Essential Skills Required for Successful House Renovation and Resale
Cranford & Associates Describes the Skills You Need to Develop to Successfully Rehabilitate and Sell Properties
Philadelphia, Pennsylvania - Buying a house, rehabbing it and reselling it immediately, i.e. flipping, is not a Real Estate investment strategy for the faint of heart. It requires a variety of skills, a significant financial investment and perseverance in the face of the many obstacles that present themselves. Unfortunately, many who watch the ‘flipping’ shows on TV think of it as an easy way to get rich and jump in without the proper preparation or advice. This is an almost certain guarantee of failure.
If you want to ‘flip’ successfully, you need to develop certain skills and surround yourself with top-notch professionals who can aid you in this pursuit. Cranford & Associates is a team of 6 Realtors, headed by Barbara Cranford, servicing the Philadelphia area and the Main Line, that have more than 55 years experience in residential Real Estate. Part of the Prudential, Fox & Roach brokerage, we have extensive experience in valuing and rehabbing properties and know many excellent contractors that will do the job right for a fair price. We can help you find and purchase ideal properties for investment, regardless of your investing strategy. And if you’re looking for a home to live in or need help selling your current home, we can help you with that as well.
Cranford & Associates Top 10 House Renovation and Resale Skills
Listed in order of importance.
- House Valuation
This is the single most important skill and the most difficult to acquire. You need to be able to value homes in poor condition and more importantly be able to determine what their value would be after renovation. The ARV or ‘after repaired value’, along with the cost of improvements, carrying costs, transaction costs, financing costs and profit are the key figures that enable you to determine what you would be willing to pay for a property.
When starting out, you should seek assistance from experienced Realtors and flippers and may want to have some appraisals of properties done to aid in your education. A good way to build your skill is to get on a Real Estate website such as Trulia.com that lists the prices of sold properties in neighborhoods you’re interested in. Compare the amenities and prices of various sold properties and try to develop a feel for what features create value. Then look at houses for sale in the neighborhood and try to predict what they will sell for. When these houses sell compare your prediction against the actual sale price. It’s also important to look at lots of properties in person and try to evaluate them. Reading a book such as The Appraisal of Real Estate will give you an idea of how professional appraisers value properties. To build each of the skills listed here you would be well advised to join your local Real Estate Investors Association (REIA) branch and attend meetings. You can find a local branch by visiting the national website, http://www.nationalreia.com
If you are investing in or near Philadelphia, Cranford & Associates can assist you in valuing potential investment properties.
- Estimation of Construction Costs
The second most important skill. Without it you cannot create an accurate budget for the home improvements that will be necessary for any flip. You can and should get contractors to help you but you still need to develop a working knowledge of the installed cost of flooring, sheetrock, kitchen cabinets, wiring, plumbing, decking, etc. One place to start is with books such as RSMeans Contractor’s Pricing Guide: Residential Repair & Remodeling 2013. There are also many software applications that can help with this task. Try this site: http://www.rehaboffercalculator.info or search forums on http://www.biggerpockets.com. Estimates from real contractors are also helpful.
- Financial skills
You don’t have to be a CPA but you must be able to assemble the relevant costs and projections that allow you to determine what you can pay for a property and still make a profit. Since it’s likely that you will be borrowing money, you need to understand the cost of financing. In order to keep an up-to-date record of costs you need proficiency in use of accounting (preferred) or spreadsheet software. You can find detailed treatment of the financial aspects of flipping in the books: Buy It, Fix It, Sell It Profit by Kevin Myers and Flip by Rick Villani and Clay Davis.
- Contractor Supervision
This is another absolutely essential skill for house renovators. If you don’t learn how to treat your contractors with respect and pay them on time while demanding that they do a high quality job and complete all agreed-to work then you will fail. An important rule of thumb is to always have a written contract that spells out what is to be done and payment terms. In general, you need to be tough but fair. This is especially difficult for beginners. You can consult the books referenced above and read posts on Real Estate investment forums such as http://biggerpockets.com for guidance in this matter.
- Understanding of your Strengths and Weaknesses
No individual or group is going to have all the skills listed here or the time and money to develop them. Again, you have limited resources in terms of your time and expertise and must make decisions on what you will do and what you will have others do. This is not unique to flipping houses but is a key to doing it successfully. Trying to do everything yourself will slow down the process and may have disastrous consequences for your business. Perhaps you have construction experience and feel at home pricing and running a renovation but feel less capable marketing and selling the home. This is another area where the professionals at Cranford & Associates can assist you.
The books on flipping listed above provide insight in this matter. It’s also good to speak to other investors and Realtors that work with investors. Online forums are a useful source of information as well.
- Picking the Right Improvements
What features are most desired by potential buyers? The large kitchen with granite counter top? The expansive deck with room to entertain and grill? Perhaps the master bedroom sanctuary with en suite bath? A related but equally important question is what improvements are appropriate for a particular home. The answer for a $250k home is different than for a $500k home. You don’t want to over-improve a home because the money you spend will not be returned when you sell. You can be guided in such matters by the advice of others experienced in the field and by home improvement trends, documented on sites such as http://realtormag.realtor.org or http://www.hgtv.com. Cranford & Associates can provide solid advice on these matters.
- Construction Skills
Experience in the construction trades is helpful for several reasons. For one, if you have plumbing, painting skills, etc. you can do actual work to complete the renovation. For another, your familiarity and knowledge of construction helps you to appraise the work done by contractors you have hired. You are less likely to be taken advantage of. You don’t need to become a master craftsman to know when a job has been done correctly. There are books on just about every trade. You can educate yourself by reading about specific trades, talking to journeymen, examining completed work and reading posts on building trades forums such as http://tradestalkforum.com
- Decorating/Design Skills
There are frequently design and decorating choices that must be made during the renovation of a house. Often there is the question of removing walls to create more of an ‘open concept’ living area. There are flooring, paint and light fixture choices. These choices can have a significant effect on buyer interest in the property. Perusing home magazines such as House and Garden, Architectural Digest and the like can provide ideas as well as watching programs on HGTV. It is also useful to see as many houses as you can.
- Knowledge of sources of materials and contractors
It’s important to develop an extensive knowledge of sources of building materials so that you can get the best deals, have back-up sources when needed, can get the shortest delivery time and can keep travel time to a minimum by having nearby sources. You might think that you can use Home Depot and Lowes for all your needs but there are specialty items they don’t stock and they’re not always the cheapest. For example, good quality inexpensive kitchen cabinets are more cheaply sourced from specialty stores.
Perhaps more importantly, you need to accumulate an extensive list of contractors that can service your needs. One reason is that when one is busy you can use another. Also, you may use certain contractors for certain types of jobs. For example, you might have a general contractor you use for large jobs whereas on smaller jobs you might act as general contractor yourself and hire your own subcontractors.
If you are working in the Philadelphia area Cranford & Associates can assist you in finding contractors to service your needs.
- Computer Skills
The world of Real Estate and Real Estate investing is online. You view properties online; you interact with contractors, Realtors and other professionals via email; you use software applications to evaluate deals and keep financial records. Need I go on? But this shouldn’t be a concern; you don’t have to understand how computers work to use them. There are an almost infinite variety of tutorials and books to assist you. http://lynda.com is a very useful site in this regard.
- Contact Information
- Al Belden
- Cranford & Associates
- Contact via E-mail
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