Chapter 14

Prioritizing and Planning Your Renovations

IN THIS CHAPTER

check Looking for local trends in home renovations

check Ranking the importance of your renovations

check Assigning renovation duties

check Coming up with a tentative budget

check Scheduling renovations and keeping them on track

Prioritizing and planning renovations is like planning for a vacation. You have a limited amount of time to complete the trip, a list of activities you want to accomplish during that time, and a certain amount of money set aside to pay for it. With a vacation, you need to schedule flights and car rentals well in advance, plot your journey from point A to point B, and pack sufficient clothing, necessities, and accessories for a comfortable journey. Repairing and renovating a property requires the same foresight and attention to detail. You need to prioritize your list of projects, order materials well in advance, schedule the work, hire workers, and make sure that everything gets done on time and on budget.

In this chapter, I steer you toward valuable resources that can help you train your tastes and choose the renovations that are most appealing to the majority of house hunters in your area. Then, I lead you through the process of prioritizing and planning your renovations to complete your projects in a reasonable amount of time without spending too much money.

remember Before you even buy a property, you should carefully inspect it and have a solid idea of the work you need to do. For more details, check out Chapter 11.

Developing an Eye for Home Improvements

A flipper is like a talent scout. She can gauge a home’s potential instantly and envision it as a final, finished product on her first walk-through. She can picture the kitchen with new cabinets, countertops, sink, tile, and appliances. She can imagine the barely functional restroom converted into a luxurious new bathroom. She can close her eyes and visualize the outside of the home completely revamped to entice passersby into taking a look inside.

Some people have it, and some people don’t. But if you’re one who doesn’t have it, don’t despair — you can develop the required sensibilities by engaging in the following activities:

  • Visit open houses. Search the classifieds for open house dates and times — they’re often held on Sunday afternoons — and plan to attend two or three this weekend. Try to find open houses in your target neighborhood and in your desired price range to get a better idea of the types and styles of renovations that are optimum for your market.

    tip Attend several open houses and do a comparative analysis in order to gauge the hottest home fashions in your market. They vary depending on your location, price range, and current styles. Become a trend spotter.

  • Attend home and garden shows. These shows typically feature model homes, the latest in building supplies and gadgetry, and renovation ideas and demonstrations, along with plenty of catalogs and brochures you can tote home for reference.
  • Check out magazines, TV shows, and websites. These media resources are great for getting up to speed on what’s hot and what’s not in home decor:
  • Flip through home remodeling books. Many home remodeling books feature both remodeling ideas and how-to instruction. Here are titles of a few to get you started:
    • Bathroom Remodeling For Dummies, by Gene Hamilton and Katie Hamilton (Wiley)
    • Home Decorating For Dummies, 2nd Edition, by Katharine Kaye McMillan and Patricia Hart McMillan (Wiley)
    • Home Improvement For Dummies, by Gene Hamilton and Katie Hamilton (Wiley)

  • Pay attention to landscaping. Whether you’re out for a morning drive, visiting open houses, or simply taking a stroll around the neighborhood, examine the landscaping. Note the features of the landscape and try to imagine how you could landscape the front of the house to improve its curbside appeal. You may not want to chop down any 50-year-old trees, but a careful trim can freshen up a house, much as a new hairstyle can make you look years younger.

    tip Landscaping books, magazines, and websites are about as plentiful as plants, and most are packed with copious collections of color photos. When you need some landscaping ideas and advice, check out the following offerings:

  • Recruit a renovation mentor. If you don’t have a knack or passion for remodeling, find someone who does and ask her to accompany you on your walk-throughs and offer her advice. The final decisions are still up to you, but a gifted pair of eyes can help you make superior choices.

remember Knowing your renovation options (and their costs) before you start looking at properties is key to buying a property you’re sure can turn a profit.

Prioritizing Your Projects

Unless you have a bottomless bank account and an infinite amount of time to flip your house, you have to prioritize your renovation projects. The overall strategy for prioritizing projects is as follows:

  1. Fix any underlying structural problems and mechanicals (plumbing, electric, heating, and air conditioning) first.

  2. Make any essential repairs that aren’t structural or mechanical, such as dangling gutters, cracked windows, and rickety doors.

    If something is broken, repair, replace, or remove it. If it ain’t broke and it doesn’t look bad, don’t fix it.

