Home Renovation Tips for Investors

 

home_renovation_tips_for_investorsDiscover home renovation tips for investors that will help you save money and make your next rehab deal more profitable. In the following video, you’ll learn what types of deals work best for real estate investing. You’ll also find out some key things you must do on every deal you renovate that many investors overlook until its too late. Get ready to see before and after shots of a property that I recently renovated and why I did what I did. In addition, you’ll be introduced to a hidden secret as to what room is most important to make sure is fixed up right and why that room is so critical to your overall project. My hope is that these home renovation tips will help you be a better investor on your next deal.

 

 

I want to share with you some tips for renovating houses when you’re investing in the property, whether you are re-selling to a new buyer who’s going to move in or even if you are going to be the landlord, and you’re going to be renting property.

The background to this actually on a previous video, “How to Estimate the Rehab Costs.” What I did is, I took you through this exact same house, only when it looked absolutely terrible. In this video, my goal is for you to see what I did, why I did it, so that you can apply these lessons on your own deals in the future.

 

Cosmetic Work

 

Now, the very first and arguable the most important point to make is that a lot of the time, I do not purchase the property. In fact, I usually flip or assign the property to a real estate investor who’s then going to do all of the dirty work. In this case, I went outside of my rules. Now, you can learn more about why I believe that’s the case in a video called “The Secret to Flipping Houses.”

Why did I go outside the rules? Well, number one, cosmetic work. When all a house needs is a lot of cosmetic work, that is tailor made for a real estate investor, because when you have cosmetic work, there’s a lot less that can go wrong.

Also, if a deal has a ton of room in it, and you can make a lot of money, sometimes it’s worth the hassles to fix the property up.

 

Example

 

I want to take real estate investors through this property, because it’s such a shining example of what can happen when you focus on the right deals to renovate. This house had something special, because I broke the rules. My rule ┬áis that, in most cases, renovating the house from where it’s an ugly duckling to make it a beautiful swan often times is a lose/lose, and it’s more of a financial pitfall than a profit center. This one was different.

This house looked like a disaster when I first acquired it. The person was a hoarder. I had junk everywhere.

The house itself, the guts were good. This was cosmetic fix-up. That is painting, refinishing the floors, new carpets, anything that’s external. One of the big rules that I’ve discovered in all of my investing is that you want to refinish before replacing. Television shows, they love to show the part where someone has a sledgehammer in their hand, and they’re banging through walls. Well, I’ve got news for you. That is not investing. You see, people seem to feel like they’re getting a lot of work done when they knock out walls, and they remove things. Really, a truly successful investor refinishes. They paint. They do the cosmetic work. Now, I’m not saying that you cover over a problem, by no means. If there’s a significant problem, it needs to be replaced. Wherever possible, as opposed to knocking out walls, you want to repaint. You want to do cosmetic work. That’s what was special about this house. It looked terrible, but it was cosmetic work.

 

Potential Profit

 

Now, there was one big gaping hole in this house. With all that junk, there were things you couldn’t see. You couldn’t walk in the master bedroom. There were definitely the potential issues of hidden problems. Why would I take on a deal like this? Because there was so much room in the deal, a lot of potential profit. I was willing to take on the risk of discovering some potential problems that I didn’t know. That’s why this particular property was special. It went outside the rule, my rule of “a quick nickel beats a slow dime.” Well, in this case, a slow quarter definitely beats a quick nickel.

Cosmetic exterior improvements. New paint. In fact, we freshened it up with a different color to make it more light, more fresh, more airy, repainted all of the trim. We not only improved the roof look by trimming the trees, but we actually improved the look of the shingles themselves. This roof was not all that old. It was just the tree limbs that were above it had actually created a lot of mold and those kinds of stains. With a little bit of cleaning, it went a long way.

 

Landscaping

 

We absolutely opened up the view of the lake. Now, we didn’t completely remove every tree from the view, and that’s because the HOA would have had a real problem with that. We had to tread lightly there, open up the view but not completely. You’ll notice that there has been some landscaping done. Now, I will confess. I am not a master landscape architect. I put those kinds of things on the shoulders of the contractors I hire, to use their own creativity to make it look good. Now, some may disagree with that point, and they may want to have complete control over the entire project, but for me, since I know that’s not one of my skill sets, I hire good people who I know can do a great job with the landscaping.

