Current trends --- what sells, what doesn't

9 Replies

I am just now starting work on my first rehab. I'm finding out that there are some difficult decisions to make. If this was a complete burn-out and I had to replace EVERYTHING then it wouldn't be such a hard decision to go with $3,500 cabinets or $10,000 cabinets. Obviously, I would base that on the level of property and put in really cheap cabinets in a run down part of town with $75,000 houses and put in really nice custom cabinets on a $800,000 house in a ritzy part of town. That's a pretty easy decision to make.

What I'm finding difficult is trying to decide if what I have is good enough to pass muster or if it needs to be replaced, altogether. The difference can easily be the difference of thousands if not tens of thousands.

For example:

Are my cabinets good enough? Could they be painted for a few hundred or do I need to replace them. - $800 vs. $4,500

Do I keep the existing tile in the kitchen, which isn't very nice, but isn't very bad either? Maybe I could just steam clean the tile and grout. $200 vs. $1,500.

I know the carpet needs to be replaced but is nylon good enough with a nice 8 lb. pad or do I need to go polyester? Which rooms should be carpeted and which ones wood or tile? $5,000 - $10,000.

These are just examples but hopefully you get my meaning. It would be nice to know the minimum necessary to sell a property. What are the current trends in flooring, counter tops, cabinets paint colors, lighting, landscaping, etc. What sells the property quick and what upgrades are a waste of money? Maybe we should have a full forum category just for this topic?

In general, I replace everything, unless it's practically brand new.  When a buyer walks into a house and 80% of the finishes are new, the focus is going to be on the 20% of finishes that aren't new -- and at that point, the value of the 80% new stuff will go out the window.

So, if you're going to replace more than 50% of the finishes in a house, just replace everything.

Now, as to whether to go low-end or high-end, my experience is that high-end is RARELY warranted.  I use the same cabinets in my $500K houses as I do in my $100K houses.  In fact, I used similar cabinets in my $700K personal residence that I recently built.  If it's good enough for my wife, it's good enough for my buyers.  

Now, if you're doing truly custom homes at the very high end, that's different.  But, for the most part, finishes won't change much from the low- to the mid-level houses -- at least not the way I do things (others may disagree).

Certain materials are timeless - non-busy granite countertops; white kitchen cabinets; subway tile (white or close); hardwood floors. If you have non-damaged timeless materials, IMO you do not replace these unless necessary - i.e. a complete room layout change in a kitchen, removing walls, etc. Always aim for surfaces and colors that feel clean, non-busy, and low/no maintenance. So in your above example, I might keep the tile and just clean or re-grout if the tile already fit this example. I would not paint cabinets unless you have them done professionally, and unless you are really good with taping and spraying I can't see you respraying an entire kitchen for $800 including doors (unless it's just 4 or 5 total cabinets!). 

As for flooring, *personally* I would not put carpet in a flip, but if I did it would be in secondary bedrooms only. Master and all other floors would have (preferably) hardwood, or laminate. 

I mostly agree with @J Scott - I don't think there is a big payoff on using very high end materials, regardless of price point of the house. If you are going to put any "bling" in the house, make sure it is something that is easily replaced when the buyer makes that a condition of the sale, like a light fixture or similar. 

I agree with J, most of the time I try to keep something I either regret it or end-up replacing it. Bite the bullet and budget to replace it upfront, most of the time that's your solution.

You need to decide what kind of rehabber you want to be. Are you the guy who's going to save every dollar, do the minimal rehab or the opposite? There's not necessarily a wrong way. The minimalist rehabber spends less money on rehabs, which exposes him to less risk in theory but must understand he will then likely sell less for less than the guy who takes the larger rehab and goes for the higher price. Those are some broad assumptions and generalizations there and can be argued to death both ways but I hope it helps get the point across. Determine what your style is and then those questions are more easily answered.

I hear what you're all saying but I have to disagree with you. You say you replace EVERYTHING. What exactly does that mean? Do you always take the house down to the studs? Do you always replace the electrical, plumbing, and HVAC? What about the roof and the siding, the windows, the fence, the driveway? It's not practical to say "I replace everything" because it is cost prohibitive. Your job as a rehabber is to get the job done, spend what you must spend, but not spend any more than that. Any money you spend that wasn't necessary is taking from your profits.

But that's the hard part, figuring out what you must spend. I mentioned cabinets in my example and maybe you're just referring to those. This house is only 10 years old. Does it really make sense to replace the cabinets if they're in good shape? Does painting or restaining make more sense than a full cabinet replacement?

