I listened to BP podcast 217 on the 80/20 principle with regard to RE, and am also familiar with how this principle applies in a number of areas outside of RE and business. The general principle is that 80% of profits come from 20% of your actions (e.g. time and money spent). How do you see this applying to flipping RE?
I’ve seen a number of people post photos on BP of beautiful, highly detailed renovations they have done on flips. The 80/20 principle says that only 20% of the work done created 80% of the profit. There is no question that spending less time and money on renovations will lead to a lower sales price, but the idea is that you can spend 80% less and only decrease your profit by 20%. Do you find this to be the case, and if so, how do you apply this principle to flipping?
I have done a few flips and generally try to keep my renovations to basic things that I think will bring the most return, but am wondering how others may apply the 80/20 principle to flipping.
My flips usually cost between 20 and 30k no matter the cost of the property and it brings the value up to the top of the market. For a buy and hold I would go less because of the wear and tear of rentals but still make it nice to get a higher rent and hopefully better quality of tenants. Just my 2 cents.
I always start with the unsexy stuff that can bite you in the butt when the inspectors and appraisers show up. Upgraded electrical and plumbing, water heaters and furnaces, roofs, etc. Then I put on the lipstick that the buyers want to see. You don't want a surprise $6000 roof bill after you've finished rehab and spent the budgeted money - only to have lenders balking. And yeah - I've always spent $20K-$60K. But I don't do any "free" work myself - that's all paid to others.
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