 

Make it Flow

 

When you walked into this entrance room, you had to take two steps down and then two steps back up. It was a bizarre design, and there was wood paneling on one wall. What we did was, we put in a floor to even this out, and then we also put some drywall over that paneling. Now, this is a little bit more than cosmetic, but it wasn’t very difficult to add a few beams and put a sub-floor down. This was actually well within the range of cosmetic, but look at the difference. It’s just pretty simple stuff, but an amazing change that created a nice flow from the front door as you flowed into the kitchen.

 

Invest in the Kitchen

 

Look at this kitchen. Now, this did involve a little bit of replacing. We replaced the cabinets, replaced the countertops. We put in a backsplash. We replaced the appliances. We ended up putting quite a bit of time, energy and money into the kitchen. Why? The kitchen sells the house. You know, that’s a simple principle that most people know, but you’ve got to apply it in your investing experiences. You know, being able to transform a kitchen can make the difference between you selling the house quickly and not. When in doubt, and what we did here is, we put more time and energy into the kitchen than any other room.

There’s a hidden secret as to why spending time on the kitchen is so important. It’s the only counter space in the house. When a real estate agent or a buyer is walking through the property and at some point they want to consider making an offer, they typically congregate in the kitchen. That means there’s more time spent there, which means that if there is going to be more eyeballs, more time spent there, it needs to feel and look great. I guess by the same token, if you don’t have any plans of fixing up the kitchen and you want to take the eyeballs away from the kitchen, then I suppose the best thing to do is put a table and chairs in another room.

One last reason why the kitchen is so important. Gentlemen, and you know this to be true, the women in your life are going to make the decision on which house that you’re going to move into. That is absolutely true, so you definitely want to cater to the women when it comes to your renovations. How do you cater to them? Make the kitchen nice. Make the bathrooms nice.

 

Flooring

 

The flooring is certainly a critical part of a cosmetic renovation. We chose a mid-grade PERGO for basically the entire house except the bedrooms. We put carpet in the bedrooms, because that’s what retail buyers want. If my goal or my end strategy was to rent the property out, I would put PERGO in every single room. I’ll use differing levels of PERGO, depending on the neighborhood. If it’s a really, really nice area, I’ll do a really, really nice PERGO, and if it is a not-so-nice area, I’ll do the least expensive PERGO. Now, if you are in a house that already has wood flooring, and you just have to refinish those floors, that’s even better. For those that have to replace the flooring altogether, I’m a big fan of PERGO. It’s inexpensive. It’s easy to install, and it looks absolutely fantastic.

 

Refresh and Accentuate the Good

 

We walked in that living room before. It was dirty. It was old. There was a crack in the ceiling. The chimney was dirty, and now look at it. The cathedral ceilings are now a strength. We’ve accentuated them by painting, by spackling over the crack and also by refinishing the chimney and making this entire room look and feel like home. As a homeowner, how relaxing, to be able to look outside your living room and see this beautiful lake.

You could actually walk into the master bedroom. Before, I had to cram the door open just to slide in, and I was tripping over cassette tapes and books and all kinds of stuff. What we did here was so simple. We removed a lot of junk. We also accentuated the cathedral ceilings by making sure that they were painted, and now, this is the kind of room that is truly a master bedroom. With the cathedral ceilings and the light pouring in, this is a special place, and it’s the kind of room that is important, because typically the person staying in this room is the one paying for the house purchase.

Here in the bathroom and in the other bathroom as well, it was as simple as cleaning this tile with the special cleaning tools, as well as changing the vanity, painting and that’s it. I mean, this was cosmetic at its best, and you can see the difference between where it was before to where it is now.

 

Quick Tip

 

One thing can definitely occur when you repaint, when you refinish, when you replace floor coverings, and that is, it will expose any old or gross things. In fact, the things that you didn’t even notice will all of a sudden stick out like a sore thumb. To avoid that problem, make sure, when you are going to go through a rehab of any type, any sort of cosmetic renovation, that you put into your budget to replace all of, what we call, hardware, whether it be blinds or light switch covers and knobs and door handles. All of these things, they’re little. They’re small, but they make a big difference.

