Rehabs alone do not accomplish value.
Rehabs alone do not accomplish value.
Regarding rehabs, I've found that only some items add more value than they cost. The market discounts the price of the rehab. In my experience, for almost all items, whether it's a new roof, granite countertops, or flooring, the increase in the value of the home will be less than the money spent on the rehab. For example, if you buy new appliances for $3,000, the added value might only be $2,000. If you add new floors for $7,000, the added value might only be $5,000. These values change based on comparable sales in each neighborhood, and therefore it's hard to put a nationwide number on the amount you may lose by doing the rehab.
Discounts create profits. Rehabs cost money. In almost every case, profits are made because the property is purchased at a steeper discount than the cost needed to fix it up. You need to get a deal at the time of the purchase to make money on the flip.
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- Jorge Vazquez
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I completely agree that a rehab deal is made or lost at the buyer. That being said, I think this is a bad way to look at it. If you walked into a brand new kitchen, but someone had 1990s pink tile countertops, you wouldn't look at the kitchen as being rehabbed. It is really important to take a wholistic view of any rehab you are doing. Just because a single item alone does not add value, does not mean that it can be left undone or it is not going to make you money. Flippers are successful when they figure out how to just barely get over the line into the next "tier" and have consistent finishes where a house is not over or under done.