Renovation 101
There are essentially three different processes for the average fix and flip renovation: Planning, Construction, and Exit strategy. In each section, there are subsections from start to finish. Of course, the order may vary among builders, but they are essentially the same steps to achieve the same goal. This is a checklist for you to refer to throughout your renovation process. Depending on the property, some tasks can be done simultaneously to save you time and money! Let’s get into it:
Building Your Budget
Your budget is the first and most important part of your fix and flip. And the most challenging part is sticking to your budget. You’ll need to figure out your wiggle room in your budget to plan for unseen obstacles that may not come up in the inspection. Your budget should cover overhead, materials, transportation, and labor; while still producing a profit after selling. A typical rule that many flippers use is the 70% rule.
The “70% rule” is a popular real estate investing strategy that dictates how much you should pay for your properties. The general idea behind the 70 percent rule is that you shouldn’t spend more than 70% of the ARV minus repair costs. Cutting out 30% will leave room for profit and cover unseen expenses. Of course, this is just a guideline and is subject to the property and your investment goals.
| Example: |
| A property’s ARV is $100,000 and needs $25,000 in repairs |
| The most the investor should pay for it is $45,000 |
| 70% of $100,000 = $70,000 – $25,000 = $45,000 |
Planning Process
1. Find The Right Property
Finding the right property can be difficult, depending on which area you’re working in. Here at Summit, we aim for the worst house in the best neighborhoods of King County. This way, our properties are sourced ethically, straying away from foreclosures. These neighborhoods are a safe bet for a high ARV and benefit the neighborhood as a whole.
When looking for a property, do your due diligence before you put in an offer to buy it. Drive by the house, research the purchase history and understand if any liens or encumbrances come with the property. A great way to find a property is to buy it off the market to save money. You won’t need to pay for a broker to find you a property; these are typically quick closes. Off-market properties are advertised on craigslist and Facebook groups, so keep your notifications on and build a relationship with the sellers.
2. Purchase
Investors should purchase a property they know will appeal to buyers once renovations are complete. Be confident in your decision-making that the property is the right amount in dollars and that you can complete the renovation quickly. When working with off-market properties, be prepared to close a deal in 48 hours. These deals go quick, and you’re competing against other investors or brokers.
3. Plan Your Changes & Permits
Now it’s time to plan your project. Pick your materials in mind with your budget, reach out to an electrician, a plumber, or an expert contractor, and apply for permits if your flip requires it. This should be a comprehensive plan of what needs to be changed to make the home more desirable. The most significant renovations that can be made in the budget get priority on your list. Don’t spend time and money on the less important fixes.
Construction Process
During construction, many tasks can begin and overlap around the same time. Scheduling and managing the project efficiently can save you thousands of dollars. One thing to mention specifically is landscaping. Often times landscaping may not be the first task in a renovation, but because it is subjective to your property, landscaping can be accomplished during any phase of the project. Depending on how extensive, it may take stages throughout the renovation. For this section, I’ll reference one of Summit’s most recent multifamily apartment flips.
4. Landscaping.
5. Demo and Gut
This property was very outdated, with popcorn ceilings, small windows, and closed-off kitchens. We chose to open up the kitchens in all the units for functionality and appeal to renters in the future. Everything was removed in this property so we could apply our timeless materials from our spec book. You can find the specific materials at the end of the document.
6. Fix Any Flooring Issues
If you’re buying an older home, there may be unforeseen flooring issues that you won’t see until after your demo. Foundation repairs or water damage can be a massive hit to your budget but fixing these issues is essential to the rest of your renovation and sale. Another reason for fixing any flooring issues is if you plan on using vinyl floor planks. In this situation, the subfloor needs to be perfectly smooth. Any divots or scrap material under the vinyl planks will alter the soft material, appearing on the surface after installation.
7. Frame
Once your permits are approved for any additions or changes to the property, you’re ready to frame! A good idea is to plan an open floor plan. You will probably take out more walls than you will be adding. Home buyers love an open floor plan because of its functionality, and it’s an easy way to add value to an older home. During this phase, you may be able to start adding flooring to some sections of the property that you’re not currently working in.
8. Windows/Roof/Siding/and Exterior Doors
This phase should overlap with the framing process. Typically, the order is framing, windows, roof, siding, and exterior doors. Of course, this is all subjective to the property. Make your best judgment on the order of operations here to best suit your property and budget.
Steps 9-11 can typically be scheduled at the same time. If you’re putting down flooring in one part of the house already during this phase, make sure you don’t need an electrician or plumber in that area. Be very thoughtful about the permanent locations of the plumbing, lighting, outlets, and switches to save you time during the drywall stage. Sometimes you discover an outlet would be best suited higher or lower after you drywall, mud, and paint.
9. Walkthrough with the electrician
This phase should overlap with the framing process. Typically, the order is framing, windows, roof, siding, and exterior doors. Of course, this is all subjective to the property. Make your best judgment on the order of operations here to best suit your property and budget.
10. Install Plumbing
A plumber could be working at the same time as the electrician. Anything of permanence should be complete before drywall.
11. Install Furnace/AC/Water Heater/Duct Work
12. Insulate/Drywall/Mud/Paint
From here the rest of the renovation should go by quickly. With a good contractor, drywall, mud, and paint can be finished in a week.
13. Permanent Gas and Electric
This step is critical for laying down your flooring and any of the steps afterward. Depending on the time of the year, you may need to heat the house to dry the subfloor. Warmer months are best for the renovation because you won’t need to plan your order of operations around the weather. On the other hand, if you’re renovating in the winter months, you might experience an extremely high electric bill to dry the subfloor.
14. Flooring
15. Trim work & Paint/Cabinets & Appliances
16. Exit Strategy
Now the house is ready to sell! The goal is to have the buyers come to you because your property is in a great location that appreciates over time, sells for at or above market value, and is an overall appealing property. Stage and list the home, find a buyer, host an open house, hold and rent; there are many options for you after your renovation! Congratulations!
Interested in design tips that will increase your ROI? Check out our blog How to Design your Fix and Flip to Increase Your ROI.
Jim Thorpe is a Seattle-based entrepreneur and real estate expert with over 30 years of experience in real estate development. He works to find high-demand properties in low inventory areas for both developers and homeowners alike. One of his specialties is locating single-family homes in property parcels zoned for multi-family development. His rental portfolio now includes houses, apartments, and commercial properties. Thorpe’s dedication to his business has led to city-wide growth and development in the real estate sector.
Summit Capital Partners is a real estate development and management firm that operates out of Puget Sound and is owned by Seattle real estate expert, Jim Thorpe. They work to acquire off-market real estate and specialize in developing risk-adjusted solutions, allowing an assets’ value to increase over 6-12 months. Summit Capital aims to make a difference in the community where they do business.