  3. Concentrate on renovations that promise to deliver the highest return on your investment, such as laying new carpeting, replacing the bathroom vanity, or installing a new kitchen countertop.

    Renovate only if it makes financial sense to do so.

  4. If time allows, do anything you can do yourself for little or no money that makes the house more attractive, such as adding decorative shutters and replacing blinds.

    Save items that won’t sink your sale for last.

remember All home buyers want a nice, clean house in the price range they can afford, in the best neighborhood possible, with good schools for their children, and with as few mechanical problems (plumbing, gas, electric, and heating) as possible. When you buy and renovate houses, let these factors guide your decisions as you choose which renovations make sense.

In the following sections, I guide you through the process of prioritizing your renovation projects. When you’re done, you should have a list of projects ranked by importance along with projects that promise the most bang for your buck. Check out “Coming Up with a Game Plan,” later in this chapter, for the full scoop on making sure that you complete your projects with minimal fuss.

remember Start planning renovations and lining up contractors as soon as you’re pretty sure you’re going to buy the property, especially for larger projects — roofing, heating and cooling, foundation repairs, and the like. Don’t spend any money before you close, but be prepared to start your renovations the next day. If you wait until closing, you may find that all the contractors in your area are already backed up with projects. Get things moving right away. (Check out Chapter 4 for details on hiring contractors to work for you.)

Tackling essential repairs

Making a ramshackle house look pretty is like putting lipstick on a pig — and that’s not something I recommend. You want a good, solid home devoid of any problems that may crop up later during your buyer’s home inspection. The best way to purge a house of problems is to go through your home inspection report and address every item on the list. (I cover home inspections in detail in Chapter 11.) Focus on the big stuff first, such as the following:

  • Foundation problems
  • Worn or damaged roof
  • Furnace that needs to be repaired or replaced
  • Electrical system that’s not up to code or doesn’t work
  • Plumbing that’s not up to code or doesn’t work
  • Air conditioning that’s nonexistent or inoperable
  • Insulation that’s absent, insufficient, or ugly

After listing the major repairs required, you can address any minor problems that crop up during the inspection and are essential to fix, such as light fixtures that don’t work, leaky faucets, broken doors, or peeling paint.

Gauging renovations to get the most bang for your buck

When you’re planning renovations, you always want your return on investment (ROI) to exceed 100 percent. Otherwise, you become a real estate philanthropist — giving the buyer something for nothing. So when you see articles claiming that you can expect an 80 percent return on a new kitchen or a 75 percent return on a bathroom remodel, you may wonder why any flipper in his right mind would consider rehabbing the kitchen or bath. Three reasons:

  • As a flipper, you already covered the cost of the renovation by purchasing the property below market value (see Chapter 12). In other words, the renovation is already paid for.
  • When you look at those ROI numbers of a 75 percent or 80 percent return, keep in mind that the person punching numbers into the calculator is usually assuming that you’re having a professional do all the work. By doing some or all of the work yourself, you may be able to boost the ROI well over 100 percent.
  • Few buyers can afford to renovate the kitchen or bathroom after paying a boatload of money for a house. They’d rather borrow a little more and pay for a house that’s finished. To avoid excluding these first-time home buyers from your market, some renovations are essential, even though on the surface they may not appear to be cost effective.

remember The fact that renovations boost your ROI doesn’t mean that you should redo every room in the house. When you have a limited budget and timeframe, you may find that you need to make some trade-offs. When debating which trade-offs to make, keep your eye on the bottom line (see “Drawing Up a Tentative Budget,” later in this chapter, for more about money matters) and let the following considerations guide your decisions:

  • Enhance curb appeal. In flipping, curb appeal rules, and you usually get more bang for your buck from landscaping and exterior renovations. A fresh coat of paint coupled with some basic landscaping is often a lot less expensive than the cost of remodeling a kitchen or bath. See Chapter 16 for tips on enhancing curb appeal.
  • Add fresh paint and carpeting. For a few thousand dollars, you can carpet most houses and add a fresh coat of paint. It’s a quick, inexpensive way to make the house look new-ish. For additional ideas on quick, affordable repairs and renovations, see Chapter 15.
  • Consider the competition. After touring comparable homes in the neighborhood, you know what your house needs to make it slightly more attractive than comparable homes. Making the property as attractive or slightly more attractive is good enough.
  • Weigh the expense. Don’t invest any more than it takes to bring your house up to neighborhood standards. If the kitchen is good enough for the neighbors, it should be good enough for you.
  • Target popular demand. By knowing what most house hunters in your target area find attractive (see “Developing an Eye for Home Improvements,” earlier in this chapter, for details), you can more effectively base your renovation decisions on what sells rather than on what you prefer.

