How To Make Money Flipping Condos

How To Make Money Flipping Condos

The following guest post was written by Bryn Huntpalmer who writes for Modernize.com, which is a Web site for gathering design ideas and seeing how other homeowners have transformed their homes.

By definition, flipping a property means buying at a discounted price, then selling the property at or above market value for a profit. It can be incredibly rewarding and lucrative, but it’s also dangerous; it requires acute intuition and judgment, being able to distinguish properties with potential from those that are more of an investment than could be recovered. Since the ultimate goal of flipping a condo is to find a discount property that can be resold for much more, the condo is likely going to be in a state of disrepair, which means that in order to make money you’ll have to spend money. So how do you know whether the condo you’re looking at is a potential goldmine or a money pit?

The cost of renovation is going to depend on what, exactly, the property needs before it’s flipped. While there are many home improvements that increase a home’s value, some are considerably more costly than others. To help you to identify the most profitable opportunities, here are the economics of flipping a condo.

The Most Costly Renovations

When looking at distressed condos, keep in mind which renovations will yield the greatest return. As the old adage goes, “Time is money”; therefore, cost can refer to either a financial investment, the amount of time a renovation will take, or the ‘elbow grease’ involved.

The most costly renovations are the ones that involve new plumbing, which means bathrooms and kitchens; however, these rooms are very important to buyers and can potentially have a huge effect on resale value. A mid-range bathroom remodel could cost $30,000 or more, which covers fixtures, a water-efficient toilet, sink and vanity, floors, hardware, plumbing adjustments, and might include extras like tiled walls and a standalone shower. A condo with two bathrooms needing totally redone could cost as much as $60,000; according to HGTV’s estimates, bathroom remodels return between 80 and 130 percent of the investment upon resale. Typically the worse the state of the bathroom, then greater the percentage of return once it’s renovated. Additionally, if a condo has only one bathroom, adding another could increase resale value by 20 percent.

Kitchens are another expensive renovation. Depending on the level of work that needs to be done, a few tweaks can cost a little as a few thousand while a kitchen that needs gutted and completely remodeled can run as high as $75,000. Don’t sink unnecessary money into a kitchen making it fancy because most buyers won’t pay a premium for a deluxe kitchen. Estimates suggest that you can recover as much as 120 percent of what you put into a condo’s new-and-improved kitchen, or as little as 60 percent once it’s sold.

Modernize kitchen

Kitchen via Dtyler

Living room

Living room via Lillian Hager

Inexpensive Yet Important

Today’s buyers love hardwood. It’s difficult to estimate how much hardwood floors can boost value, but Realtors agree that properties with hardwood floors sell significantly faster and are much more desirable. Hardwoods come in a variety of styles and colors, are widely available, and engineered hardwoods cost just $5 to $7 per square foot including labor and materials.

Buyers also tend to be conscious of storage. If a condo lacks storage space, consider installing an additional closets. In fact, a bedroom must have a closet in order to be considered a bedroom; by building a closet in a den or office, you could add a bedroom and boost value by as much as 25 percent. There should also be a closet at the entrance, a pantry for the kitchen, and at least one for linens and towels. Building a standard reach-in closet typically costs between $1,000 and $4,000.

Modern bedrooms and closets

Via Modernize

When it comes to renovating and flipping distressed condos, more often than not you’ve got to get dirty to make money. The renovations that make the biggest impact on resale value are usually the most expensive — and also the biggest gamble — but sometimes it really pays off. According to Forbes, carpenter Nicholas Vercollone purchased the run-down Victorian in the Boston suburb of Chelsea for $175,000; at the time there was two feet of snow in the living room of one of the three units. However, after fourteen months and extensive repairs totaling $375,000, Vercollone sold two three-bedroom condos for $299,000 each and the third-floor two-bedroom condo for $270,000. After turning the property, which was previously unfit for human habitation, into three luxury condos, Vercollone was able to net $318,000 when the condos were flipped.

It’s important to remember that making such a large sum from flipping a condo is not a rule. When in the business of renovating distressed properties for resale, you should funnel the majority of your renovation budget into the areas in the worst condition, whether that be in new floors, the kitchen, bathrooms, or elsewhere. Buyers don’t want a 1960s kitchen that’s in total disrepair, but they don’t want a condo that has a leaking roof either.

Editor’s (that would be me, Gary) note: having met many flippers I can tell you a few patterns I’ve noticed. First, they tend to buy distressed properties, in great need of repair, either at auction or directly from the bank. Buying at auction can be quite risky though and if you don’t do it a lot you can end up with a real rat’s nest on your hands.

Second, they tend to make inexpensive improvements that look really nice. So they won’t put in top of the line cabinetry or appliances but whatever they go with will have a high visual impact.

Third, they are really good at estimating what the improvements are going to cost them and what they can resell the home for so they only buy properties that look like they are going to hit their profit targets based upon those estimates. And those profit targets are based upon what is required to achieve a good return on their own labor.

#FlippingHouses #Realestate

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