And if I go in with the mantra that I'm going to replace everything, then doesn't that affect my ability to make offers? If I tell a seller that I will only offer them $60K because I plan on replacing everything but another buyer offers them $125K because he is planning on leaving a good portion of the house in tact, doesn't that mean I will rarely, if ever, get the opportunity to buy a house?

That's the whole point of this post. What are the things that I MUST replace, and where can I save money? What are the things that will definitely help sell the house, i.e. cabinets and counter tops, and what are the things that won't make the slightest difference? Meaning, I can spend money replacing them but buyers won't give me any more or any less, nor will it affect how quickly the house sells. For example, is it really necessary to clean the ducts, sweep the chimney, add insulation, repaint the house numbers on the curb, etc.? And for the things I must replace, what should I replace them with? I can spend $45K on custom cabinets if I really wanted to but is custom the way to go?

Hard wood floors can range from $1.59 to $12.00 / sq. ft. I can put in real wood, bamboo, engineered, or laminate. I can glue them, staple them, or float them. There are thin planks, wide planks, and random planks. They come in dozens of different colors. I don't want to be cheap and get the cheapest thing I can find and at the same time, I don't want to buy the most expensive thing I can find. I want to put in the right material but not spend any more than I have to. But what is the right material? What will sell the house, what will be detrimental to my returns, and what doesn't make a difference.

Hopefully I'm making sense and someone can start giving advice on what today's trends are.

Originally posted by @Kevin Barnett :

I hear what you're all saying but I have to disagree with you. You say you replace EVERYTHING. What exactly does that mean?

Yes, I did say that...and I completely misspoke...sorry about that...

As I alluded to in the follow-on sentences, I tend to replace all FINISHES...

That typically includes:

- New Paint

- New Electrical Fixtures

- New Plumbing Fixtures

- New Cabinets/Vanities

- New Countertops

- New Flooring

- New Appliances

- New Doorknobs, Smoke Detectors, Mirrors, etc.

When necessary, it also includes:

- New Doors

- New Windows

Sorry for the confusion...

Originally posted by @Kevin Barnett :
But that's the hard part, figuring out what you must spend. I mentioned cabinets in my example and maybe you're just referring to those. This house is only 10 years old. Does it really make sense to replace the cabinets if they're in good shape? Does painting or restaining make more sense than a full cabinet replacement?


As I mentioned above, if the finishes (including the cabinets) don't look practically brand new, I'll replace them. If I replace everything else, but leave the cabinets, the buyers will fixate on the cabinets and the $3-4K I saved by not replacing them will go out the window.


Of course, you can certainly choose to not replace the cabinets. The questions you'll need to ask yourself are: 1. Will it affect the ARV? 2. Will it affect the DOM? 3. Will the ultimate impact to the ARV and DOM offset the money I'm saving? There's no right or wrong answer there...ever project will be unique.

When I ask myself these questions, the answers typically lead to, "Replace the cabinets."  But, that doesn't mean it will in your case.  I'm just telling you what has been my experience, with my houses, in my areas, my price range, my buyers, my material/labor costs, etc.

Again, every project is unique...

And if I go in with the mantra that I'm going to replace everything, then doesn't that affect my ability to make offers? If I tell a seller that I will only offer them $60K because I plan on replacing everything but another buyer offers them $125K because he is planning on leaving a good portion of the house in tact, doesn't that mean I will rarely, if ever, get the opportunity to buy a house?

Buying houses isn't the goal.  Buying profitable houses is the goal. 

Do the math. If you evaluate the ARV and DOM and determine that you can not do a lot of upgrades and still sell for your desired profit, go for it! In my experience, I can't generally do that. If I don't replace everything, there's a negative impact on my ARV and DOM to the point where the deal generally isn't profitable (or worth the headache)

But again, that's just me. I like having my DOM less than 12 days (average over 150+ projects) and I like my ARV to be at market, not below. This makes for the easiest sale transactions, in my experience (not a lot of inspection requests or appraisal issues).

Perhaps your approach is different, and as long as the numbers work, that's just fine.

Originally posted by @Kevin Barnett :
That's the whole point of this post. What are the things that I MUST replace, and where can I save money? What are the things that will definitely help sell the house, i.e. cabinets and counter tops, and what are the things that won't make the slightest difference? 

I'm not sure I hit the key point that I have been trying to make in my previous two responses...but let me address this question of yours...

You seem to think that there is a right and wrong answer to the question of, "What rehab should I do on a house?" 

There's not.