Adding inexpensive, last-minute touches

After you’ve done your major remodeling and checked your bank account to see how much money remains, take a step back and see whether any final touches can further enhance the property’s appearance. You may want to add decorative shutters to the windows, light up the landscaping with exterior lamps, or spring for some new throw rugs. Look for cheap, easy stuff that won’t blow your budget or take more than a few hours.

warning Don’t get carried away after you remodel the house with sprucing it up even more. Keep your budget in mind, or you’ll end up blowing your profit on minor changes that may end up becoming major expenses.

Delegating Duties

After you have a detailed to-do list, it’s time to delegate — to determine which jobs you can do yourself, which jobs you can rope your friends into doing, and which jobs you need to hire a professional to complete. In the following sections, I provide some guidance on how to pick the people on your team who are best qualified for various duties.

remember The first rule in house flipping is to do the job right, so as you assign duties, be honest about each person’s abilities and inabilities. If you don’t know a screwdriver from a scuba diver, maybe you should stick to the money end of the deal and leave the repairs to someone who’s more qualified. You may save a little money by doing it yourself, but you pay later for any shoddy workmanship.

Identifying do-it-yourself projects

The most obvious way to cut costs is to do the work yourself. You may not be able to install a new furnace or hot-water heater, but most people can push a broom, mow the lawn, scrub a toilet, or tear out old carpeting. The following list points out the chores that most house flippers who are just starting out choose to do themselves:

  • Scheduling
  • Basic cleaning
  • Yard work
  • Tearing out old stuff
  • Odd jobs for the weekend warrior

remember When considering whether to do a job yourself or hire a professional, ask yourself this question: “Can I do the job as well and as quickly as a professional?” If doing it yourself jeopardizes the quality of work or the schedule, hire a professional. The $100 per day rule (see Chapter 12) applies here. If a project takes you seven days to complete, it costs you $700. If you can hire someone to do the same project in two days for $500, you save $200 and cut five days off the schedule.

Getting a little help from your friends

Consider asking friends, family members, and neighbors to help with the cleanup and renovation and assign tasks based on your helpers’ skills and experience. Of course, this means you have to pitch in when they need a hand, but you can pick up additional skills and knowledge by working alongside people with expertise in a variety of areas. You can work as a group on landscaping renovations, work alone, or team up with one other person to perform a task such as wallpapering that’s a little easier to do with four hands.

warning When bartering with friends, family, and neighbors, the value of what you’re trading may be subject to taxes. Consult your accountant (I help you find a good one in Chapter 4).

Flagging jobs that require professional expertise

Licensed, insured contractors and subcontractors have four things that many do-it-yourselfers don’t have: time, tools, know-how, and good insurance. When faced with the decision of whether to do the job yourself or hire a professional, consider these four factors:

  • Time: Do you personally have the time to complete the job yourself, or would your time be better invested in other pursuits, such as your day job? Can you complete the job on schedule?
  • Tools: Do you own the tools required to do the job? How much do the required tools cost to buy or rent? Do you have the means to haul large, heavy materials, such as rolls of carpet or sheets of drywall, to the worksite? How much would it cost to have materials delivered?
  • Know-how: Do you have the expertise to do the job well? Be honest. Materials can cost a lot of dough. If you tear up fancy wood paneling in the process of installing it or ruin a roll of vinyl flooring by making the wrong cuts, these missteps add to the cost of the job.
  • Insurance: Is the job dangerous? If you or someone who’s helping you is injured in the process, will your insurance cover the doctor bills and any income lost from missed work?

