How to Decide to Flip or Rehab a Home?

Q: Gerald, I have a property under contract to buy. I looked at all the numbers and I’m confident that it’s a good deal, but I’m not sure whether I should wholesale the property for a quick profit or rehab and then sell the property. Billy, Columbus, Ohio

A: That’s a great question, Billy–this is something that I grapple with all the time myself as a full time investor–should I flip a property as is or take the time and money to rehab it and ideally make a bigger profit?

When I make that decision, here are 3 factors I consider: 1) time of year 2) how many other rehab projects I have going on & most importantly 3) how much more money I expect to make rehabbing the property versus the rehab costs.

The time of year is a important, because rehabs usually take longer to complete during the winter in colder places–that’s not to say that I would never do a rehab in the winter–it’s just that I would require a higher expected profit before I committed to doing a winter rehab.

The number of other rehab projects I currently have is another important factor I consider, because you never want to overextend yourself–this can be dangerous financially. The more rehab projects I’m currently working on, the more likely I’ll be to wholesale the next property I find–the less rehab projects I’m doing, the more likely I am to consider spending the additional time, money and effort to renovate.

This leads me to the 3rd and most important factor which is how much more money you expect to make rehabbing a property versus wholesale flipping the property. The general rule of thumb I use is that my additional rehab profit should be at least twice as much as the cost of the renovation. So, for example, if I can make a $20K profit wholesaling a property and I’m deciding whether to do a $25K rehab on the property, I’d want the additional profit after the rehab to be at least $50K.

Now, there are other factors I’d consider, like how long the rehab will take. For example, I may rehab a property that only needs a $15K roof to make an additional $25K because it doesn’t take that long to get a roof done, whereas other renovations often take much more time, but hopefully you get the idea–time is money. If you spend more time and effort to do a rehab, it needs to be worth it to you financially.

Thanks for your question, Billy, good luck.

For more real estate tips and information, visit my blog at geraldlucas.com.