When renovating homes is your livelihood, resale potential becomes a primary factor in the purchase decision. Buying a house already in great shape isn’t a wise choice, since there’s no real value we can add as buyers.
Buying a dilapidated home doesn’t work either; not only can’t the investor live in the home while working on it, but it’s a bad investment. When there’s too much work to be done, there’s no way to make a profit. This is why you see derelict homes with “For Sale” signs for years, until finally, the building is razed for new development or burned as practice by firefighters. There’s just no way to make the needed repairs pay for themselves.
Real estate investors who do traditional “flips” typically fix and update: replacing broken windows, musty carpets, appliances, toilets, and vanities, but they avoid upgrading plumbing or electrical, remodeling, or re-roofing when at all possible.
Any work that requires a permit costs rehabbers valuable time and money, so “the numbers” have to work, meaning a formula that weighs purchase price, “holding” and improvement costs, and future selling costs, against future sales price must yield a profit, typically 20-30% in order to make it worth the time and effort.
That’s where people like my husband and I come in, taking risks on major repairs because we envision potential in the property, the view, the neighborhood, community, or something else that spurs us to sink (hundreds of) thousands of dollars into a house that can only be recouped by the financial benefits of living in it for at least two years. Living in a fixer-upper only to sell it and move in a few years isn't for everyone, but it's for us, for now.
-This blog post is an excerpt from a longer post you can read here.