How To Spot A Profitable Fixer Upper

Flipping houses has become a popular investment, but don’t mistake popular for easy. All too often, people buy a property to flip and find themselves losing money instead of making it! There are a number of things that can go wrong, but the first step in profiting from a fixer upper is choosing the right property to remodel in the first place. Here are a few things that make a profitable fixer upper.

The best fixer uppers are houses that everyone would want, but no one wants right now. 

An Appealing Floor Plan

Moving walls and building additions are some of the most costly remodel projects. If you really want to turn a profit on a fixer upper, find a home with a floor plan you really like and leave the walls where they are. You will appeal to the largest pool of buyers with a 3 bedroom, 2+ bathroom home. A reasonably priced home with a 4th bedroom would be even better! Most buyers are willing to trade up for that extra space! Look for a layout that flows. Buyers want a kitchen that has two entrances and a master bedroom on the main floor. 

Decent Condition

You never know what you’re walking into with a fixer upper. That’s all part of the fun! After you do a comprehensive walk-through and get all the necessary inspections done, make a list of necessary repairs. Separate your list of projects into “fundamental” and “cosmetic” repairs. 

The fundamental repairs are the ones that are NOT optional. Things like a new HVAC system, replacing the plumbing, and installing new windows would fall into the category of expensive but necessary. 

Fundamental (and expensive) repairs to avoid:

• New HVAC systems
• Heating and air unit maintenance
• Reroofing
• Overall plumbing
• Overall electrical wiring
• Pouring concrete
• New windows
• Complete bathroom remodels
• Complete kitchen remodels
• Add on a garage
• Foundation upgrades

Cosmetic repairs would be things like painting, patching walls, installing tile or carpet, or switching out light fixtures. These kinds of repairs are much easier (and cheaper) to do. You could probably do most of these yourself.

Cosmetic (money-making) repairs:

• Paint walls
• Refinish wood floors
• Install tile
• Install carpet
• Switch out light fixtures
• Replace or paint trim
• Refinish or paint kitchen cabinets
• Replace doors
• Replace light switches
• Paint exterior
• Build a deck
• Add window shutters

A profitable fixer upper requires minimal fundamental repairs. You want to purchase a property that has a solid foundation, is in relatively good condition, and just needs a quick face lift. Spending less time in the remodel phase will also increase your profit margin. The quicker you can get in and get out, the better!

Check out Are These Renovations Worth It? to find out which home improvement projects are more likely to increase the value of a home.

The Right Price

Knowing how much to pay for a fixer upper can be tricky. Start by adding up the total cost of the renovations. Take into account all of the inspections, necessary repairs, and design choices. Include an estimated cost of labor and materials required. You want to be high with this estimate to leave room for unforeseen prices or costs.

To learn more, read How To Make A Renovation Budget.

Next, come up with the property’s estimated market value after being completely renovated. What are similar houses going for in the current market? Take this estimated value and subtract your renovations costs. The remainder gives you a general idea what you should offer for the property.

There is one more factor to consider when thinking about price. Your fixer upper should not be valued for more than 10-15% above the media sale price of other homes in the area. This is the official recommendation of the National Association of Home Builders. In other words, you don’t want to improve a home so much that it’s value exceeds the other homes in the neighborhood. If this is the case, you won’t be able to price the property high enough to get your money back. Find a property that is surrounded by homes that are priced much higher.

A Good Location

Finally, when looking for a profitable fixer upper, pick a home in a desirable location. Most buyers are seeking a safe, well-maintained neighborhood with attractive surroundings. Ideally, you want to find an older house in an up and coming neighborhood that’s an appealing distance from the heart of town. Avoid properties located on busy intersections, across from schools, or surrounded by unkempt homes and yards.