How much should I spend on renovations on average?
Member since 2023 · 63 posts · 43 votes
How much should I spend on renovations on average?
Most Popular Reply
Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes
2yQuote from @Joseph Fenner:
Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.
Good question. I don't have a 100% bulletproof answer for you because these numbers are subjective and vary based on factors, like; Location, Market, Investment Strategy, etc... I can give you a general response with some starting points to consider.
These are some general guidelines and strategies you can consider to help make informed decisions:
- Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
- After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home's ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
- Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
- The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
- Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.
Best of luck with your investments!
KC
19 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes2y
It depends. You want to base rehab on comps and the end goal. A flip will be nicer than a BRRR. Either one you want to base it on comps. There is no general percentage or base rule. Once you have the rehab you run #'s to see if the deal makes sense
- Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes2yJoseph,
Quote from @Joseph Fenner:
Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.
Good question. I don't have a 100% bulletproof answer for you because these numbers are subjective and vary based on factors, like; Location, Market, Investment Strategy, etc... I can give you a general response with some starting points to consider.
These are some general guidelines and strategies you can consider to help make informed decisions:- Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
- After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home's ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
- Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
- The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
- Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.
Best of luck with your investments!
KC - Member since 2023 · 63 posts · 43 votes2y
Quote from @KC Pake:
Joseph,Quote from @Joseph Fenner:
Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.
Good question. I don't have a 100% bulletproof answer for you because these numbers are subjective and vary based on factors, like; Location, Market, Investment Strategy, etc... I can give you a general response with some starting points to consider.
These are some general guidelines and strategies you can consider to help make informed decisions:- Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
- After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home's ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
- Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
- The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
- Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.
Best of luck with your investments!
KCHow do I accurately determine the ARV? Besides looking at home and rental prices and location what else could I factor in?
- Member since 2023 · 63 posts · 43 votes2y
Quote from @Caleb Brown:
It depends. You want to base rehab on comps and the end goal. A flip will be nicer than a BRRR. Either one you want to base it on comps. There is no general percentage or base rule. Once you have the rehab you run #'s to see if the deal makes sense
Can you give me a step-by-step real life example?
- Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes2yJoseph,
Quote from @Joseph Fenner:
Quote from @KC Pake:
Joseph,Quote from @Joseph Fenner:
Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.
Good question. I don't have a 100% bulletproof answer for you because these numbers are subjective and vary based on factors, like; Location, Market, Investment Strategy, etc... I can give you a general response with some starting points to consider.
These are some general guidelines and strategies you can consider to help make informed decisions:- Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
- After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home's ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
- Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
- The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
- Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.
Best of luck with your investments!
KCHow do I accurately determine the ARV? Besides looking at home and rental prices and location what else could I factor in?
Below is a link to some free resources (calculators) from BiggerPockets. This should help you map things out, step-by-step.
https://www.biggerpockets.com/investment-calculators
R/
KC - Member since 2023 · 63 posts · 43 votes2y
Quote from @KC Pake:
Joseph,Quote from @Joseph Fenner:
Quote from @KC Pake:
Joseph,Quote from @Joseph Fenner:
Title says it all. Since I am starting out, I am just curious about how much you guys spend on renovations or if there is a rule of thumb? I want to calculate it as a percentage of the purchase price that I can apply to different properties with different situations. This will help me so I don't spend too much on renovations.
Good question. I don't have a 100% bulletproof answer for you because these numbers are subjective and vary based on factors, like; Location, Market, Investment Strategy, etc... I can give you a general response with some starting points to consider.
These are some general guidelines and strategies you can consider to help make informed decisions:- Percentage of Purchase Price: A common rule of thumb is to limit your renovation budget to a certain percentage of the property's purchase price. While this percentage can vary, a common range is 20% to 30% for a flip and 10% to 15% for a rental property. However, this is very dependent on the specific circumstances of the property and the market.
- After Repair Value (ARV): For flips, investors often use the ARV to guide their renovation budget. The formula is to buy a property so that the purchase price plus renovation costs do not exceed 70% of the ARV. This means if a home's ARV is $100,000, you would aim to keep your all-in costs (purchase plus renovation) under $70,000.
- Fixed Budget Strategy: Some investors set a fixed budget based on the scope of work needed. This involves getting detailed estimates for all renovation work planned and adding a contingency budget (usually 10-20% extra) for unforeseen expenses.
- The Minimalist Approach for Rentals: If your strategy involves renting out the property, focusing on essential repairs and cosmetic updates can maximize ROI. Prioritizing renovations that increase rental value or reduce long-term maintenance costs is key.
- Market Research: Understanding your market is crucial. Spending too much on renovations in a neighborhood that doesn’t support the increased value can lead to losses. Research local market trends, understand what features are in demand, and tailor your renovations to meet those demands without overcapitalizing.
Best of luck with your investments!
KCHow do I accurately determine the ARV? Besides looking at home and rental prices and location what else could I factor in?
Below is a link to some free resources (calculators) from BiggerPockets. This should help you map things out, step-by-step.
https://www.biggerpockets.com/investment-calculators
R/
KCThank you for this information, What is the difference between the BRRRR and rental property calculator I assume its the same minus the renovations?
Also do you follow any checklists or anything when investing in BRRRR properties so things are more structured?
- Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes2y
Joseph,
Good questions. Below are some links to keep you going. You can also use the website search function at the top of each page.
BiggerPockets.com has thousands of posts and resources that will help answer all of your questions about getting started and guides to help you along.BRRRR Checklist below:
There are also countless resources in this repository:
https://www.biggerpockets.com/files/search?utf8=%E2%9C%93&am...
