Estimate Repair Costs According to Strategy

What is your investment strategy? Do you buy and hold properties for the long term? Or do you fix and flip for quick profits?

Whatever your strategy is, it’s important to evaluate repairs accordingly. If your plan is to fix and flip, you are going to be spending more on repairs because you need to attract the most buyers possible in order to achieve maximum profit. The only way your going to do this is by rehabbing the property into the most desirable home on the block. In order to do so, you’re going to have to add features and updates to the property that you wouldn’t have to do for a rental. This doesn’t mean you have to use the latest and greatest materials for your rehab, but you do have to update the house enough to match today’s standard of buyers. An updated kitchen and bathroom is almost a must since those are the primary selling features (both are very costly). Especially in the current real estate market. With depressed home values, a smaller pool of buyers, and a large inventory of homes for sale, you have to provide buyers with enough reason to pay top dollar for your rehab project. Not only that, but your project is going to have to appraise high enough to justify the selling price.

On the other hand, if your strategy is to buy and hold for the long term, your repair costs are going to be minimal. Let’s face it, tenants are not dumb. They know that paying rent doesn’t help them financially. They are just looking for a place to live for a while until they are able to purchase a home on their own. So it’s not important to them to have all the latest and greatest features of a home. They are more interested in the functionality of the home. You don’t need to update the kitchen and bathroom. As long as they are clean and functionable, then you are good to go. Besides, just because you drop 50k into fixing up the home, doesn’t mean you’re going to be able to ask for a higher rent. If rental rates are $1000 in your area, the chances of you getting anymore than that are highly unlikely. Besides, tenants have no vested interest in your property other than living there for a while. So if you expect them to take care of the property as well as you would, you are sadly mistaken. It doesn’t matter how nice you fixed up the place, tenants are going to trash it.

As an investor, establishing the amount of repairs is the most important factor when it comes to evaluating a deal. It is crucial to estimate repairs correctly, and according to your strategy. If not, you are wasting valuable time and energy.