Don't Over Rehabilitate A Investment Property

It is very easy as a new real estate investor to over rehab a property. The question is will you actually get more money out of the property? And the answer to that is possibly. It really depends on who you have bidding on the property that you remodeled. A sophisticated buyer will recognize all the high value improvements that you have done and pay accordingly. However the unsophisticated buyer will not see the value and also pay accordingly. There is a fine line between throwing money away and making a good purchase that actually adds value to the property your trying to renovate. I would like to say that a really nice home can sell faster, but I am not exactly sure that high value renovations make that process much faster.

I have found in my 18 years investing that there are a lot more unsophisticated buyers than sophisticated ones. Keep in mind that I usually invest in properties that sell for around 80 to 100 thousand dollars. These properties are usually 3 bedroom homes in a modest area of town. It is in these areas that I feel that the homes have become a commodity meaning that they have no real distinction in the neighborhoods. This is as long as the outward appearance of the property is clean and somewhat well maintained. I found that over time in a rehab area the properties will all start to look the same from the outside. Meaning that the houses in these neighborhoods usually have the siding replaced or a nice coat of paint making all the homes about the same from the outside. The inside of the houses however are completely different. One can be nice and well maintained and others can be run down. This is where the problem happens. The house that sold down the street for 80 thousand with the run down interior has a tendency to set the price for the property that you are working on. Appraisers have to justify your selling price to the bank and this is usually done through comparable properties in the neighborhood.

I am by no means advocating that you put the cheapest materials in your rehab projects. I always put in high quality fixtures and materials. The thing that I don't do is get to fancy with a rehab project. One of the biggest areas a investor can get carried away with is paint colors and schemes. A well coordinated house may be beautiful to you but tacky to the next person. That is why I try to use the most neutral colors and I almost always paint every room in the house the same color. You don't want a potential buyer to even notice the paint they should focus on the rooms and the architectural features of the property not how they don't like a paint color. Some paint colors under the florescent light of the store look a certain way. When you get that same paint on the walls in natural light they may look a completely different color. I For example I painted a room in a rental house of mine with a light grey and it looked purple on the walls during the day time. The moral of this story is to buy the safest color available that does not make dramatic changes in different lights.

In summary I do not believe that a fancy high priced fixture will make any difference in the final sale price of a home. The added cost of these fixtures will be hard to get out of the property. So I try to play it safe and make the property look clean and well done with very neutral carpet, paint, and fixtures in the house this way it appeals to the broadest audience possible. Which in turn makes the price higher in the long run.

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