Reality TV often makes it seem like house flipping is a money-printing business. After all, the premise is quite straightforward. Buy a house at a significantly lower than market average, spruce it up to force appreciation, then sell it for a higher yield. Easy right?
Unfortunately, reality differs from reality TV shows, and some of the upfront costs and strategies get lost in the conversation. That’s why it’s essential to evaluate the long-term maintenance before investing in a fixer-upper rental property. Also, to help with that, we’ve put this property manager guide to help you determine if fixer-uppers are worth it:
What Qualifies as a Fixer-Upper Rental Property?
Cosmetic Fixer-Uppers
At the most basic level, a fixer-upper is any property that requires some work to meet the minimum rental standard before you sell it off. That can include anything from repainting the walls to a complete overhaul of the electrical and plumbing systems. Houses that require only minor updates, such as a new coat of paint or more modern lighting, fall into the cosmetic distress category because their structure is sound; you just need to spruce up the aesthetics.
Functional Fixer-Uppers
On the other hand, properties that are safe to live in but have aging systems fall into a different category called functional fixer-uppers. For example, if you buy an old house with a HVAC system near the end of its 15-year lifespan, you’ll have to budget for a replacement to provide adequate temperature control. Thus, any house that requires functional projects like fixing a leaky roof or changing outdated electrical panels also belongs here.
Structural Fixer-Uppers
At the most extreme end of the spectrum are the structural fixer-uppers. These houses are beyond cosmetically distressed or functionally aging, and they’re often borderline dilapidated. As a result, buying these houses would mean investing significant capital in them, through projects like fixing foundation cracks, treating mold, or dealing with an insect infestation. That’s why we consider them high-risk, high-reward projects as well. Hence, hiring a trusted property manager in Montgomery County PA can help coordinate renovations with rental goals in mind.
Upfront Costs to Consider Beyond the Purchase Price
Renovation Costs
It goes without saying that one of the expenses you have to anticipate when you take up a fixer-upper project is the renovation costs. Whether you’re replacing hardware fittings or adding an entirely new room, renovations cost money in the form of materials, labor, and contractor fees. Even minor projects can quickly escalate into more elaborate projects if they uncover hidden issues while working, especially if you’re dealing with an older property. That’s why it’s a good idea to have a contingency fund.
Inspection Fees
Before swinging any hammer, it’s necessary to hire a professional who can review the house to identify any structural problems it might have. This inspection is often extensive as it requires reviewing the entire house, but it’s not something you can skip. The last thing you want to do is go in unprepared and run into more trouble than you anticipated. Your inspection appraisal is also often part of the requirement for some of the zoning permits you may need to get approval for your work.
Holding Costs
Putting the finishing touches on your project is only part of the flipping process. The next phase involves listing it on the market so you can attract a potential buyer, and that comes with another round of expenses. For starters, you’ll need a professional cleaner to come in and make sense of the house after the renovation, and then you may also have to pay for professional staging and photography to generate more leads. All the while, the security and utility bills will still be on you till the home has a new owner.
How Property Managers Add Value in Fixer-Upper Investments?
Renovation Decisions
One of the ways property managers add more value to your fixer-upper is by helping with decision-making. These experts are more in tune with current updates and can make better choices when it comes to selecting high-end finishes or flooring. Beyond style, they can also advise on what updates buyers are willing to pay for, which can help you maximize your investment.
Project Coordination
Aside from picking things out of a catalog, property managers are also vital in ensuring your rental project stays on track. After all, missing the right window could mean trying to sell in a buyer’s market, and that would mean a smaller profit margin for you. On the flip side, these professionals oversee contractors and vendors to ensure everyone is doing their job on schedule.
Conclusion
At the start of this article, we asked the question, “Is a fixer-upper worth it?” Clearly, it depends on whether you use the right strategy to pick your projects and carefully evaluate the total costs beyond the purchase price to ensure the property meets the minimum standard; there are other fees that can also quickly pile up. Zoning, inspections, and holding the property till its sale all cost money. As a result, hiring an expert like a property manager who can help you keep these costs in mind, while also making decisions that give you the highest ROI and keep you on track, is essential.
