighborhood have central air conditioning, and yours has an old plug-in unit hanging out of the window, you need to consider the cost of having the air conditioning updated.

There are cost-effective ways to make any property more presentable, regardless of the neighborhood (in some they are required for success, in others just a bonus). Landscaping is the big one. Generally, you can do this yourself or with the help of very cheap labor, and it is nothing more than mowing a yard, planting some flowers, and maybe installing a fence around a yard. Obviously, you can only do so much with every property, but landscaping is typically inexpensive and makes an enormous impact on the first impression your property delivers. Other cheap updates, such as repainting, installing ceiling fans and light switches, cleaning, are all ways of increasing the value of your property without really increasing the cost. A ceiling fan may only cost you $30 to buy and install, but someone will be willing to pay $1,000 more for a home with fans in every room. That’s good business.

While this is by no means a comprehensive list of what to repair and not repair when fixing and flipping a property, the message to take away is to make enough improvements that your property is at-or-above average for the neighborhood. It doesn’t have to be the nicest outlier, and it should never be the worst. Meet the standards of the neighborhood, and provide a neat and clean presentation, and your property will be competitive in the retail market.

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