Fix it and Flip it – How I Lost Money on Real Estate
I’ve recognized a lot of people who have lost money if they sold their homes. In truth, I’m one of those people, and it’s happened to me more than once.
There really are a number of factors can cause a financial reduction when you sell your house, including the have to sell at the wrong time because of divorce or an impending property foreclosure, or a downturn in the local real estate market. However, it’s also common to lose cash simply by making too many expensive adjustments to the house before putting it on the market. This is exactly how I lost money on real-estate, before I wised up.
My most resounding failure in the repair it and flip it marketplace was a house I bought within Spokane, Washington. Knowing what I know now, I would have limited myself to replacing the carpets and rugs and the kitchen and bathroom accessories, painting inside and out, and buying new appliances. I would have replaced the old-style home windows, too, to make the place look better and appeal to the energy-conscious purchaser. These fixes could have been done quickly within the two years I needed to reside there to avoid capital gains fees.
Since I didn’t know what I know now, I made main renovations, which included moving the bathroom. I did most of the work myself, however the materials alone cost more than I could get back when the house was marketed. With the exception of fixes done to the house to make it eligible for an FHA loan and watering the grass, I question that any of my major tasks really helped me sell the house or even increased its value.
If a home is actually sound, with no structural harm or insect problems, the biggest reason it will sell for less than its really worth is usually cosmetic. This was definitely true of the house I bought within Spokane. Dirty carpeting, and the wall in the living room covered along with mirror tiles, kept most purchasers from going any further into the home. I could see past the beauty problems and see the home’s complete potential – but my creativity went a bit too far.
The ground plan was odd, and somewhat inconvenient, but leaving the bathroom exactly where it was would have been much more rational, financially. Why didn’t I do that? Because my emotions and my nesting instincts took over, pressing aside all thought of future obtain or loss.
Let’s face it – most people don’t buy their very own homes with the intention of making money, although they certainly hope the house is a good investment. In fact, the particular emotional stress caused by the process of purchasing a house and moving into it could be enough to completely erase any considered moving again a few years later. However, I know several families that have made a very good living by buying underpriced homes, living in them and repairing them up, and then marketing them when the IRS will allow these to do so without paying extra taxes. Clearly, these folks don’t make any adjustments to these houses without carefully thinking about the bottom line.
After my Spokane journey, I decided to learn from my errors, and find out how to stop losing money on houses. I read books simply by authors who are experienced in repairing and flipping houses – and then read them again. When I saw that most remodeling tasks almost never recoup their costs once the house is sold, I was a small shocked, because I had been doing almost every mistake on the list at once or another. I know many people that have also made the same mistakes, even if they started those remodeling tasks with the intention of increasing the significance of their homes.
When I purchased my next house, I held that list very firmly in your mind. For instance, my kitchen had been badly in need of a major overhaul, (or so I believed), and it was far too small. I pored over the latest home decorating magazines, and ideas came flooding into me. I thought about knocking out several walls, and I even attempted to imagine adding on to the residence to make the kitchen bigger. New cupboards would be needed, and new devices…
In the end I painted your kitchen cabinets and replaced the kitchen sink with a new one I purchased in Ikea. I covered the damaged orange Formica counters with published cotton fabric, and coated it with many layers of water-based Verathane that was intended to protect wood flooring. The complete “remodel” cost less compared to $400, as opposed to the thousands of dollars that I would have spent if I implemented through on my idle hopes for a “perfect” kitchen. Since the property sold at a very good price within fourteen days of listing it, my purchaser obviously didn’t mind that the cooking area didn’t meet my idea of ideal. Because I kept my charges down, I made an useful profit on the sale.
Would I have been able to sell the house for further money if the kitchen had been renovated and expanded? Perhaps, but not sufficient to cover the cost of the remodel. Although the National Association of Realtors lists a kitchen remodel the truth is projects that will increase a house one of the most, they still advise that you should anticipate to get back only 80% of the charges. If your new kitchen is much fancier, bigger, and more expensive compared to any other kitchen in the neighborhood, the particular returns will be even less. A complete kitchen remodel can cost thousands of dollars, therefore the 20% you don’t get back can be a large chunk of change.
Does this mean that you should not make changes to your home that would allow you to happy? Not at all, especially if you want to live there for many years. But it does pay to sit down along with your spouse or partner before you start producing your remodeling plans, determine precisely how long you’ll be staying in the home, and then think about the full financial effects of the remodeling project. Even should you do not think of yourself as a professional house flipper, it might pay to slow down a lttle bit and find ways to improve the house without spending money you’ll never see once more. As a bonus, your family might be able to steer clear of the stress and disruption of all that will remodeling mess.