The Truth Behind Fixing Houses
Right now, everyone wants to be Joanna Gaines. People dress up like her and Chip for Halloween even. There is no doubt that the houses she designs and decorates are beautiful, and because of this, HGTV has enticed young people around the US to buy their own “fixer upper.” As I watch my friends or first time home buyers talk about how bad one of them wants a house that needs “work”, I cringe. If only they knew what they were getting themselves into. There are a lot of wonderful things about flipping properties or renovating houses, but I’d like to share the raw truth about home renovations. I hope you take all of my advice or at least learn from our experiences.
FLIPPING HOUSES IS NOT A SHORT PROCESS
Even if you hire everything out on the house (which isn’t cheap), you still have to wait on contractors to finish before other people can start. You will never imagine that it will take as long as it does. Factor in an additional 2-3 weeks of work when deciding on your timeline.JOANNA GAINES ONLY DECORATES THE HOUSES
I was always amazed at what she chose to wear while working on the houses until I realized that she doesn’t do any of the manual labor. She only decorates the houses at the end of each show once all of the big projects are finished. You will be sweaty, stinky, and paint covered through the ENTIRE project, so don’t expect to look nice everyday. No part of this line of work is glamorous.FINDING QUALITY CONTRACTORS IS THE HARDEST PART
Quality contractors are so hard to come by, and the best are EXPENSIVE! If you have to pay for a project to get finished because you can’t do it, choose a contractor wisely. Here is a list of things to think about with contractors.BUDGET, BUDGET, BUDGET
When you are looking for properties to buy, write every little thing down that you will need to fix. I will still bet that you will forget things, but don’t put ambiguous items on your budget like “fix sliding door.” Itemized out all of the items that need fixed on that door and the labor involved. You’ll start to see that it’s going to be more expensive than you originally thought.FLIPPING HOUSES TYPICALLY ISN’T THAT PROFITABLE
The profit is always based off of the value of the house. If you’re working with $500k - $1M properties then your profits are going to be way more than when flipping a $200k house. Even if the margins are the same, you make way more with a more expensive house. If you get a great deal on a house, that’s wonderful, but make sure you factor in all of the costs, and time. You can view my list of expenses here.The reason we are able to make money off of this last remodel is because we have other rental properties and can take more tax deductions off of the income with the expenses from this house. We are also planning on renting it out to make more money until we sell.
REMEMBER TAXES
If you flip a house in less than 1 year and sell it, you will have to pay short term capital gains taxes which are more expensive than normal income. If you keep the house for more than a year, then you will only have to pay long term capital gains tax. Talk to your accountant before you dive into the purchase. Taxes take a huge chunk of your profits, so make sure there is room for them before buying.DON’T DEPEND ON RISING HOME VALUES
Our parents were able to buy cheap houses and watch their property values go up over the years. Property values are certainly still on the rise, but we all remember 2008. Things happen and property values are not guaranteed to go up year after year. When factoring in your profit, don’t account for any inflation in your property value other than because of your renovations.UNDERSTAND THAT YOU MAKE THE MOST MONEY BY DOING THE WORK
Most of the value that will be put into the house is from the labor. When you do all of the work yourself, you end up making so much more than hiring it out. If you aren’t prepared to get your hands dirty and learn how to tile, do drywall, put in fixtures, and sweat, then house flipping shouldn’t be for you. YouTube will become your best friend. You can learn everything there.WORK CLOSELY WITH A REALTOR
Understand the comps around the property before you buy. Don’t go off of the Zillow Zestimate or what you think the house is worth. Get real facts from the nearby homes that just sold. Also, ask your realtor what is actually required of a house in that neighborhood. I have very high standards for my homes that I live in but most people don’t. They don’t care if the ceilings have popcorn or are flat. A realtor will be able to tell you what needs done versus what you may want to do. It’ll save you lots of time and money if you stick to what they say. Don’t overspend and have the nicest house in a mediocre neighborhood.KITCHENS AND BATHROOMS REALLY DO SELL HOUSES
You’ve probably heard the phrase that kitchens and bathrooms sell houses, especially to women. I’ve learned that is 100% accurate. On the newest house we are renovating, We didn’t put in new trim or make every wall perfect, but we did put in new cabinets and granite countertops. Every person that walked in the door looked past the small dents and dings because they saw the beautiful kitchen.