Renovating Real Estate: A Case Study on Profitability

As a real estate investor, you might hesitate before buying a property that needs major repairs and renovations. There will be costs involved, of course, and a timeline that needs to move quickly enough so you don’t lose money, and a qualified team of vendors, contractors and other experts. 

It can seem like a lot. 

But, if you partner with our team at Deca Property Management, we’ll manage the project from acquisition onwards. Let’s take a look at a recent example of how a client of ours earned double-digit profits on a recent project. You might find it inspiring.

Fix and Flip in St. Louis City

In a rapidly evolving housing market, one of our clients took on a residential fix-and-flip project in the heart of St. Louis City. The property required significant renovation to bring it up to modern standards. 

The goal was not only to improve living conditions for the future occupants, but also to enhance the community’s appeal and overall property values. Through strategic planning, skilled craftsmanship, and a focus on affordability, the team successfully transformed the home into a modern, desirable residence. 

Acquisition Process

The identified property for sale was not only outdated cosmetically but also presented several functional deficiencies, making it a prime candidate for substantial renovation. A comparative market analysis (CMA) determined an appropriate offer price. This included evaluating recent sales of similar homes in the neighborhood, providing a baseline value for the property and factoring in adjustments for its current condition. 

Our client’s fair, competitive offer reflected both the property’s potential post-renovation value and the immediate costs required to restore it. Through strategic negotiation, the final purchase price was agreed upon, ensuring that both the seller and the investment group we work with reached a mutually beneficial agreement. Here’s what it looked like: 

Purchase Details

Purchase Price: $155,000
Seller Credits: $7,500
Closing Costs: $1,030.10
Inspections: $765.00
Total Cash to Close: $149,295.10  

Renovation Process

The renovation process began with a thorough inspection to assess the extent of visibly available issues, including structural integrity, mechanical systems, and cosmetic upgrades. Based on the inspection, a detailed list of necessary repairs and improvements was created, prioritizing work that would add the most value to the home. 

Simultaneously, estimates were gathered from contractors and suppliers for labor and materials, allowing for the creation of an accurate renovation budget. 

A contingency line item was also included to cover unforeseen expenses, and this proved to be fortuitous. During the renovation, an issue was discovered with the foundation, highlighting the necessity of planning for potential surprises during any project at this scale. 

The renovation estimates included line items for: 

• General Exterior
• General Interior
• Kitchen
• Bathroom
• Electrical
• HVAC
• Plumbing
• General Labor
• 10% contingency

Our estimate for renovations was $ 43,765. 

With the renovation budget in place, the next crucial step was managing the renovation process itself. 

It’s essential to oversee laborers and reconcile expenses on a weekly basis to ensure the project stays within budget. By tracking costs early and often, any overages can be caught and addressed before they spiral out of control. 

Weekly site visits are another best practice, as they provide an opportunity to assess progress firsthand. Investors want the quality of work to meet expectations, and these visits provide an opportunity to address any emerging issues. 

Staying in frequent communication with laborers is equally important; it allows for a proactive approach in resolving challenges and providing guidance on how to move forward efficiently. 

This level of involvement ensures that the project remains on track and avoids costly delays or missteps later in the process.

The contingency fund proved again to be important when we noticed a leaking basement caused by the torrential rains St. Louis experienced in the spring of 2024. Despite multiple attempts to remediate the issue by sealing cracks, rerouting drainage, and applying waterproof coatings, the leaks persisted. Ultimately, we were left with no choice but to install a sump pit and pump, an unexpected but necessary fix that came with an $8,000 price tag. 

Having the contingency fund allowed us to absorb this cost without derailing the overall project, further underscoring the importance of planning for the unexpected in any renovation.

Disposition Process

With the property renovated, the next step was the sales process. With one member of the investment group a licensed realtor, an estimated $5,000-$7,000 was saved in commissions. 

The second comparative market analysis (CMA) post-renovations determined the home’s fair market value, now fully updated to 2024 standards. 

Based on this analysis and data, the team decided on an asking price of $232,500. 

During the first week of showings, about 15 tours took place within 5 days. Although only one offer was received, it reinforced the idea that it only takes one good offer to close a deal. Before accepting the offer, the team carefully reviewed all the terms beyond just the price. Finding them all acceptable, the property went under contract. It passed the buyer’s inspection without issues, and the sale successfully closed within 30 days of the listing date, marking a smooth and timely transaction.

The entire project—from acquisition to sale—was a testament to the importance of strategic planning, careful budgeting, and diligent oversight. 

• The property was initially acquired through a direct mail campaign targeting probate leads, followed by a thorough evaluation of comparable sales to negotiate a fair purchase price. 
• The renovation process was meticulously planned, with a detailed scope of work and budget that included a crucial contingency for unforeseen expenses. Despite the challenge of a persistent basement leak that led to the installation of a sump pit and pump, the project stayed on course.
• Throughout the renovation, close supervision of labor and weekly expense tracking ensured that the budget remained in check. 
• The sales process was equally smooth, aided by having a licensed realtor within the investment group, saving thousands in commission fees. After setting an asking price of $232,500, the team successfully closed the sale within 30 days.

Here’s the profit summary:

Profit Summary:

Sale Price: $232,500
Resale Costs: ($10,507.50)
Holding Costs: ($5,266.08)
Rehab Costs: ($43,764.88)
Loan Payback: ($149,295.10)
Profit: $23,666.44

Interested in making money like this on your next investment? Let’s talk about it. Contact us at Deca Property Management.