What there is is about a hundred different reasonable scenarios for EVERY house that will result in about a hundred different outcomes.  For any given house, some of those scenarios may be profitable, some may be breakeven and some may result in losses.  For another house, different scenarios may be profitable, different scenarios may be breakeven and different scenarios may result in losses.  Replacing the cabinets in one house may result in a larger gain while not replacing the cabinets in another house may result in the larger gain. 

Every project is different and you need to evaluate pretty much every scenario for every house. In many case, you'll be able to rule out a large chunk of scenarios very quickly (for example, if the ARV is $100K and the replacement cost is $300K, you can pretty much rule out any major rehab being profitable). Once you rule out the scenarios that obviously won't make money, you then evaluate all the other scenarios one-by-one, using the different rehab costs and ARV for each scenario to determine the right now (or perhaps determine that there is NO right one...the deal may not be a good one under any scenario).

Typically, when I look at a house, I'll run the following scenarios:

1.  Tear down and rebuild

2.  Addition

3.  Gut rehab

4.  Replace all finishes

5.  Get into rent-ready shape

6.  Wholesale as-is

Within #2, 3, 4 and 5, there are LOTS of sub-scenarios as well...

For example, I might consider #4, but have the following scenarios (depending on the house):

4A.  Replace all finishes

4B.  Replace all finishes other than cabinets

4C.  Replace all finishes other than cabinets/countertops

4D.  Replace all finishes plus replace windows

4E.  Replace all finishes plus 3 windows, 2 doors and the garage door opener

.

.

.

I may end up with 25 scenarios to evaluate. Each would cost $X and each would yield $Y ARV. Plug the various X and Y into my formula, and I can determine which scenarios will yield the most profit.

Of course, you also have to consider the intangibles -- like time and headache.  

If doing a #3 (Gut Rehab) will yield a $60K profit and doing a #6 (Wholesale As-Is) will yield a $50K profit, I'll take the lower profit with having to do essentially no work.

Anyway, my point is, you need to look at your project(s) and evaluate each on its own merits.  Run all the reasonable scenarios for rehab and see how the numbers pan out.  For example, on the project you're asking about whether to replace the cabinets, here's are the questions:

How much would the cabinets cost to replace?

What is the ARV if you don't replace them? What is the ARV if you do replace them?

Run both scenarios and see which yields a better profit.  Then compare the profit different to the extra work/headache you'll put in (or perhaps the work/headache you'll save later by doing the extra work), and make a decision.

Does that make sense?

I agree totally with J Scott. As I am a part time investor, but I have been to literally thousands of rehabs, I find that people are scared off with cabinet expenses. It is truly amazing, how little one has to pay for cabinetry to make the kitchen look extremely attractive. Finding a good kitchen guy that specializes in rehabs, will help minimize the impact of the cabinet investment.

Just my 2 cents.

Ben

Great topic.

As others have said, it all depends on the house, the area, etc. Here is my crude calculus. First I look at the comps; not just on paper, I check them out and go inside if possible and determine the levels of quality and modernity for that neighborhood. From the comps I make a high ARV estimate. Whats the price ceiling in this neighborhood? Then I estimate what it would take to make a rehab meet that general level of quality in every way possible. Then I try to find ways to make the quality and modernity level exceed the comps in a few areas so it stands out from the crowd.

For example, one house in a "B/C-class" hood I managed to buy cheap because of the state of the kitchens and bathrooms offered several ways to stand out.  The comps generally had modest bathrooms and kitchens that were updated at different times over the life of the home, giving a mismatched style effect.  (Imagine a modern-looking 10 year old bathroom with a grandma kitchen, complete with the rooster motif)  Since the kitchens and bathrooms at my house were a complete gut-job from the start, this was a chance to show-up the other houses a bit.  We reframed the bathrooms with toilet partitions and provided fixtures just a tad above 'contractor grade'.  The MBA got a high tech looking shower tower that no comp had.  The kitchen got a pricey cabinet job to make it pop... at the expense of no granite countertop (gasp).  With a fancy faucet, it looked more modern than the comps, most of which didn't have granite either.  (the kitchens in the comps were mostly partial rehabs).

I accepted an offer in a week of listing, right at my projected ARV. ($135k) Took another two months to close, but that's another long story... I've never tried to break the ceiling of a neighborhood with a high price. (Can be done though, I'm just not that brave yet) Instead I put pressure on that ceiling in terms of value. This helps the house sell quick. Holding costs (including opportunity-cost) have been one of my biggest challenges.