 

For Rentals

 

What would I have done differently on this house, if I was renting the property? Well, I would make sure that all of the flooring is PERGO, as opposed to any carpet. The paint actually would have been a different type of paint. That way, I wouldn’t have to keep repainting over and over again. It’s more expensive, but it will last longer, so I would have spent more money on the paint materials. I may not have gone to such a great extent to replace the cabinets, although I would have replaced the countertops, because renters are not going to be quite so fickle about just how perfect everything is. I would have probably skimped on the replacement of the cabinets. I would have put in new appliances, because the tenants would complain about that anyways, if the appliances weren’t working. On the exterior, I may have avoided even painting the outside. Now, yes, it didn’t look as good as it does now, but since I’m not trying to sell it, I don’t have to absolutely knock the tenant out with just perfection and beauty.

In some ways, you cut corners when you are going to be a landlord, but in other ways you don’t, especially on paint, because you don’t want to have to keep repainting over and over again. If you use the right kind of paint, it’s a lot easier to wash off their marks and those kinds of things. It may cost a little bit more money to not put carpet in, but the difference can be not having to replace the flooring over and over again, every time a tenants moves out.

These are the deals you want to focus on, the cosmetic repairs, because they have huge bang for your buck. It’s easy to find a lot of contractors that can do it, and it’s easy for you to manage the project, because you know what they’re doing. You can see it. There’s nothing hidden. You know if they paint it or not. You know if they finish the floor or not.

 

You Can Do This

 

This is absolutely within your wheelhouse. You can turn an ugly duckling into a beautiful swan, simply be applying the rule of going with projects that require cosmetic renovations. What that means, not only for you but for the new homeowner, is that you’re giving them a freshly updated home and for you, a huge potential profit.

 

Comments

  1. RONALD LEWIS says:

    HEY PHIL I LIKE WHAT YOU TEACH,THANK YOU.

  2. Ligia Caldwell says:

    Thank you thank you! That is the video I have been most anticipating.
    For now this is just a plan for me I can’t start it but I want to voice my appreciation to your nice work because I really want to make that the project of my life as soon as possible.
    Very true, for me the kitchen makes a world of a difference (as a woman I agree with you and so does the bathrooms).
    So first thing is to evaluate the house and realize when to do a cosmetic makeover or replace and restore?
    Would you mind mentioning how much did you invest on the renovation and for how much would you sell it for?
    I use to watch “those” shows you mention here and I am taking your tips here under consideration.
    Great job!

  3. delia fojo says:

    Great video!!!!! Thank you so much for it. Congratulations. Delia.

  4. Rose Pachura says:

    Your video is not on for us to hear it!

  5. Hi Phil,
    What are the costs on that one,purchase price?ARV?

    Thanks,
    Patrick

    • Phil Pustejovsky says:

      It’s complicated because it involved me negotiating the liens after I took it over subject to, but here’s the final tally:
      Purchase: $31,000
      Renovation: $33,000
      Misc: $2,000 (Insurance, utilities, etc)
      ===============================
      $66,000 total cost

      Sales price: $139,900

      I haven’t seen the final HUD but after closing costs, I should net $65,000

  6. Phil
    I learned a lot, as I always do from your excellent videos.
    Thanks again,
    Hindy

  7. DeAndre Simpo says:

    Thank you for the insight. All of your videos are very much appreciated.

  8. Dale Hensley says:

    These are exactly the types of flips I look for. You mentioned at the beginning that you prefer to wholesale and let another investor do the work because it’s risky and you only do it when there is enough left over. My personal rule of thumb is that I will take on a property if Ithe project to make $50,000 after repairs. My last deal was just under $50,000 net profit projection, but due to some issues we didn’t foresee and several seller concessions, I only made $27,000, but that’s why I like to have that window. I am currently under contract on a 4200 square foot 1880 victorian home with 17 rooms that I am getting for $96,000 but ARV is about $330,000 based on area comps and current houses on the market. Our rehab budget is $85k with $22k spend on foundation upgrade/repairs. After watching a previous video of yours, we will be listing the house for less than we expect to be able to get for it to move it quickly and some of the comps have already sold for above asking price. That being said, our anticipated net profit will be over $100k. I know these deals don’t come along everyday.