Unless you have the basic qualifications to do the job right, consider hiring a professional to do the following work:

  • Structural repairs, including the foundation
  • Major renovations that require knocking down or building walls
  • Roof replacement or repairs
  • Siding or tuck pointing
  • Window replacement
  • Furnace and air-conditioning installation or repairs
  • Electrical upgrades
  • Major plumbing repairs, including septic system
  • Removal or treatment of toxic substances
  • Installation of new carpet, tile, or vinyl flooring

warning For major projects, such as remodeling a kitchen or bathroom, tell the contractor, in writing, exactly what you want done, the deadline, and the budget. If you leave decisions to the contractor, you’re likely to experience cost overruns, both in time and money. Chapter 4 has more information on finding and contracting contractors, subcontractors, and handymen.

Drawing Up a Tentative Budget

How much you profit from the sale of the house often hinges on the cost of repairs and renovations. Overzealous flippers get burned when their visions for improving a house exceed their ability to pay for them. Whether you have $10,000 or $100,000 budgeted for repairs and renovations, decide early on, preferably before closing, how much of that money to set aside for each project.

To establish a budget, follow these steps:

  1. List the projects you plan on hiring a professional to complete (covered earlier in this chapter).

  2. Obtain estimates for these jobs.

    Estimates should break out the cost of materials and labor.

  3. Jot down the projects you plan on doing yourself (covered earlier in this chapter).

  4. For each of these projects, list the required materials.

    If you’re remodeling a bathroom, for example, you may need a new toilet, sink, cabinet, tile (for the walls), flooring, paint, and caulk. Visit your local hardware store to research the cost of materials.

    tip Many hardware stores display two prices for materials — an uninstalled and an installed price. Use these comparisons to determine how much you’re saving by doing the work yourself.

  5. Tally all the estimated costs and add 20 percent to cover sales tax and unexpected expenses.

    The cost of most projects exceeds estimates.

Use the renovation planner shown in Figure 14-1 to estimate costs and keep all your notes in one place. It features space for listing each project, its start and completion dates, and its costs for materials and labor. To estimate your renovation costs, head to Chapter 11.

image

© John Wiley & Sons, Inc.

FIGURE 14-1: A renovation planner is a handy tool for estimating costs.

warning If you’re working with money from an investor, don’t let him talk you into taking on a project in which you assume most of the risk and the investor stands to gain most of the profit. When budgeting, make sure that you’re the one making the decisions on how to spend the money. Remember, it’s your money. It’s important to keep your investor(s) happy because they’re helping finance the venture, but use your own discretion in deciding what’s best for your long-term gain.

Coming Up with a Game Plan

Without proper planning, you can literally paint yourself into a corner when you’re renovating a house. If you refinish the hardwood floors first, subsequent construction traffic ruins the finish. If you install new drywall before the plumbers show up, you may find them hacking chunks out of it later to get at the pipes. Before scheduling the work, sit down with your project list and arrange your renovations in a logical sequence so that the work flows smoothly and you don’t end up dribbling paint all over your new carpeting. In the following sections, I lead you through the process of drawing up an overall renovation plan.

tip When I schedule renovations, I try to have as much energy going into the project as possible to maximize the synergies of the workers and crews. Nobody wants to look like a slacker in the midst of fellow workers. This strategy also helps draw more attention to the house from neighbors and potential buyers.

Switching on utilities and ordering materials

Few things are more discouraging to a flipper than having workers show up at the house only to find that the electricity is turned off and they don’t have the materials they need to get started. Not only does this lack of foresight undermine your schedule, but it also saps the enthusiasm of your team at a time when that enthusiasm is at its peak. In the following sections, I show you how to make sure your project launches on the scheduled date and time.

Utilities

Before you begin scheduling the work, make sure that you have the power (gas and electric), water, and materials you need to get started. Contact the utility companies as soon as possible to have them turn on the gas, electricity, and water. Otherwise, you can’t work on the gas or electric furnace, repair the lights or outlets, or work on the plumbing. Call the utility companies right after closing to have the utilities switched to your name and specify a date on which you want them turned on.

If you forget to have the utilities turned on, don’t use this misstep as an excuse to postpone your renovations. You can buy or rent a generator, obtain water and electricity from the neighbors, and use portable heaters to remain toasty in cold weather. Time is money! Get to work and keep working so that you can realize that profit.

warning When the utilities are turned on, you should be at the house to check for any leaks and be prepared to turn off the water or gas at the main shutoff if you notice any leaks. If the temperature is below freezing, turn on utilities in the following order: electricity, gas, and water. Always have the water turned off at the meter and then slowly turn it on so you can catch any leaks quickly before the pipes hit full pressure.

