Profit Maximizers for Flips—Tips From An Experienced Investor
Welcome to our new series dedicated to real estate investing profit maximizers! We will be talking to several expert investors who shared their rehab ideas that help increase profits for the property sale, and updating this post when we get new tips. Stay tuned for these strategies and secrets in order to make smart rehab decisions and earn the most profit.
A.C. Ramos is a seasoned real estate investor who has done over 1,000 deals! Take note of his profit-focused mindset when he takes on a rehab project.
Flipping Tip in Transitioning Neighborhoods
I like to look for properties that are either 2 bedrooms/1 bathroom or 3 bedrooms/1 bathroom in neighborhoods that are transitioning, to where the people would rather have the living space than a garage.
The value of a house lies more in the square footage of the living area than having a garage, so I convert the garage to a master bed and bath. This adds to the living space square footage, builds the value of the property, and brings up the price of the house. This is an alternative to buying a house super discounted and then just doing a regular rehab. There is the potential to earn more of a profit, even if I can’t acquire the property as cheap as I want.
I’ve been asked the question: Don’t people want garages? Does converting it decrease your pool of potential buyers? My answer: It depends on the neighborhood.
You have to find an area where the living square footage is more valuable to homeowners than the garage or even a carport. If you can have a carport and convert the garage, it’s even better because at least they have some protection for the car. In a neighborhood like Oak Forest in Houston, the houses are all really small. They range from 700 square feet to around 1500 square feet. To get more living square footage, it definitely is better to convert the garage and just go without any protection for the car.
What to Include in Your Next Rehab
To find good contractors, I usually ask around and find someone who has used a contractor before, or can at least point me in the direction of someone who has used them. That way I can get some kind of idea of the kind of work that they produce.
You want to have a good color scheme, something neutral and appealing to the masses. You want to have nice flooring. It doesn’t necessarily have to be super expensive, but you definitely want something that is nice-looking and appealing.
Open spaces… Try to make areas seem open by opening up a kitchen wall into a living room. A lot of times you can do that without moving any structural beams. You can even cut a window out in a wall to make an area seem more open.
Also, invest in updated appliances. If you’re flipping, stainless steel is definitely attractive. And it doesn’t cost much more than putting in the black or white appliances. If you spend a couple hundred dollars more and get nice stainless steel appliances, that’s definitely a plus.
It is worth investing in nice tile in the wet areas like the kitchen and bath, something neutral. You don’t want something too specific to your tastes because then you’re going to eliminate some of your buying pool.
In terms of the fixtures, I like to go with brushed nickel. It looks a little bit better than the stainless stuff, and it’s not much more expensive. It improves the look of the house.
Pay Attention to the Exterior and Interior
It’s important to spend a little bit of money on the outside of the house. Don’t forget curb appeal. I’ve seen a lot of people spend money on a beautiful rehab on the interior of the house, but then they can’t get anybody inside to look at it because the outside of the house is horrible.
I like to have the exterior of the house very open and clean. If there are bushes in front of the house that block windows or even just the view of the house, I will trim them. I try to have it as clear as possible in the front yard, and maybe just a small flowerbed that goes across the front of the house and a few little bushes. Really clean and simple, that’s what I like.
The kitchen and bath are the selling points. But there are other options too… Turning a garage into the fourth bedroom and second bathroom will cost about $15,000. To put in $15K and knock your value up about $80K, that’s astronomical. That’s why I like doing those type of rehabs. You know what I did with my garage? I filled it up with stuff. That’s what everybody does.
Biggest Mistake I Made…
The biggest mistake I made was not being educated enough when the first market crash came…not the first crash, but my first market crash, which was in ’07. I had five rehabs going on at the same time, and if I would’ve known better then and been more educated, I would have refinanced out of those rehab loans that I had with banks.
I did the loans with banks, and I put my own cash into the rehab. I should have refinanced out of my bank loan with private lenders so that I would have been able to hold the properties through the down market and then sell them when the market turned around.
I got a little nervous because I saw the market just stalling, and I liquidated all of my properties. At the end of the day, I had about $168,000 of my own cash in the rehab, and I only got back about $68,000. I lost about $100,000 in seven months when that market crash came.
Preparing for Future Market Changes
I make sure that I buy at a really deep discount and that I can sustain holding those properties through a down market.
If I get into any rehabs, I’m just very cautious about it. I make sure that the neighborhood is definitely a value of the property…a neighborhood that will hold its value. Some neighborhoods hold their value better during the downturns, like the Oak Forest, Westbury or Meyerland areas in Houston. They tend to hold a little bit better as long as you’re not in the flood zone. I probably wouldn’t do a big rehab in a suburb area just because I am worried about a downturn in the market. When you are deciding whether a property is a good deal, always consider what will happen to this property in a market downturn.
Other Profit Maximizers
While there are some standard things most investors do on every flip, everyone has their own unique tips and tricks for maximizing profits on a flip.
What do you do to maximize your profits while house flipping? Leave your comments below!
And stay tuned for more tips from investors on profit maximizers.