    Here’s a question for you. How long does it usually take you to wholesale a deal. Assuming the average wholesaler takes a check for about $5k for finding the deal and passing it onto someone like me, how many wholesale deals are you doing for your fast nickel to equal my slow (in this case) dollar? Would you pass on a deal like this one? Obvously others have because I usually buy foreclosures that have sat for at least 6 months and the bank will give them away to get them off of their books. (I also know that you don’t like foreclosure deals because they really are a pain to deal with on the purchase) I still consider myself a student in this business. My father-in-law has been an investor for over 20 years and owns over 100 homes that are a majority of lease options to tenants but he tells me to stay out of the rental business and just do flips. We do all of our deals with cash for purchase and repair so that’s what we are doing now to get the most return for our money.

    I appreciate your videos. You are handing out a lot of information that the “gurus” like to tease at and won’t deliver unless you spend a ton of money on their “secret” formula for success. A lot of it is basic common sense but you continue to throw things in here and there that I didn’t expect. Thanks.

    • Phil Pustejovsky says:

      I make as much on a wholesale as I can. Sometimes as much as $40,000. So $5,000 is NOT a good benchmark. And to answer your question, I do as many of those as my motivated seller marketing drums up. And the types of foreclosures you are keying in on are the ones that I do think works well for advanced investors. The ones that have sat on the market forever and nobody wanted it.

  9. Great teaching.

  10. Franklyne says:

    Thanks! we’ll done.

  11. I have been learning a lot through each of your videos.

    I have a question: i heard about county auctions of properties. My question is
    Are these properties a good business and can i really make a profit. you know
    that you buy without looking the interior of this properties.

  12. Rebecca U Karlin says:

    Dear Phil,

    This is really a good example on how to renovate a house that is ready to be bull dosed just because of its not so appetizing to look at-in other words “the curb appeal” that disappeared from a buyer’s view. Great job. I was a former agent and I wished that I have done what you’ve done here.

    Now, I am in Wisconsin and I see so many scattered potential investments that I could have. It is just how creative I have to be to acquire them without so much funding and lost plenty.

    I supposed I have to put up a plan that will work for me.

  13. Great teaching, l went to be your student

  14. Cecile Reyes says:

    can u you be my mentor? i want to learn more.

  15. Harold Williams says:

    Phil I don’t have the best or money to invest into real estate it’s really a passion of mine so how do I invest in real estate without using my credit or without money?

  16. Hi Phil great video and books

    question about pergo flooring- ? ive never worked with pergo yet i see a lot of benefits in possibly using this flooring solution because my buy and hold rentals could really benefit by using this type of flooring

    what is your recommend grade, color of pergo to use on long term rental holds? also, what grade costs of pergo do you like to use mostly and also costs on install>?

    i know costs of install will vary per market –

    however if you could provide maybe some sort of benchmark in pergo grade. color / costs and cost of install that would be great-

    thanks in advance for your feedback in regard!

  17. Thanks for sharing your knowledge

    In regards to landscaping, if you plant new landscape it will need more than regular watering. Do you hire someone to go to the property and deal with this?

  18. I love watching these videos. I get so excited to start. I am working with a realtor to find homes that have cosmetic issues so I can manage. Thank you so much for all the information and all the encouragement!!!

  19. I entered into a land contract,deal was great,thenbank sold loan to a company,that plays dirty.the owner is willing to put property in my name so that I may pay property off,bank put it in foreclosure. This was to be rental property. I invested in property since 2012.should I pay house off or stop,cut my losses.

    • Phil Pustejovsky says:

      You should pay off the underlying first mortgage only if it makes financial sense to do so. Otherwise, if there is no financial advantage to paying it off, perhaps you lease it out until it goes to foreclosure?

  20. David Mitchell says:

    Phil,
    I’ve watched many of your videos and they are excellent. My parents and I recently purchased our first house to flip. I was wondering what to do with the old cable wires? They’re everywhere! In the house there are couple of rooms where the cable doesn’t look to bad because it’s attach to a receptacle, but often they’re just sticking out of the wall. Also, they’re along the outside of the house. Total eyesore! Not good curve appeal if ask this rookie. Should we leave some, take them all out, or what?
    Thanks,

    Dave Mitchell

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