Flipping homes in this market is a bigger risk than usual, and you might find that what you have on your hands is more of a flop than a flip.
There are other ways to earn money on an investment property that you may have purchased before interest rates jumped and mortgages became so expensive.
We still like the idea of acquiring distressed properties and fixing them up. This is good for the entire Dayton community, it’s good for tenants who need well-maintained, attractive homes, and it’s good for you, too, the investor who was smart enough to acquire the property. Fixing it up is an excellent idea, and it can be a profitable one, too. The trick now is to hold it and rent it out rather than trying to sell it for an immediate and impressive profit.
Why Flipping Won’t Flip Right Now
The idea of flipping homes is to buy low, invest in improvements, and then sell high.
A smart strategy that a lot of real estate investors use to earn good money.
In a high interest rate market, however, your expenses are likely to be a lot higher than you might have anticipated. And, the sales price you might have been hoping for won’t necessarily come through. Buyers are a bit hesitant right now. They’re waiting for interest rates to come back down, and while the Fed has dangled that carrot, it has not happened yet. We have mentioned the rate hikes and the current cost of a mortgage in previous blogs.
How to Increase Value and Profitability with Renovations
Renovating distressed properties to make them rentable is a great way to build and grow a portfolio of rental properties. Renovations will immediately increase the property value, ensuring that you earn money on your investment in both the short term and the long term. Once your property is renovated and improved, you’ll attract high quality tenants who are willing to pay high rents for your home.
There’s a lot of demand in the rental market right now for modern, attractive rental properties. Whether you’re buying a single-family home or a multi-family unit, buying and holding will likely earn you a lot more money in the long run than simply trying to flip the property. At the end of your renovations, you’ll have a marketable rental home that qualified tenants are eager to rent.
Where should you focus your renovations? That depends on the condition in which you buy the home, where it’s located, and what it needs.
- For single-family homes, we recommend ensuring that the kitchen and bathrooms are in excellent condition. Invest in hard surface floors, clean and modern counters and cabinets, and energy-efficient appliances. Make sure there’s a washer and dryer. Invest in some landscaping and curb appeal.
- For multi-family properties, you’ll also want to pay attention to aesthetics in kitchens and bathrooms. In-unit laundry can be a huge benefit when you’re renting out a unit in a multi-family building. Make sure the common areas are inviting, the outdoor space is neat and clean, and parking areas are well-lit.
Take a look at what similar rental homes are offering in your neighborhood. If every single house has a video doorbell, you might want to offer that, too. You don’t want to overspend on your improvements, but you do want to make sure that your investment property is ultimately competitive on the market.
Budgeting for Dayton Rental Property Renovations
Once you decide that you’re going to forget the flip and focus on a strategy of holding onto your asset in order to rent it out, you may find yourself budgeting a little differently for the renovations. You’re not going to earn one big payment. Instead, you’ll earn steady rental income over time while your asset continues to appreciate and the tenants pay down your mortgage.
- Set a Realistic Budget
First, determine how much you’re willing to invest in renovations, and stick to that budget. Prioritize areas that offer the highest return on investment (ROI). We mentioned some of those above. It’s a good idea to invest in kitchens and bathrooms, appliances, and outdoor space.
- Hire Professionals
While DIY might save money upfront, hiring professionals ensures quality work and can save you time and money in the long run. Even if you were planning to DIY the renovations you would have made for a flip, it’s worth it now to hire professional contractors and vendors. You’ll have tenants living in this space, and you’ll be accountable for maintaining it.
- Timeline Management
Work quickly and efficiently to get these renovations made. The sooner you can get this property listed on the rental market, the sooner you’ll be earning money on it.
- Consider a 1031 Exchange
Not in a position financially to buy a new investment property, but you’re still interested in buying something, making some improvements, and renting it out? Consider selling an income-producing property that you may already hold. The 1031 Exchange will allow you to sell one property and use the proceeds from that sale to invest in a new property (or properties). This can be a great way to fund your initial purchase before you renovate and rent. We’ve written about this in a recent blog, so check it out. Link to blog
Professional Dayton Property Management
While not a lot of property management companies in Dayton are interested in walking investors through the process of renovating a distressed property that they might otherwise have flipped, we’d be happy to help you navigate the rental market. We can even put you in touch with some of the vendors, contractors, cleaners, and other service professionals who we work closely with. Having a management partner provide direction and guidance on the renovations that will increase rental value and attract good tenants can be invaluable.
We like to say that if it’s a property managed by ManCo, life just got better. This is especially applicable to investors who are renovating and improving properties. Let’s talk about how to make this work for you. Contact us at ManCo Property Services.
