Flipping houses successfully comes down to one thing: accurately estimating ARV. How much will your flip property be worth after you've made improvements -- and will you find a buyer willing to pay what you've determined it's worth?
Yes, house flipping is about finding properties you can flip at a price low enough to turn a profit. It is also about knowing how to determine what repairs and upgrades you will need to make so your house flip will be competitive with other homes for sale in the local market.
Before you invest in a fix-and-flip property, it is critical to thoroughly research local comps and make sure you have a solid understanding of what local home buyers are looking for. Without this due diligence, you can only guess at the true ARV of your property. Knowing how to calculate ARV based on local comps will give you the data you need to set an accurate construction budget for your house flip, and it will also give you an informed idea of the ROI you can expect when the property sells.
Success in the house flipping business comes from making good, informed decisions. If you do not analyze local comps to determine ARV, you may give in to the temptation to over or underspend on upgrades or make unwise renovation choices for your fix-and-flip property. Making the wrong decisions about upgrades can make or break your project, so in addition to knowing your local market extremely well, also take into account the following upgrades that can significantly impact your project's ARV:
5 Upgrades That Can Maximize a Fix-and-Flip Property's ARV
- Kitchen and Bathrooms
- An ugly, outdated kitchen or bathroom will not be on any home buyer's list of "must-haves." On the contrary, most home buyers will be turned off immediately if these two areas of the home are not up to par with other homes for sale in the local market. To get top dollar for your house flip, a significant chunk of your renovation budget will likely go to upgrading these rooms. A wise fix and flip business plan will focus on giving buyers the beauty and function they are looking for here, and upgrades in the kitchen and bath generally pay for themselves in the ARV boost they give a property.
- Keep in mind that the amenities offered in local comps should be factored into your renovation budget. If comp properties have upgraded counters and appliances in the kitchen and higher-end upgrades in the bathrooms, you should consider the cost of these upgrades and spend appropriately if you want your fix-and-flip property to compete with other properties in the local market. Depending on the as-is condition of these rooms in your fix and flip property, not every kitchen and bathroom will need a complete overhaul. Do you need all new cabinets, or could new paint and updated fixtures get the job done?
- Flooring and Trim
- When buyers visit your renovated property, the flooring's condition and style will be one of the first things they'll be looking for. If local comps boast stunning new wood or laminate wood flooring, your carpeted house flip may sit on the market longer until a buyer who is specifically looking for carpet comes along.
- Keep in mind that there are myriad affordable flooring options that will wow prospective buyers. Also, if you do need to install new flooring, don't neglect the baseboards and moldings. The style and quality of the trim in your home can instantly wow or repel buyers.
- Windows
- If you have to replace all of the windows in your house flip, it can be an expensive undertaking. But, this is another improvement that can ultimately pay for itself. If the existing windows' condition is sub-standard, don't risk losing a home buyer to a competing property with pristine windows.
- Window replacement accounts for one of the highest ROIs on a renovation project, making new windows one of the most efficient uses of your project's budget. New windows not only increase curb appeal, energy efficiency, and home value. There will likely be no other upgrade to your property that accomplishes so many things at once.
- Lighting
- You may be tempted to overspend on lighting to include the latest style trends in your house flip, so this is an area to pay close attention to. Expensive light fixtures that will only appeal to eclectic design tastes might not affect buyers the way you intend. Stick to classic fixtures and let buyers who yearn for something exotic or eclectic swap those fixtures out after they've bought the house.
- Curb Appeal
- It would be tragic if, after you invest so much time and money into upgrading the inside of your fix-and-flip property, buyers are turned off by the exterior before they ever get a look at what's inside.
A negative first impression means buyers won't imagine themselves coming home every day to the home, so make sure your fix and flip project has great curb appeal. Prospective buyers who are impressed with the home's exterior will want to see what's inside.
If local comps have pristine yards, you may need to install new sod and invest in new plants. If your budget doesn't have room for a complete yard makeover, smaller cosmetic fixes can have a big impact on the landscaping. Here are some things that can give you more bang for your buck:
- If power washing or painting will not beautify your fix-and-flip project's exterior, bite the bullet and have new siding installed, especially if local comps have been upgraded in this way.
- Your home's front door will be a major focal point for buyers. It will either welcome them in to see more of the home or turn them off immediately. If your budget allows, a brand new front door is worth the expense. If that's not possible, at least spruce up the front door with paint in a contrasting color and install new hardware.
- For relatively low cost, a new garage door will improve your fix-and-flip property's curb appeal. Historically, the amount of money you spend on a garage door upgrade will improve your property value to an equal degree.
- Lawn and landscaping is a curb appeal make or break. Be sure to trim overgrown hedges and clean or replace cement surfaces like patios and walkways. If you can't afford to install new sod, consider having the existing lawn painted green. For about $200 per 500 square feet, this can be an affordable alternative that mimics a brand new lawn.
To Maximize ARV, Keep Style Choices Neutral
Successful fix-and-flip investors know that nothing turns prospective home buyers off more than eclectic design choices and quirky colors and materials. "Good taste" is in the eye of the beholder, and your ARV is at stake, so you might want to refrain from overexpressing your creativity here.
Neutral colors and conservative material choices typically pay off in the end. If you can't resist the temptation to use bright colors or quirkier upgrades, do your ARV a favor and express your creativity in staging your house flip, not in the renovations.
