How to Renovate an Old House
What I look for when I Renovate a house.
Several years ago, when I got divorced I decided I needed a new passion. I had always been very creative and in the years prior I had been doing a lot of creative work on television. I had designed, renovated, and sold our homes that we had lived in, but I had never renovated a home with the sole intention to sell and make a profit. I searched for the perfect property then purchased a house in Los Feliz, completely renovated it to sell, then caught the reno fever and renovated the home we were living in and sold that as well. Now while it doesn’t hurt that my fiancé is an architect and contractor here in the South Bay there are still a lot of risks involved with renovating and/or flipping a property for a profit. We are currently looking for two other properties to renovate to live in and to sell so I thought I would go through the pros, cons, the mistakes, and how long it really takes to find the “right” home, because I hate to break it to you, but what you see on TV is not real life.
Alright, let’s start with the basics.
What does it mean to flip a house?
House flipping is when a real estate investor (or normal home buyer) buys a home, and resells it at a profit either months down the road or even a year or so down the road (depending on the work involved).
Is it Risky?
Yes, but as are many other investments. If you stick to what you can afford and what you know and don’t venture out of your area too far, I believe it brings down the risk. There are many ways to minimize your risk when flipping a house that I will talk about below.
My Rules & Requirements
MONEY - Sounds harsh, but you need money. Whether it’s your money, an investor’s money, or the bank’s money, you need money to purchase the home and do the work. If you are borrowing money you need good credit. You can’t get into house flipping with bad credit or no money. Unless you have enough cash to pay for a home and all the renovations, you will need an investor or a loan. Most traditional lenders require a down payment of 25%, and a conventional home loan is typically 4%. The more you can pay in cash, the less interest you’ll incur.
I personally had money when buying my first home. I had less risk because I had money from my marriage so I was able to buy a home while living in our current house. This is not typical and I absolutely recognize that and I am grateful for being able to start this way. But I also want to put this out there … while I had money to purchase a home and renovate it, the money did not help me to renovate the home more efficiently or effectively. It did not help me when making countless Google searches, endless Home Depot trips to find random screws, bolts, and nails, and it certainly did not help me find the perfect contractor or subcontractors, because I was royally screwed several times over. It’s hard work flipping a house and you need to really know your stuff.
LOCATION - You need to search for a home in a good location. Location is everything. You don’t want renovate something and put in too much money and be the most expensive home on the block and the have it sit. Find a home in a desirable neighborhood or one that’s on its way up. You can improve a home tremendously, but you’re most likely not going to improve the neighborhood all by yourself. My rule is … Would I live here if the home doesn’t sell? Would I pick up my kids and move into this house if I had to? I know that sounds intense, but I don’t invest in something I don’t like. If I don’t feel safe in the neighborhood I’m not buying it. Same goes for the school system. If you are flipping a home that a family is going to purchase, then look at the schools. Are most of the homes sending their children to public school? Is it a decent public school? If so that will increase your value. You can use websites like GreatSchools, SchoolDigger, and Niche to see rankings and reviews of local schools.
I also check the National Sex Offender Public Website to see if any registered sex offenders live near the home. It literally takes 2 minutes to look up the address and I’m sure as heck not purchasing a home next door to a sex offender. I don’t care if the next buyer checks it or not. I would not want to live next door to a sex offender and I would not feel good selling a house knowing that and not disclosing it. I believe in Karma and while I know some people flip homes and cut corners to make the most profit, that is not my style and I think long term you make more money by having morals and sticking to them.
Lastly, when it comes to location, pick a home that’s close to where you live. I had looked at homes in the South Bay when I lived in Los Angeles and luckily I was outbid on every home I bid on and it forced me to buy a house ten minutes from where I was living. That was a blessing in disguise, because I had to be at the project site every day at 6am when I didn’t have my kids and 8:30am when I had to drop them off at school and there is no way I could have flipped a house over an hour away from me.
