House Flipping Tips From a Birmingham Home Appraiser
By learning these house flipping tips from a Birmingham home appraiser you can avoid common mistakes made by investors. While I’m not a home-flipping expert I am an appraiser that has seen numerous mistakes by home flippers that could have been avoided if they had known some basic appraisal principles.
Today I would like to share with you tips to consider if you are thinking of flipping a house for a profit. Knowing this information before buying and investing in a home can help increase your chances for success. Let me know what you think or if you have any questions by leaving a comment below.
Appraisal Tips to Keep in Mind
1) Know who the buyer is for the area you are working in- It’s important to know who the typical buyer is for the home you are flipping. If you know what they are looking for in a home you can make improvements to the home that will interest them.
Knowing what type of finishes that your typical buyer wants will help you decide how you want the house to look. The lifestyle of the buyer will also help you decide if you need to make any changes to the floor plan. An older couple may have different wants and needs that a young millennial.
2) Stay within the norm for the area with your renovations and finishes- Since the type of renovations you make will have a large impact on their cost, it’s important to know what the majority of homes are like in the area.
If most of the homes have hardwood floors and granite counters you probably would not want to install vinyl floors and laminate counters. While the cost of these types of finishes may be lower if you can’t sell the house that won’t matter. If the house does not fit in it may take longer to sell and it may sell for less than all the others because it does not appeal to the typical buyer.
3) Cost does not always equal value- This is one of the most misunderstood subjects when it comes to making updates or renovations to your home. Most people incorrectly believe that if you spend $50,000 on a kitchen renovation then the value of your home will increase by the same amount.
Cost and value are two different things. The cost of something is what you have to pay to have it done, whether it be a bath addition or having a pool installed. The value that it adds to the property is dependent on how buyers see that improvement.
Swimming pools are good examples of cost and value. The cost to install a swimming pool may be the same for two different homes in different neighborhoods but how much value the pool will add will vary depending on where it is located.
A pool in one neighborhood may be expected, with buyers paying a premium but this may not be the case for another neighborhood. If buyers for a home in the second neighborhood don’t desire a pool because it costs too much to maintain then it may be a negative factor with a lower contributory value.
4) Don’t overbuild for the area- Overbuilding can come in two forms. The first form is the most noticeable and consists of making the home larger and more ornate than all of the others in the neighborhood.
As I stated in #2 from above, you want to keep the house within the norm for the area. Adding more square footage than is typical for the area will not return as much money on your investment. If you finish out a basement in a neighborhood where this is not typical and buyers don’t want it they may not get a return on the cost to do the work.
The second form of overbuilding consists of using finishes and materials that are more expensive than people expect in an area. It may cost $10,000 to upgrade a kitchen to match what is expected for the area but if you spend $20,000 that is also a form of overbuilding where the cost to do the work will not be realized when you go to sell.
5) Don’t rule out an appraisal– If you are not familiar with a neighborhood and what to expect when making renovations then you shouldn’t rule out an appraisal. A “subject to” appraisal will help you find out what you can expect to sell the house for after all of the renovations are made.
Knowing what a house should sell for given the renovations you have planned will certainly help you make better-informed decisions as to exactly what work you want to do and how much money you should spend. By getting an appraisal you can know how much of a profit you can expect to make and prevent yourself from investing in a money pit.
Question
Do you have any questions about appraisal related house flipping tips? If you need the services of a home appraiser feel free to contact me and as always thanks for reading.
If you liked this post subscribe by email (or RSS feed). Thanks for visiting.
I did not see anything about making sure either you yourself are a licensed home builder or make sure you hire a licensed home builder for your work. It’s frequently assumed that if you are doing work on property that you own, you don’t have to be licensed. However, in Alabama, the law says that if the cost of the improvements to the home exceed $10,000, and the work being done for profit (and most flips are for profit), you must be or hire a licensed contractor.
A license is not too difficult to get and worth the investment in the time and money.
Thanks, Elliott for bringing up this very important point. It’s good to know this before any work is done.
Great post Tom. My experience with flips is that many investors do too much. That might be fueled by TV shows. One line I’ve heard many times before and I think it usually holds true with flips is, “Carpet and paint, rocket science it ain’t.” Do the little things that tend to get bang for buck. Mow the lawn, fix little things, new knobs not cabinets, replace light fixtures, etc… If you’re thinking of doing more, then hire an appraiser, provide your plans and specs, and have them do a “subject to repairs” appraisal to see if the investment will pay off.
Thanks, Gary. I like your “Carpet and paint, rocket science it ain’t” comment. Of course, every situation is different but if the flipper is flirting with the upper end of the price range an appraisal is a wise choice.
I think numbers 2 & 3 are so key. I tend to give the same advice to investors (and even sellers). Take a look at what is fetching the highest prices in the neighborhood and make sure you don’t do anything more than that house. 🙂
I agree, Ryan. Don’t be the trendsetter in a situation like this, just go with what is working.