Materials

List all the materials you need for repairs and for your home-improvement projects, order the materials as soon as you know what you need (but not before closing on the house), and have the hardware store notify you of any items that are on back order. If you know ahead of time that a cabinet you want is not in stock, you may be able to order a similar cabinet that’s in stock or locate another supplier who has it.

tip Some stores are willing to hold the materials for you until you’re ready to start and then deliver them right to your door. If the property has a secure garage, empty out as much space as possible before delivery day rolls around.

Tackling underlying problems first

If you’re scheduled for liposuction, you don’t run out and buy a whole new wardrobe. You don’t even know whether the new clothes will fit. The same is true when you’re renovating a house. If the house isn’t level, you level the house before installing a new kitchen. If pipes need to be replaced, you have that done before you paint the walls or install new flooring. For most renovations, follow the same sequence as the one used for new construction:

  1. Repair or erect the underlying structure.

    Correct any problems with the foundation and have the carpenters rough out the walls, ceilings, and entryways first.

  2. Install new ductwork, if needed, for heating and central air conditioning.
  3. Replace any water pipes or sewage lines that need to be replaced.
  4. Run new electrical lines, if needed.
  5. Drywall or plaster the walls and ceilings, install flooring and cabinets, and perform any other final renovations.

Working from the top down

When it comes to home repairs and renovations, gravity rules, water seeks its level, and traffic runs across the floor, so schedule your work from the top down. If the roof is leaking, fix it first. Otherwise the water can damage the drywall or the new carpeting. If the house has more than one floor, consider starting at the top and working your way downstairs. In a room, paint the ceiling first, then the trim, then the walls, and then lay the carpet or flooring. If you’re doing major renovations in a room, save the painting, carpeting, and installing new fixtures for last.

tip If you plan on living in the house during renovations, consider renovating one bathroom, one bedroom, and the kitchen (in that order) before you move in. These changes make the house livable so you can take your time with the other renovations.

Working from the outside in, or vice versa

Weather permitting, work on the outside of the house first to generate some neighborhood buzz. By working on the outside of the house first, you immediately put the wheels of your marketing machine in motion and have a much better chance of selling the house when you put it on the market.

remember Plan ahead to take advantage of the weather and keep in mind that house-hunting season generally starts to heat up in early spring and cool off in the late fall. You don’t want to get stuck with a house over the long winter months when heating bills peak.

If the weather is super cold or super hot or you plan on spending a year or more renovating the inside, you may want to reverse your strategy. Begin inside and then complete the outside renovations when you’re closer to the date on which you plan on planting the For Sale sign on the front lawn. Keep in mind, however, that if something on the outside, such as a leaky roof, is likely to cause additional damage, you need to take care of that first.

tip If you have to kick it up a notch to meet deadlines or get the house ready for closing, work inside and outside at the same time and consider scheduling crews in shifts, but keep in mind that the neighbors may not welcome the graveyard shift. Check with your neighbors first, invite them over to witness your progress, and ask them whether multiple shifts for a limited period of time would be acceptable. Becoming friendly with the neighbors is always (well … usually) a good idea.

Allotting sufficient time for your projects

At this point, you may be wondering just how long it’s going to take to renovate your house and put it back on the market. The best answer I can offer is this: It depends. It depends on the condition of the house; how extensive the planned renovations are; how much work you plan to do yourself; the number of waking hours you can reasonably commit to the project; how well you plan the renovations; how much help you have; and how long you plan to hold the house, especially if you’re living in the house you flip.

If you’re doing a cosmetic job (as I describe in Chapter 15), you hire out the work, and you have plenty of hired hands working in unison, you can expect to complete your renovations in one to two weeks and place the house right back on the market. On the other hand, if you’re completely gutting the house and doing most of the work yourself on nights and weekends, the project can easily stretch out over months and years rather than weeks.

tip Consult with your contractors to set reasonable dates for completing the work, and based on the information you gather, plan on placing the house on the market the day after the work and final cleanup are scheduled to be completed. Then, let everyone know the date. You can bump it out later, if needed, but having a date in place is a great motivator.