7 Keys to Rehabbing

December 14, 2016 | Filed under: Real Estate

Well. I am going to tackle the topic of Rehabbing. Now realize that my hands are soft and have no rough spots. But there was a time, when I liked to get dirty, and could knock out a wall or caulk a bathtub with the best of them. Well maybe not caulk a bathtub. Now days, I much prefer using contractor and handymen to get the task complete. So let us look at the major areas to consider:

1. Estimates for rehab costs. Starting with the BIG 4. When you are walking through the house, look at: Roof, Plumbing, electrical and structure. By the way, even if I look and get a feel for what may need to be done, I am going to follow up with an inspector, to give me a real hard look at problems and improvements. These repairs usually need permits too.

  • Roof: Check the sofit, and fascia for termite, and rotting wood. Look for missing, loose, or turned up edges of shingles (signs of problems). Make sure you look at the ceilings in each room for water stains. By the way, always looking at the ceilings in the closets. Most folks that try to hid water damage will paint a ceiling, but not paint the closet.
  • Plumbing. I look under all the sinks. Checking out the shape of the plumbing. Plus run all the water. In showers, look at the titles for leaks or uneven spots.
  • Electrical. I have an electrical tester plug. Just to see if outlets are working or not. I am not going to test them all, but will in each room test one plug. Just to ensure there are not shorts or issues. More importantly, check the electrical box for how old the electrical maybe. Fuses or breakers, older or new? Last thing I need is to rewire a house. Always check the air conditioning units, and heating system. They are expensive to replace.
  • Structure. Cracks. Uneven. Sinking slab or pool surfaces can be expensive to correct. That can be all your potential profit. You need to get a good “feel” for cost in a rehab. Therefore, I would suggest taking a “home depot” classes. Usually, each Saturday, they a “class” on various topics, or experts come in and discuss projects. Software can help you estimate the costs.

2. Total Expenses in Rehab If you are focused on deals that are 150k or less, generally speaking you do not want repairs to be more than 30% of the ARV. After repair value. If they are you give up a lot of potential profit, and time. It takes time to do major repairs and improvement. Now for bigger deals, were you are working the higher end of the market, and expecting a nice retail profit. Sell the house for FULL value. You may push the 30 percent, but I do not like too. Personally, I prefer these numbers to be around 10-20 percent of the ARV. That means they are usually cosmetic, not major. Carpet, title, paint, landscape are easy. Roofs, Electrical and Plumbing can be time consuming and costly.

3. DIY or Contractors Save time and use Contractors. In the long haul it is often the better choice. Keep in mind they have to be a good contractor. And once you get some good contractors on your team, keep them. Even if you have to pay them a little more. Nothing wrong with you pitching in to do minor stuff. Keep in mind, every time you pick up a hammer, or paint brush you are making the wage of a laborer. It might be better for you to use that time, for the next deal (i.e. finding the next one). My best use is marketing, negotiation, and keeping the pipeline full. Not fixing a door or painting a wall. Get 3 quotes from new guys. Compare quotes, and ask hard questions. What portion of the quote are materials, what is labor, is it guaranteed. Are there penalties if you do not finish on time? Test them with smaller jobs, to ensure they are on time and on budget. I they are late, get rid of them. Time is money. Pay them based on targets. Do not pay too much upfront, and hold that last payment until they are 100 percent done.

4. Buying Materials Many contractors add a surcharge to buy or pick up supplies and materials (10 percent on top the purchase price). Inflating the job and making additional profit. Ask contractors for a detail listing (not one price) for the job, spelling out materials, and labor. Recently my wife and I had some title work done through our personal residence (kitchen, foyer, and hallways). The contractors priced the job as one price. After I had him break down the various elements, it was apparent; we were paying a premium for: his time and services, and the cost of tile. We supplied the title, he supplied the labor. And our cost was half the original quote. You can pick the materials up and they do the labor. I have found occasionally that runs into problems too. Getting the wrong materials for example or a missing item. One simple solution is to have a Lowes or Home Depot gift card on hand, that contractor can use, to grab something if needed. Of course you get the receipts. It works well if they are a trusted contractor. If you are doing multiple projects (houses). Keep separate receipts. Better for your accounting, analysis, and taxes. After a while multiple purchases all blend together.

5. Permits Make sure the contractors and you have them done. Do not let any “permitted” work be done without them. Otherwise you could have MAJOR liability if something goes wrong. Or code enforcement can stop the work.

6. Why advertise you are doing work There is a time to let the world know, you are rehabbing a house. It may even get you a buyer. But in the meantime, keep a low profile. Cover up windows, don’t stick a bandit sign out front, try and keep the number of vehicles and contractors to a minimum at any one time. Blend in. Last thing you need are nose neighbors, the local HOA sighting you for violations, or even worst, code enforcement dropping by because the see you are working. Once you have the inside complete, or major work, and you begin to work on the outside, then think about advertising.

7. Advertise when you are almost done Signs in the yard work. Once you have the major work done. In particular the inside and start working outside. Advertise. Get that sign out front. Lots of times, you will have a contract before you are done. It is a good idea to have an “info tube” on the sign too. A flyer with the information, and perhaps an announcement about an upcoming open house. Once you are done, have an open house. Advertise in the community. Often friends, associates, or drivers by can be the end buyers. If the sign or open house does not work right away, list with an agent or broker. Let them do the “post work”. You move to the next project.

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