Rehabbing For Profit

Submitted by Shawna Harlin

So you've decided that it might be a good idea to rehab a house for profit! Congratulations on your new adventure. If this is your first time, or your fiftieth time, these are some things you will want to consider.

1. The neighborhood--a neighborhood can be absolutely critical when choosing a property for rehabbing. Ideally the home you are looking at should be one of the worst homes in the neighborhood. Take into consideration any negative comments you hear about a neighborhood. In small towns especially, a bad reputation can make a huge difference in net sales price, holding times, and market exposure. It is especially important to remember that location is much harder to overcome than fixing a problem. Remember to fix the home only to what the neighborhood will bear.

2. Know the cost of your money! How much is it going to cost to get the loan, pay interest on materials, pay holding costs, etc. One never knows how long they will need to hold a property. It is easy to underestimate the amount of time it will take to accomplish fixing and selling your property. Knowing the average days on market is an important tool for planning how many payments may need to be made.

3. How much is it going to cost for fix up? I'm not talking about how much you think it will cost, please do yourself a favor and get bids from qualified contractors to help guide you. When you open up something to fix it, chances are that something else may come up that was unexpected, so carefully weigh what things are most important to accomplish.

4. Know your market! Is the market in an upward, or downward trend? If it is going down, can you get rid of the property once it is finished? Also take into consideration what times of the year are slower times for exposure and sales.

5. What kinds of permits are going to be needed? Are there any restrictions as to how much can be done to the home without having to bring it up to the current code? Do you need a licensed contractor to perform the work? Who will be getting the permits? These things affect how much time and money certain projects will cost you.

6. When figuring your holding costs, have you figured in the property taxes and insurance/flood insurance? Getting caught with these bills can make things very difficult as you wait for the property to sell.

7. Are there any "Big Things" that need to be done, so that the next consumer will be comfortable with and able to finance their purchase? This includes roofing, electrical, heating, foundations, and plumbing. If there are you should have a plan for mitigating the buyer’s concern. This could include a credit to fix the problem, or having the problem taken care of before entering the marketplace.

8. Material choices should be neutral in color so that they will appeal to a wider range of consumers. They should also be consumer friendly when it comes to cleaning, etc.

9. Take the time to imagine how the home will be lived in and come up with creative choices for fixing and small quirks with the home. (i.e. enough closet space, room for furniture, etc)

10. What type of user are you marketing to? Are you fixing it up to sell, lease option, or rent? Different users need different finishes and different things to be completed.

11. What is the most effective way to use your money? Don't forget that you need to be able to wait out the market to get the most from your investment.

12. When you need to hire a contractor, please do yourself a favor and check his credentials. An inexpensive handyman is no good if the work he does is below standards. Checking on someone's license, bond and insurance is a MUST. Three important things to remember are price, reliability and quality. If a contractor is not reliable, holding costs and time to get the property to market could be adversely affected. Also, please remember to get all bids in writing BEFORE beginning work.

13. When placing an offer on a bank owned property please remember a few things to help your offer be considered more successfully.

A: Make sure the earnest money is substantial enough (many banks want to see at least $1000 minimum on this)
B: Make sure you have a pre-approval, or proof of funds (many banks will ignore an offer without this)
C: Make sure that you can close on time. (many banks charge a steep per day penalty if you must get an extension.

14. Remember which projects will get you the most for your money. Curb appeal will bring you in more buyers and cause you greater market exposure. Staging can be another valuable project because it is easier for the consumer to imagine how they will live in the home. Kitchens and bathrooms will also help in the appeal of your home. These rooms are especially important for families.

15. Hire a Real Estate Professional! A good real estate professional can bring in 15% more for your property on average. A real estate professional should be active in their local community and market as this helps with the amount of exposure your property receives. Also, ask what types of services they offer. Virtual tours, flyers, newspaper and internet are all valuable advertising avenues to get your property the exposure it will need for a quick sale.