GOOD BONES - Make sure the house has some “good stuff” happening. What I mean is, make sure there is something that makes you excited. Is there a super rad roofline? Tall ceilings? Great backyard? Awesome layout? Open floorpan? Great pool? Find something good. If everything is good it wouldn’t be a good house to flip, but there should be something that gives the house potential. My project in Los Feliz had great vaulted ceilings. The house was 100 years old and full of asbestos and yellow wallpaper and mold, but that ceiling made the house. I knew the rest of the house could be as cool as the ceiling if it got the right amount of attention.
BUDGET/COST ANALYSIS - While looking for the “good stuff” also pay attention to the “bad stuff”. If everything is wrong, you need to do a cost analysis and make sure the property is a good investment. If you need to add all new electrical, new drywall, landscaping, new bathrooms, and a brand new kitchen you better make sure 1) you have enough money and 2) you can sell the home for more money than you put in. I had an ongoing excel sheet for every house I walked into. I would go check out the house, then bring Robert to get an idea of what I needed to redo architecturally then go home and make a cost analysis. This is not something you want to walk blindly into. That my friends, would be a risky investment!
Be smart with your excel sheet! There are so many things that you will leave out so really take your time with this. Like, for example, staging a house. Most people think they can flip a house and leave it empty and sell it. Sometimes that might work, but most of the time you get less money because, guess what …. NO ONE will see the vision. Most people are not creative and they cannot envision a couch and a bed and whatever else so you have to make it beautiful so they “get it” and ultimately “buy it”. I can’t tell you how many times I would switch out furniture and get a different reaction to a home. Budget for staging, because it is not cheap. Call around and get some pricing. Usually it’s a standard rate for 3 months of staging and then month to month there after. Also budget for landscaping, sprinklers, new outlets, appliances. You don’t want to leave anything out. I personally did not want to add square footage to my first two properties. I didn’t want to deal with the city and wait 9 months for plans to be submitted then checked. It didn’t make sense to do that with my budget and the home I found, but if that is something you need to do to get a good return on your investment then you need to budget for the additional time that will take.
RESEARCH LISTINGS & FORECLOSURES - I spent months looking for the right home. I went to auctions, open houses, and foreclosures and I made severals attempts to buy other homes before finding my first project. I was outbid on everything before I landed the right home, but that was OK. You have to be patient. I stuck to my price point because it didn’t financially make sense for me to go over a certain dollar amount. Each property is unique and you have to make sure it makes sense with your cost analysis.
ROOM COUNT - This is important because depending on your area, your square footage and the homes in your neighborhood, you need to be aware of how many rooms are most common in your area. I personally wouldn’t buy a home without a minimum of 3 bedrooms. In LA, there are a zillion houses and everyone has a roommate or children or a mother-in-law staying with them and bedroom count is important. Generally more bedrooms means more money so keep that in mind. A mistake I made was buying a home with three bedrooms, but with one of the bedrooms downstairs. So essentially it was a two bedroom home with a guest bedroom downstairs. While this is fine for a couple without children or someone with one child many people came to see the home and said they had more than one child or they were expanding their family and the house didn’t work because one room was on the first level. It is just something to keep in mind when looking for a house to flip.
Can I do everything myself?
Are you freaking kidding!? Certainly there are things you can do on your own, but unless you are a contractor you must find a good crew when flipping a house. You need quality contractors, quality subs, quality people. I lost so much money by hiring the wrong people. And every person that was the wrong person was someone that I found online based on “online reviews”. You need to talk to your friends, family, co-workers and get actual recommendations from people. Especially if you don’t know what you are doing. There are so many people that will take advantage of your lack of knowledge and not do the right thing. It’s sad, but true so be sure to do your homework and get proper recommendations from people you trust.
As scary as all of this sounds the end product is so rewarding! Hope this helps and if you have any questions on anything please email me.
Good luck!