Best,
KC - Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
If you are just starting out, I HIGHLY suggest only buying something turnkey. I see too many new investors get way over their heads trying to figure out rehab in addition to learning how to manage it as a rental.
- 2yJake BakerBusiness MemberFlipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes
Here is a good rule of thumb that I use for my market in Jacksonville FL:
Light Cosmetic ($40-$50 x Sq. Ft)
Medium Cosmetic ($45-$55 x Sq. Ft)
Heavy Cosmetic ($55-$65 x Sq. Ft)
Studs Down ($80-90 x Sq. Ft)
Luxury ($150-200 x Sq. Ft)
BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses58 Reviews - 2yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Joseph Fenner Here’s a little real life example. I know it’s an apartment and not a house but I’d consider it a medium renovation.
It’s costing us around $3200 for about 600sq ft give or take a little bit so just over $50/sq ft. I pay my contractor a flat monthly fee to work on whatever project needs to be worked on at whatever building of mine needs work so it’s hard for me to break this apart labor wise.
We’re replacing all of the existing vinyl flooring and carpeting with LVP. The entire dropped ceiling is being replaced with new tiles and the metal brackets holding the ceiling are being painted white instead of the off white they currently are.
All of the lighting is being replaced. The bathroom is getting partial new tile above the tub (I’m not sure how that will turn out looking but my contractor swears it is going to look fine. 90% of the original tile is fine the other 10% was moldy beyond being cleanable). New bathroom sink, vanity and mirror.
The kitchen is getting a newer full sized stove that is being recycled from a different building previously there was an apartment sized stove there. The refrigerator was replaced new two months ago.
New heat sensor smoke detector because the old one went off any time the stove was used.
New paint job.
Expected total time to completion 4 weeks of 1 worker part time and about 4 hours of electrician.
- 2yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
There is no rule or guideline as it completely depends on the condition of the home, the area and the types of finishes you do. I've bought places that needed almost nothing done (eg caulk the tubs) to entirely new bathrooms and kitchens. You need to look at what the sales price is of the home, cost of renos and after reno value to decide if it is worth it. also factor in how long it will take to do the renos.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
There is no rule of thumb
Properties need what they need
- 2yMike PaolucciBusiness MemberRealtor · Columbus Cleveland Dayton, OH · Member since 2022 · 499 posts · 553 votes
I wouldn't recommend buying a flip or BRRRR for your first deal. You want to limit your risk as much as possible for your first deal or two before diving into heavy projects.
Turnkey single family home that is positive cashflow from day one will be the best way to learn about being a landlord. Get your code 4 (investor focused agent, lender, local property manager, contractor). A good property manager will help with the contractors and make sure you don't get taken advantage of.
Reafco - Mike Paolucci 512 Reviews - 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
There's no perfect process for this. You need to learn reno costs and then apply as needed to each property.
Logical Property Management4.9454 Reviews - Member since 2023 · 158 posts · 96 votes2y
Quote from @Mike Paolucci:
I wouldn't recommend buying a flip or BRRRR for your first deal. You want to limit your risk as much as possible for your first deal or two before diving into heavy projects.
Turnkey single family home that is positive cashflow from day one will be the best way to learn about being a landlord. Get your code 4 (investor focused agent, lender, local property manager, contractor). A good property manager will help with the contractors and make sure you don't get taken advantage of.
I completely agree with this. A specific niche that people don't look into is renting to traveling nurses. They keep the place clean, never miss the rent payment and there are always available renters near a major hospital. You will learn everything you need to from this single-property. An excellent property manager with years of experience is key-they most likely can supply you with a contractor.
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
Quote from @John McDonald:
Quote from @Mike Paolucci:
I wouldn't recommend buying a flip or BRRRR for your first deal. You want to limit your risk as much as possible for your first deal or two before diving into heavy projects.
Turnkey single family home that is positive cashflow from day one will be the best way to learn about being a landlord. Get your code 4 (investor focused agent, lender, local property manager, contractor). A good property manager will help with the contractors and make sure you don't get taken advantage of.
I completely agree with this. A specific niche that people don't look into is renting to traveling nurses. They keep the place clean, never miss the rent payment and there are always available renters near a major hospital. You will learn everything you need to from this single-property. An excellent property manager with years of experience is key-they most likely can supply you with a contractor.
I rented to traveling nurses during the pandemic, the $ was not as important to me as was helping the community hospital. They were messy, dramatic and took an immense amount of work. It was like having teenagers again lol.
I do believe though that a properly managed MTR template can be profitable, just not in my house lol.
- Real Estate Agent · Central Florida, Orlando and surrounding · Member since 2021 · 9 posts · 6 votes2y
It depends on your strategy. What is your exit plan? If you plant to flip what is the return you are looking for? If you are doing a BRRRR you need to make sure you have built enough equity that it covers your refinance which can be difficult in this current market. Whether it's a percentage or a dollar amount, knowing your exit strategy will determine how much to put into a property.
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
Quote from @Ginny Adkins:
It depends on your strategy. What is your exit plan? If you plant to flip what is the return you are looking for? If you are doing a BRRRR you need to make sure you have built enough equity that it covers your refinance which can be difficult in this current market. Whether it's a percentage or a dollar amount, knowing your exit strategy will determine how much to put into a property.
From what I have seen on the lending side, many BRRRRs are being done with rate-term refinances instead of cash-out refinances. They keep some equity in the deal, but it is still a small amount if you use a hard money loan for the rehab.
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