Are you wasting time and money on your buy and hold investment properties? Or perhaps I should ask this question in a different way. Are you spending a lot of time seeking out that perfect fixer upper house, and then treating it as a fix and flip project?
What I mean to say is that you may be overspending on unnecessary repairs, or perhaps completely remodeling kitchens and bathrooms, when a simple lipstick job will produce the same results. And by “results,” I mean getting the place rented or leased out as quickly as possible to avoid carrying costs.
We all know, and have heard the phrase, “In real estate, money is made on the purchase.” Which means you must locate and purchase a property with a high ARV and plenty of equity to cover any necessary repairs. If you’re a fix n flipper, that equity spread is obviously your profit. And of course, the more work that has to be done on the place, the more these repairs will eat into those profits. But if you’re a buy and hold investor, you may be spending a lot more time, money and effort than is actually necessary. I am in no way suggesting that a landlord should skimp on repairs. I’m merely saying that there are certain things that will need to be repaired or replaced on a flip that may not be necessary right away on a rental. The reason being is that renters aren’t as picky as buyers. They don’t think of a house they rent as theirs. In short, they aren’t as concerned with the age of the air conditioning system, the roof or the finish details because it is not their house.
For example, in a fix and flip scenario, we will almost always update, if not replace the cabinetry, install granite counter tops, do a primo paint job, and replace all the fixtures, because buyers want their new home to be perfect. Renters are typically very nonchalant about light fixtures, paint colors and counter tops, as long as they only display signs of normal wear and tear. The only thing they care about is that everything is in working order when they move in. Because they also know that if something breaks, the landlord will fix it, or at least they should.
Now I want to take this a step further and question why anyone would want to waste so much time and money by purchasing a complete fixer upper if your intent is to rent it out anyway. That is, of course, unless you find a really great deal you simply can’t pass up. And if this is this case, I understand. But here at The Equity Finders, we have seen time and again many would be investors biting
off more than they can chew just to find out it was completely unnecessary. As I stated at the beginning of this article, you may be overspending on unnecessary repairs, or perhaps completely remodeling kitchens and bathrooms, when a simple lipstick job will produce the same results.
What I mean is this. Why bother buying a fix n rent property in the first place just to use the entire spread for repairs when there are plenty of “ready to rent” properties available right now, many of which still have plenty of equity built in? In other words, why pay $150k on a rental property with an ARV of $200k if it’s going to take 3 months and $35k in repairs to get the place into rentable condition?
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by Laura Leatherdale