The definition of “flipping” refers to the practice of buying a home and quickly reselling it for a profit, usually after making repairs or improvements. Investors who flip homes risk losing money on their investment if home prices fall. In the last two years we have seen a huge increase in homes put on the market by investors who have taken some risk in purchasing homes in need of renovation. The obvious reason for this increase in this type of purchase is due to the large numbers of millennial buyers who have decided it is time to move out of their apartments or relative’s property to purchase their very first home.
A good friend of mine called to request a showing of a home which just came on the market. We could tell by the pictures that this home had been “flipped” by an investor. All the rooms featured contemporary colors, and walls had been removed to offer an open concept which is the most highly desired floor plan for the millennial buyer. It had been staged with furniture and new carpeting and hardwood flooring. When I looked up the sale price when the investor purchased this home in the last year, it was $160,000 lower than the current asking price. It had been on the market one day and there were several offers! It then occurred to my friend and I to think about finding her a home that she could “flip” for herself and then have the home designed to her own specific needs. That way she could become her own investor, design it to her specifications, and in effect save the profit for herself!
Then it also occurred to me that so many baby boomers will be moving and downsizing in the next 5 years. Most of over 55 generation I talk to tell me they are interested in downsizing into a one level ranch on a manageable lot or desire a condominium side by side ranch with little or no maintenance. Others are moving into newer apartment buildings designed for 55 plus renters. This means many homes will be going on the market in the next few years and guess who their buyer will be…the millennials! Therefore, when selling it makes sense to appeal to this group to attract the top dollar when it comes time to move. Why not “flip” your own home, in other words renovate it to the likes of the 25-37-year-old buyer! By upgrading your home today, you can enjoy the renovations and have it ready to go on the market when you decide to make the move. So often, my boomer clients wait to get their homes ready to sell until they make the decision to move. The decision to move was impulsive, made after they visited a friend, or vacationed to a warmer climate. Many wake up one day and just know it is time to move. Others may have health issues that make their living situations difficult. Then renovating is the last thing on their minds when downsizing a lifetime of treasures is the major focus. So, the home is put on the market in average condition with older carpeting and flooring and paint colors from the past. The home does sell quickly if priced right, but so many dollars were left on the table due to the lack of cosmetic appeal.
Today’s young buyers will pay so much more for a home that meets their needs both structurally and cosmetically. The reason is that they have purchasing power but limited funds for renovation. Therefore, they will pay a premium price for a home where little to no work is needed and the interior speaks to their desires. At today’s low interest rates (4.5% for a 30-year fixed rate loan), for every thousand they borrow the payment goes up by under $5 per month! That means they are happy to pay another $50,000 for a home that has been “flipped” because their payment increases by only $250 per month and no more cash is needed for their own improvements after the sale.
What are millennials looking for in the way of upgrades and renovations? Here are a few tips from my experience working with millennial buyers, as well as having many of my listings “staged”. (Staging is a process where an interior designer will bring in their own furniture and usually do some painting and flooring to show off a home that is typically vacant.)
· Walls and ceiling should be painted in popular colors for today’s buyer. Living rooms in grey tones, kitchens in pale green, bedrooms in tope. Many other colors will work, and you can go online to google the most popular colors by room for today’s millennial buyers.
· Flooring is critical. Hardwood or laminate flooring works best in kitchens and family rooms. If bedrooms are carpeted, grey tones work best.
· Open concept is the most desirable floor plan. In many cases a wall can be removed at a reasonable cost to open the living space. The older floor plans separated the kitchen from the family room or dining room.
· Silver fixtures in the bathroom and a new toilet can totally transform a dated bath. Also tub enclosures will be an economical way of covering a stained tub and shower.
· Granite counter tops and stainless-steel appliances win the day with this group of buyers. Maple kitchen cabinets are the most popular but, in many cases, painting over the current older stained cabinets can also suffice.
· Take care of any structural defects such as a bad basement, roof, furnace, electric or plumbing. Today’s savvy buyers will have home inspection anyway where any defects will be exposed. The purchaser will always move towards safety and demand a much higher credit than the actual cost of repair or replacement.
The point of this article is to get you thinking a bit out of the box. By renovating today, you can enjoy the next few years in luxury as well as being ready for that impulse which will inevitably arrive when you least expect it. You can downsize now, choose upgrades that are contemporary and be the winner in the real estate market when it is time to cash in on your equity. Remember, there are no taxes paid in gain (exempt up to $250,000 in capitol gain for a single person, and up to $500,00 in capitol gain for a married couple).
“Flipping” your own home or purchasing a home in need of upgrades and then renovating, can be the best way to achieve your goals. When purchasing a home and upgrading it you will enjoy the process of renovating and have it the way you want it verses buying a home with just some of the design and condition you hoped for. As we age we tend to go conservative and overlook options that can enhance our lifestyles and create an environment that meets our dreams and desires. When selling your updated home someday, you will reap all the rewards that investors are receiving. It makes good sense if you are willing to open your minds to an idea that may never have occurred to you!