I’ve been appraising residential real estate for 34 years, and the mistake I see repeatedly is over improving on items typical buyers don't necessarily need but new investors think they might want. Every experienced F&F around here looks almost the exact same. Acres of gray LVP, inexpensive stone type counters and new cabinets throughout and stainless appliances is the starting point. And after reviewing over 700 budgets I see exactly how much they pay which is usually much cheaper than a new investor can get because these crews are kept busy. $40k is around the minimum up to $200k or more for bigger homes in this area.
The trap is spending another $30K, $50K or $100K on upgrades because you might think buyers will love them. Buyers may love them, but that doesn’t mean they’ll pay dollar for dollar for them or at all. The experienced flippers tend to know exactly where the market stops rewarding additional spending. Just look at the interior of homes in your area on Zillow that are flips and you'll start to see they all look the same.
I’ve been appraising residential real estate for 34 years, and the mistake I see repeatedly is over improving on items typical buyers don't necessarily need but new investors think they might want. Every experienced F&F around here looks almost the exact same. Acres of gray LVP, inexpensive stone type counters and new cabinets throughout and stainless appliances is the starting point. And after reviewing over 700 budgets I see exactly how much they pay which is usually much cheaper than a new investor can get because these crews are kept busy. $40k is around the minimum up to $200k or more for bigger homes in this area.
The trap is spending another $30K, $50K or $100K on upgrades because you might think buyers will love them. Buyers may love them, but that doesn’t mean they’ll pay dollar for dollar for them or at all. The experienced flippers tend to know exactly where the market stops rewarding additional spending. Just look at the interior of homes in your area on Zillow that are flips and you'll start to see they all look the same.
I’ve been appraising residential real estate for 34 years, and the mistake I see repeatedly is over improving on items typical buyers don't necessarily need but new investors think they might want. Every experienced F&F around here looks almost the exact same. Acres of gray LVP, inexpensive stone type counters and new cabinets throughout and stainless appliances is the starting point. And after reviewing over 700 budgets I see exactly how much they pay which is usually much cheaper than a new investor can get because these crews are kept busy. $40k is around the minimum up to $200k or more for bigger homes in this area.
The trap is spending another $30K, $50K or $100K on upgrades because you might think buyers will love them. Buyers may love them, but that doesn’t mean they’ll pay dollar for dollar for them or at all. The experienced flippers tend to know exactly where the market stops rewarding additional spending. Just look at the interior of homes in your area on Zillow that are flips and you'll start to see they all look the same.
That’s a great point, especially about the difference between making a property better and making it more valuable.
The part about experienced flippers knowing where the market stops rewarding additional spending really stood out to me. I can see how a new investor could look at a $50K upgrade and think, “This will definitely increase the value,” without considering whether the market will actually pay for it.
I also like your point about studying completed flips in the area. That seems like a much better way to understand what buyers are actually responding to instead of just going off personal preferences.
After 34 years in appraisal, I’m curious — when you see a new investor’s rehab budget, what’s usually the first thing that makes you think they’re over-improving?
On as-is/ARV appraisals I do I see what they paid and how much they are investing into the flip. A while ago I came to the realization that the investment usually returns about 2.5x in profit. This is not to be confused with buying the asset at a fire sale with an all cash offer which can be at a substantial discount compared to its as-is value the day I get it. Which is always the norm for my clients at least and that difference is when/why they buy. Usually, the price they pay is roughly 25% less the as-is value and that's what gets the investors attention, not the 2.5x they make (gross) on the improvement investment.
Do I know where these people get these deals? No. I'm still amazed there are any left around here but it's like printing money here because everything sells so fast. And I'd say about 80% of deals I see come through 1 lender the deal itself is flipped for $20k to $25k to another investor just to make a quick sale. I'd assume these are the ones sending out mailers and texts/robocalls everyone gets everyday here.
There’s a huge difference between the occasional TV-show-style flipper buying a project and the seasoned operator with a full acquisition team, millions in available capital and a serious marketing budget finding deals the rest of us never even hear about until I see the request hit my inbox.
Newer investors sometimes focus too much on how much money they can make from the renovation and not enough on how much equity they’re buying on day one
On as-is/ARV appraisals I do I see what they paid and how much they are investing into the flip. A while ago I came to the realization that the investment usually returns about 2.5x in profit. This is not to be confused with buying the asset at a fire sale with an all cash offer which can be at a substantial discount compared to its as-is value the day I get it. Which is always the norm for my clients at least and that difference is when/why they buy. Usually, the price they pay is roughly 25% less the as-is value and that's what gets the investors attention, not the 2.5x they make (gross) on the improvement investment.
Do I know where these people get these deals? No. I'm still amazed there are any left around here but it's like printing money here because everything sells so fast. And I'd say about 80% of deals I see come through 1 lender the deal itself is flipped for $20k to $25k to another investor just to make a quick sale. I'd assume these are the ones sending out mailers and texts/robocalls everyone gets everyday here.
There’s a huge difference between the occasional TV-show-style flipper buying a project and the seasoned operator with a full acquisition team, millions in available capital and a serious marketing budget finding deals the rest of us never even hear about until I see the request hit my inbox.
Newer investors sometimes focus too much on how much money they can make from the renovation and not enough on how much equity they’re buying on day one
Thanks for your insights once again sir, you have really educated me. And I don't know if you will be open to a connection?
Sure! it was a fun chat I've been on a few podcasts and had a lot of fun none of them have ever talked to an appraiser before this site is good place to share perspectives should be fun here too.
Sure! it was a fun chat I've been on a few podcasts and had a lot of fun none of them have ever talked to an appraiser before this site is good place to share perspectives should be fun here too.