One of the biggest dilemmas facing investors when fixing and flipping houses is whether they should splurge on replacing big ticket items. So what’s the deal?
A lot of investors, especially in this type of market, are accustomed to swooping in, throwing on a coat of new paint, cutting the grass, and perhaps if they are feeling really generous, replacing the flooring and maybe recovering kitchen cabinets and counter tops. But what happens when investors run into properties with more serious and expensive repair issues?
Some properties may require the replacement of old fixtures with big ticket items. Others may just need an obscene amount of repairs before they are considered appropriate to sell.
There can be a lot of rewards that come with investing in properties others are afraid to touch, but they can come with some equally large repair bills and decisions. So when it comes to items like roofs, A/C, pool heating systems, foundations and remedying illegal work; should you fix, replace, or just leave it for the next owner?
One major consideration is who the intended end buyer is. Do they prefer cheap or financed, or will they rip the place apart and redo everything anyway? Will they be applying for financing which could rely on those items being fixed first? Knowing your buyer when flipping houses will make these decisions easier.
Some home improvements will take years to repay themselves or be covered by rising equity, others can deliver immediate equity. We aren’t talking about perceived value or what a cash buyer might be willing to pay under the right circumstances, but real appraised value that can be cashed in on.
Finally, how can you afford it? If you don’t have the cash on hand or don’t want to reduce liquidity, what other options are available? Can you finance them separately after acquisition using vendor financing, store cards for materials, rehab lenders, crowdfunding or tap local government programs?