Four-week total home renovations, fast property flips, limitless listings paired with breezy buying – what a thrill! HGTV’s presentation of life in the real estate business seems effortless and easy success appears perfectly attainable. When such major real estate projects are squeezed into hour-long episodes, it’s inevitable that some realities of fix and flipping will be glossed over—making for more fun tv, and easy inspiration for real live ventures into real estate. These shows are great for inspiration and motivation, but before jumping off your couch and into the market, let’s consider: what steps of the process are not depicted on the shows, and how can new real estate investors and prospective house flippers appropriately adjust their expectations for doing them in real life?
Shows on HGTV portray various stages of the renovation and listing processes for various projects, though rarely do they portray what financial details truly factor into the budget and costs of a project. Financing methods on HGTV remains slightly ambiguous, and budget breakdowns tend to focus on only one component—materials—skirting around mundane but critical costs associated with fixing, flipping, rehabbing such as permitting and inspections, closing costs, and more.
We would argue that the portrayal of the financing process of HGTV renovations as well as more conversation surrounding budget lines would add to the thrill of these addictive shows, while also establishing more realistic expectations for viewers interested in entering the world of real estate—and who are particularly confused about how to finance their own HGTV-inspired rehabs. The brisk pace of the sorts of remodels that are common on HGTV would be well suited for hard money financing, as hard money loans are short term loans that account for the after-repair-value of the property. To responsibly take on such a loan, however, means that tv-inspired borrowers should keep a few things in mind.
Take HGTV Budgets with a Grain of Salt
Admittedly one of the most fun, dramatic elements of many HGTV shows is the process of elimination to select a property. However, this step is often staged to create more entertaining tv. In most cases, the real estate investors starring in each episode have typically already purchased their property. The strategic aspect of selecting the property is the foundation for a successful fix and flip, and is often dramatized to get an episode rolling. In the details of various casting calls—for example, Fixer Upper’s application requirements—it is specified that show subjects must already have a property ready to go, and the selection process will be staged for the episode.
With properties often purchased in advance, it can be unclear what is represented in the given budget. Budgets on HGTV shows have become an entire category of online meme, stemming from the often humorous and intriguing disconnect between what viewers learn about the rehabber’s budget and what the budget includes or does not include.
Shows don’t always accurately reflect the true cost of labor and materials for projects. Especially with specialty crews being on call for the network or showrunners—the show’s creators—or even in some cases, the stars. It is unclear if the crews used in HGTV renovation shows are local contractors and construction crews, or if they are specialty crews brought in from businesses the show’s stars have off-screen, or if there are contracts between construction crews and HGTV. In a lot of cases, stars on the shows also are in the business of real estate and construction when they aren’t on screen. This detail of how crews are hired might seem dull, but it would actually have a big impact on the budget that each show guest must prepare before having their property featured! Similarly, understanding the logistics of hiring crew for demo, building, refinishing, and more would give viewers interested in entering the real estate realm more information to base their own budgets upon.
Not only are labor costs vague in most HGTV shows, but the overall budget line items are also as well. This again is a creative choice that certainly keeps the pace of each episode fast and fascinating. But, who knows what the guests on these shows are truly paying for? For example: on Fixer Upper, areas for improvement are marked on-screen with preparatory sketches and a budget figure. It is unclear, though, if demolition and labor are included in the budget per item, or if that number is just factoring supplies, and if budgets for whole rooms include aesthetic details like furniture and appliance finishes. It makes it nearly impossible for the audience to recreate their process or understand the details that are missing.
Similarly, do not be discouraged if in reality, the timeline of your renovations does not quite match with the extreme timelines portrayed on tv. Time and money are two intertwined resources during rehabs and fix and flips. It might be common to see a kitchen remodel in a show taking 2-4 weeks, when in reality it can take months. You have plumbing and wiring issues, coding, vendor delays, contractor setbacks, and passing inspection to consider. Shipping, craftsmanship, and installation for specialty aspects can take much longer than you would think, especially from the ease of portrayal on tv. On these shows, a design plan has already been made, which means these details have already been accommodated – whereas you might have to edit and revise your plan—taking more time—based on the availability of resources, suppliers, and contractors.
This is one of the most important reality checks to keep in mind before transitioning from HGTV paradise to real life. When using a hard money loan, timing is critical. Therefore, it’s important to have a realistic sense of how long the various stages of renovation take, and understand how that fits into the framework of your 6 month hard money loan.
The other glaring omission from otherwise realistic portrayals of the fix and flip process is permitting and inspections!
Who can blame HGTV for not delving in to the process of collecting contractor bids and researching your local options – this certainly isn’t a visually compelling process! Yet again, it is a critical one without which your home renovation could suffer. HGTV viewers interested in entering the fixer upper market might not realize that for each major construction element—everything from wiring, plumbing, and hanging kitchen cabinets—a municipal building permit is required to begin construction, and then a final inspection of the work must be passed before the property is legally deemed safe for living.
On HGTV, massive amounts of work, from massive reconstruction to the simplest fixture re wiring, is done in an incredibly tight timeframe. Part of this is orchestrated TV magic: as we discussed earlier, specialized crews are mysteriously available at the drop of a hat, and the new rehabbers featured on most shows are never portrayed during the contractor search and vetting process. The permitting process is also mysteriously eliminated.
