Reason For Selling How Much Financing Address Numbers Look Like Fix it and Flip it – How I Lost Money on Real Estate

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Fix it and Flip it – How I Lost Money on Real Estate

I know many people who have lost money selling their homes. Actually, I am one of those people, and it happened to me more than once.

There are many factors that can lead to financial loss when you sell your home, including the need to sell at the wrong time due to a divorce or impending foreclosure or a downturn in the local real estate market. However, it’s also common to lose money by making many expensive changes to a home before putting it on the market. That’s how I lost money in real estate, before I wised up.

My biggest failure in the fix it and flip it market was a house I bought in Spokane, Washington. Knowing what I know now, I would have limited myself to replacing carpets and kitchen and bathroom fixtures, painting inside and out, and buying new appliances. I’d probably replace the old-style windows, too, to make the space look nicer and appeal to an energy-conscious buyer. These fixes could easily have been done within the two years required to stay there to avoid capital gains taxes.

Not knowing what I don’t know now, I did major renovations, which included moving the bathroom. I did most of the work myself, but the materials alone cost more than I could get back when I sold the house. With the exception of home repairs and watering the lawn to qualify for an FHA loan, I doubt any of my major projects have helped me sell the house or increase its value.

If the house is actually good, with no structural damage or pest problems, the biggest reason for selling below its value is usually cosmetic. This was certainly true of the house I bought in Spokane. Dirty carpets, and a mirror-tiled wall in the living room deterred most buyers from entering the home. I could see past the cosmetic issues and see the home’s full potential – but my imagination ran a little far.

The floor plan was odd, and a little inconvenient, but leaving the bathroom where it was would have made much more sense financially. Why didn’t I do that? Because my emotions and my nesting instincts took over, pushing aside all thought of future gain or loss.

Let’s face it – most people don’t buy their own homes with the intention of making a profit, even though they certainly hope the home will be a good investment. In fact, the emotional stress caused by the process of buying a home and moving into it can be enough to completely erase any thought of moving again after a few years. However, I know many families who have made very good livings by buying cheap houses, living in them and fixing them up, and then selling them when the IRS allows them to pay the extra taxes. Clearly, these people don’t make any changes to these homes without carefully considering the bottom line.

After my Spokane adventure, I decided to learn from my mistakes, and figure out how to stop losing money on houses. I read books by experienced authors on fixing and flipping houses – and then read them again. When I saw that most remodeling projects almost never recoup their costs when the house sells, I was a little surprised, as I’ve been guilty of almost every mistake on the list at one time or another. I know many people who have made the same mistakes when starting those remodeling projects with the goal of increasing the value of their home.

When I bought my next house, I kept that list in mind. For example, my kitchen badly needed a major overhaul, (or so I believed), and it was too small. I looked through the latest home decorating magazines, and ideas flooded my mind. I thought about knocking down some walls, and I also envisioned adding on to the house to make the kitchen bigger. New cabinets will be needed, and new appliances…

Finally I painted the kitchen cabinets and replaced the sink with new ones I bought at Ikea. I covered the cut orange Formica counters with printed cotton fabric, and coated it with several layers of water-based Verathane intended to protect the wood floors. A complete “remodel” cost less than $400, as opposed to the thousands of dollars I would have spent if I had followed my idle dreams of a “perfect” kitchen. Since the house sold for a very good price within two weeks of listing it, my buyer clearly didn’t mind that the kitchen didn’t meet my ideas. Because I kept my costs low, I made a good profit on sales.

Would I be able to sell the house for more money if the kitchen were remodeled and expanded? Maybe, but not enough to cover the cost of rebuilding. Although the National Association of Realtors lists kitchen remodeling as one of the projects that will enhance a home the most, they still advise that you should expect to recoup only 80% of the cost. If your new kitchen is prettier, bigger, and more expensive than any kitchen in the neighborhood, the returns will be even lower. A complete kitchen remodel can cost thousands of dollars, so the 20% change you won’t get back can be a big chunk of change.

Does that mean you shouldn’t make changes to your home that make you happy? Not at all, especially if you plan to stay there for many years. But it pays to sit down with your spouse or partner before you start making your remodeling plans, determine how long you’ll be living in the home, and then think about the full financial implications of the remodeling project. Even if you don’t think of yourself as a professional house flipper, it can pay to slow down a bit and find ways to improve your home without spending money you’ll never see again. As a bonus, your family may be able to avoid the stress and disruption of all that remodeling mess.

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