How To Estimate Renovation Costs
Harrisonburg REI September Meeting
Last week, Harrisonburg Real Estate Investor Network hosted a virtual meeting to review all the ins and outs of renovating a flip. Chase Louderback discussed some strategies to help estimate costs, mitigate risks, and how to look for potential “deal killers.” If you didn't get a chance to join the meeting, check out the video below!
What is the Harrisonburg Real Estate Investor Network?
The Harrisonburg Real Estate Investors network is a group of experienced investors, agents, lenders, attorneys, insurance brokers, contractors, and real estate newbies looking to grow their business. They focus on real estate investing ranging from residential to multifamily investments and active to passive real estate investing. Their goal is to establish a community of real estate professionals, both amateur and experienced, that creates the network and environment to grow everyone’s business. Check out their Facebook page or join their Meetup group to get more information about upcoming meetings!
Fixing Up A House
Whether you are renovating a home to prepare it for sale or just want to improve it, renovations can be expensive so it’s important to find a contractor you trust and ensure your upgrades add value to your house. Renovating a home can seem overwhelming at first, especially if you have several ideas or projects you want to accomplish. If you have any issues with the basics- your roof, HVAC system, plumbing, or flooring and walls- they will be your first priority. If everything is in good working condition, you may decide to focus on the kitchen or bathrooms which typically have a high return on investment. So once you’ve decided on your project, what should you do next?
1. Set a Budget
Your budget may look different if you are improving upon your dream home versus if you plan to sell your home in a few years. Not all upgrades will pay for themselves when it comes to selling a home. However, if you are improving on a home you plan to live in for several years to come, it may make sense to splurge on amenities that you would want regardless of resale value. A big part of the budget is deciding on materials. In most cases, you want to balance your splurges with economic substitutions. You may decide on an upscale laminate over true hardwood floors or choose a cost-effective neutral tile in the bathroom paired with a top-of-the-line tile for an accent strip. After getting some estimates, you may find that you do not have enough saved. It’s a good idea to review loan options and talk with your mortgage lender.
2. Devise a Plan
Get together all the information about your project including everything you want done and desired materials. You may decide to create your own plan or you might meet with a pro, like an architect or interior designer. It’s a good idea to establish early on how involved you want them to be in the process since hiring an architect for the full job (assembling a team of contractors, overseeing construction, designing every aspect of your renovation) could be costly.
3. Create a List of Candidates
Your realtor, friends and family, and social media platforms can be a good springboard for you to start a list of people/ businesses you may want to use for your renovations. You can find more candidates through an online search as well. Then you will want to narrow down the list by looking at reviews carefully.
4. Interview the Best Candidates
Now you can verify with each candidate that they are licensed and insured as well as inquire about their past work with renovations similar to yours. You can request references and then make sure they check out. Next, you should set up in-person interviews. This ensures you will work well with your contractor and they get a chance to see the property/ area you want renovated. This will help them give you an accurate estimate; you may even decide you want to pay for a “hard estimate” at this time to be sure you will stay within budget (which can be particularly important if you plan to sell soon and want the best return on investment).
5. Select a General Contractor
Now you are ready to hire your General Contractor (or plumber, painter, designer, etc). You want to be present but avoid micromanaging since that can slow down the renovations and add unnecessary tension. Since you’ve been thorough in your selection process, you can be confident in your team to produce high quality work. That said, it’s always a good idea to let your GC know how to get in touch with you when you aren’t home if they need a decision on purchase or design. Your freshly upgraded home is now ready to be enjoyed, or perhaps, sold!
Flipping Real Estate: An Overview
4. If you'll need a mortgage, time is of the essence: the first month of home ownership is free because you pay a mortgage in arrears. After that, every month that you own the property you will be making a mortgage payment.
5. List the house at market value because this will help ensure a quick sale.
Living Close To Downtown
There has been a lot of talk of the subdivision Newtown. Since downtown Harrisonburg has become a lot more popular, affordable housing in proximity is more in demand.
Lets explore some statistics:
Newtown Sales are Increasing
From this data, we can see that overall, the number o f house sales have risen. We'll want to keep an eye on sales in the next few years to determine if 2013 and 2014 were abnormal years or the start of a new trend.
It's very important to keep in mind that Newtown isn't a very large neighborhood. Furthermore, the number of sales we are seeing don't create a very large sample size. With a smaller sample size, the data can seem more dramatic. For example, if I were to tell you that there were 5 more sales in 2014 than 2015, it wouldn't seem that substantial.
Netown Sales Prices Trending Downward?
According to this data, it appears that the price of housing has trended downward. You may be wondering how this makes sense since I originally said that Newtown seems to be on the rise.
To answer this, there are two main factors at play. First of all, we are looking at median sales data. With a small sample size we may not get the best pulse of the market due to the second factor: people are buying cheap houses to renovate.
That brings me to the biggest point, having a lot of renovation in your area is an excellent indicator that the neighborhood is on the rise. From going through the neighborhood on a regular basis for the past few years, I have noticed that there are usually around 4 houses being renovated at a given time.
In conclusion, I would predict that we will continue to see cheaper houses being renovated for some time to come. We will need to continue to keep an eye on the statistics but also a feel for the neighborhood.