In reality, to do a project like the ones portrayed on HGTV, you actually have to have your whole scope of work planned ahead of time. The scope of work must be detailed and include all the various and sundry work you want done on the property, detailing what plumbing will be redone, what wires need to be run to new sockets, how you’d prefer to redo your cabinetry- you name it! This work plan must then be presented to your local municipal or city government, and without their approval you cannot begin!
The city will also ask for the dollar amounts of rehab costs, in addition to the work you want to do. Rehabbing seems spontaneous on tv. Design decisions can be redone in a jiff, and it often appears that the stars are planning as they go. Without showing the inspections these shows are able to remain firmly in the realm of tv magic. A more realistic portrayal would show not only the numerous inspections themselves, but also the potential additional work prescribed by the inspector to get the construction up to code. For inspired viewers new to rehabbing, remember to factor in inspection setbacks and permit delays when budgeting for both time and money.
Remaining Inspired While Being Grounded in Reality
Lest the novice real estate investor grow overwhelmed and discouraged watching these shows, we want to reiterate that HGTV is a fun, inspirational outlet and when you find yourself thinking “maybe I could do that,” maybe you could! Just remember to set yourself up for success by having realistic expectations regarding the current housing and rental markets, a specific and detailed budget that considers delays, permits, and other unglamorous realities. Other reality checks to consider might include…
- Form vs Function: Renovating is certainly a major aspect in fix and flips or rehabbing rentals, but be careful to not let HGTV convince you that appearances are everything. It can be easy to get swept away in countertop materials, appliance finishes, and other appearance boosting details, but the truly crucial priorities are things that make the property safe and livable. How is the HVAC? Are internal systems up to date and passing code? Are there any scary surprises awaiting you in the roof or foundation? Focus on those major elements first, especially when assigning your budget, then have fun with visual details. They can help get tenants or buyers for sure; just remember that everyone needs a working sink, and not everyone granite countertops.
- Markets and neighborhood comps: Speaking of granite countertops, remember that while HGTV rehabbers tend to use only premium materials, buyers in your actual area might not be looking for those things. For example, in the St. Louis real estate market, there is a big variety of price ranges. This means that whether your end goal is reselling to a new owner or gaining cash flow through renters, the financial investment you place in the project should be enough to turn a profit while making sure the property’s ARV falls within comparable values to the market around it. Be realistic about whether the property you purchase to fix and flip falls in a high- or low-level market: you have to tailor your flip to that market! If your ARV is 80k but you’re using premium materials, you may wind up with a house no St. Louis renters can afford. In this case, those granite countertops mean you won’t get your money back, and you’ll have lost money. Alternately, if you’re flipping for a high end, your buyer can afford to be picky!! In this circumstance, you can’t skip those high end finishing details so make sure they’re in your budget. While HGTV consistently delivers beautiful home interiors, don’t put disproportionate pressure on yourself as a new rehabber to give magazine-ready presentation to your renters or buyers. Sometimes you only need a fresh coat of paint. Set yourself up for success by familiarizing yourself with the expectations in that area or neighborhood.
- Hidden costs associated with closing! The closing process is another unlikely source of drama that is underrepresented on tv. Remember that when you buy a property for fix and flips or to rehab into rentals, you will actually pay closing costs twice. First when you get your house–from a wholesaler, prior owner, or other seller—and again when you sell to your end buyer. Or, if you’re renting out the property, when you refinance the loan at the end for a longer term loan. You will also be paying utilities the whole time! This might not be on the radar to first time real estate investors and can certainly add potential for knocking a budget off kilter.
- Tax time: Taxes also mysteriously disappear in the portrayals of renovating on HGTV. Another hidden cost to remember when budgeting for your flip or rehab is property tax, which you are responsible for as long as you own the property- regardless of if you live in it. As a flipper or rehabber with short term ownership you will pay pro rated property taxes. Property taxes are broken down over 12 months. You will get a credit at closing table for the months you worked on the property, starting with month you acquired it from the previous owner, to when you sell. If your end goal is to sell the property on the secondary market you will then give that credit to the new buyer. Remember to research area property taxes and factor that into your budget!
- What is your current regional market like? There are nuances and differences in trends between regional markets that can be hard to capture and convey on television. What you see in terms of budget and supply costs in an episode set in Waco or Seattle will probably differ from what the same square footage actually cost in, say, the St. Louis and St. Charles real estate markets. Different towns may have different buyer markets too. Whether a particular area is experiencing a buyers’ or sellers’ market will affect timing of start and end of your flip or rehab. Depending on these market fluctuations you may experience challenges finding a property to begin, or you may find one quickly but struggle to sell or flip at the end. In either case, finding the property is almost always going to be a little more involved than the fun house-hunting scene that opens most home renovation shows. Some shows, particularly Fixer Upper, present the fantasy of buying the worst house in the market as a solution for tight budgets. With episode time limitations it is impossible to truly discern the state of the house, show inspections, and the reality of the house – so this is not a mindset you should bring into real life! As novice home flippers, it may not be in your best financial interest to take this approach. Save the challenge of an extreme fixer upper for when your budget, safety net, experience, and time allow.
For new real estate investors or real estate investors in the St. Louis area, FasterFunds Lending is a great resource for helping you prepare to have realistic expectations. We are excited to see you inspired by HGTV, and will share with you our knowledge and experience of the St. Louis real estate market to ensure your comps are strong and your budget is factoring in key points. FasterFunds Lending can assist you with fix and flips in the St. Louis area – give us a call today!