Find out If Fixing a Home Is a Good Investment

Find out if fixing a home is a good investment

Man painting wooden floor

 Christopher Hope-Fitch/Moment/Getty Images

Real estate investing often involves flipping a property that is purchased in poor condition and then repaired and/or remodeled to bring it to sale at a profitable price. There are a number of very popular TV "reality" shows that focus on fix-and-flip investors. They follow a project from the selection of a property through the rehab process.

Home Repair Estimating

Home repair estimating is a valuable skill for the real estate investor. You can bring in experts, and it's often a good idea. But continually calling on tradespeople to accompany you to properties that you later decide are not for you can result in their resistance to such help in the future. Having the knowledge and tools to at least determine the basic feasibility of an investment before calling in skilled help can be much more efficient.

There are also a number of useful websites that are primarily focused on helping homeowners to estimate remodel or major project costs using licensed contractors. Of course, you do not want to pay retail for your projects, so you'll need to discount the estimates. However, they can be a great tool to get a quick idea of whether a home's rehab will throw it out of the profitable territory. Here are some of those sites:

A thorough listing of defects in a walk-through followed by a quick estimate from these sites can give you an idea of whether you want to do more research or move on to another property. Here is some home repair estimating tips.

Err on the High Side

Use repair estimation resources that base their time and material costs on quality licensed contractors that guarantee their work. If you're using a national guide, such as those in the links at the end of this article, check it against local pricing. If it's a bit high, that's a good thing to protect you from errors or things you might overlook. If it's a bit low for your area, then adjust accordingly.

Contractor Relationships

If you're a frequent fix-and-flip investor, you'll build relationships with general and subcontractors. Once they know they can get regular work from you, they'll be happy to go out to a house with you and come back with accurate estimates of what the costs should be to get the job done and the home sold at a profit.

There are various ways in which you can work with contractors. You can shop and buy the materials and pay them only for labor. Or, you can give them a material budget and quality specifications and let them select materials for your approval that fall inside your budget. Or, you can let them buy and mark up materials as a part of their hard job bid.

Sweat Equity Is Good, but Estimate Without It

Use the estimation tools even if you plan on doing some or all of the work yourself. Many a smart investor has taken a beating when circumstances stopped them from doing work on their house for a flip. If you see a profitable investment with estimates for using contractors, then it's a bonus when you can do some or all of it for yourself.