What do you look for first?

[Teen2233]

What are the first things you look at/for in a potential rehab? Are there any rehab jobs that just make you drool because they are easy to do and can make a big change in the price? Do you look for a bad kitchen, bathrooms, landscape, roof or just a bad house overall?


Thanks guys,
Rion

[Dan Auito]

Rion I know you read the book so you have my insights into what makes a good rehab, basically your looking for the cosmetic fixer being sold by a distressed or disinterested seller at at-least $30% off market value. If it needs major repairs like Plumbing, Electrical, Foundation, Structure and Roof, then it's going to take time and money to hopefully get your desired return.

Paint, Carpet, Landscaping and all the pretty fixtures are what you want to replace, as they say "sell the sizzle, not the steak" Meaty Items like Kitchens, AC units and the like cost the big bucks! and they don't always return the amounts you put in to replace them.

[Debbie]

I agree with Dan.....

I'll give you a real life example with our last properties' purchase.

We found MLS listing for a sideXside duplex that were selling as separate units.

It was selling for $75K each or $150K for duplex.

We discovered that the owner (also a "bad" builder/landlord) was very desperate to sell. He built and owned quite a few in a very good subdivision. Although he was desperate but determined to sell at a full price with an agent. Lots of people bought a unit (as homeowner) at a full price (fantastic subdivision with excellent school district).

We made the offer (& succeeded) of $130,500 per duplex. We ended up buying two sideXside duplexes for $130,500 per duplex each. That automatically gave us $19,500 equity each duplex. We went ahead and put additional money just to lower the mortgage payments. We put 20% down for each duplex ($26,100.00 each duplex x 2=$52,200). Overall, that gave us at least $91,200.00 of equity.

But......it didn't stop there. Although the buildings were 12 yrs old at the time (two years ago), it needed cosmetic fix ups. Plus, the property taxes are higher than normal (better school district). AND, we spent over $10K for cosmetic fix on both duplexes.

Don't ask me what percentage we've saved/spent because I strongly dislike math (although I'm the one who excel in budgeting/paying bills).

How much profit do we get? After mortgages, insurance, property taxes (taxes keeps raising-AAARRRGGGHHH!)----clear profit of $1150.00 per month altogether (or $287.50 per unit).

Does this help answer to your question, Rion?:icon_roll

[Dan Auito]

Deb does a good job of showing how multiple units help offset costs and generate better income streams as well.

By having four units in the above scenario if she gets a vacancy she's still 75% occupied and most likely still positive cash-flowing but if you had a single family home and it was vacant you would be 100% vacant and going into the red zone in a hurry!

[Jim Johnson]

What are the first things you look at/for in a potential rehab? Are there any rehab jobs that just make you drool because they are easy to do and can make a big change in the price? Do you look for a bad kitchen, bathrooms, landscape, roof or just a bad house overall?


Thanks guys,
Rion

The first place I go when looking at a home is the comps. I want the info on the neighborhood, average days on market is the first stop. I want to know what sells and how fast in the neighborhood. See... you can buy a home at a discount... but if it is in the middle of no-mans-land, where you can not give homes away... it is all for nothing. I just spoke with a guy who was pitching a great deal in Denver... the home price looked great, fix-up costs were in line, looked like there was 30 or 40 thousand to be made... but when we looked at everything that sold over the last 5 months... on average 1.5 homes sold every month... and 70 were listed! Average days on market for most of the homes was over 300. Some homes sold in just days but at fire sale prices, no doubt to an end user... not a flipper. So I first look to see if it is a flippers market... then I will look ever more closely at the home. In Denver... if the home has been listed for 24 hours and it is not sold... you better make an offer if your flipping it because it probably is not a good deal. The good deals here... 3 hours after hitting the MLS you will look at the home with 3-5 other people looking to flip the home. A good rule of thumb in Denver... and maybe any market is to make your own wind... dig up the deals.

[Aldo]

Here's an example of a flipper done by someone (me) who never once in this lifetime considered flipping. I do buy-and-hold investing exclusively. The price range here may different than yours, but these deals pop up in every price range.

Skipping detail, I found a Sunday ad for a $20K SFH in an area where SFH's average $35-40K. I went to the property, checked the condition of neighboring properties, then looked at the target property - exterior and looking through windows. Called the broker at 8 AM, Monday, and paid the full price on a credit card by 11 AM with an interior inspection contingency. Inspection was great. I spent $3500 doing minor upgrades (including an unexpected furnace replacement) and sold it shortly thereafter for $42,500. $19K for a few weeks work isn't a bad way to make a living.

By personal preference, I'd have passed if the property needed heavy duty work. As above, cosmetics are often a deciding factor and that's a great place to start. From that point, you can determine your tolerance level for more cost- or labor-intensive improvement requirements.

[Dan Auito]

Know your farm area and its values like the back of your hand and you won't get burned!

[Randy (SELA)]

Thoroughly check the plumbing, electrical, and foundation. When we were almost finished our current re-hab, we found a major plumbing problem. Bath tub drained fine, toilet flushed fine. Filled up the tub to the top and let it drain. That overflowed the toilet. Tenant couldn't move in. $300 and one mortgage payment later, tenant finally able to move in. Also, rotten base plates around bathroom put us behind another 2 weeks.

[Teen2233]

Thanks for all the great responses guys, exactly what I was looking for.

[Greely]

A lot of good point's brought up here, but bathroom's and kitchen's is the first thing woman look's at, whether it be a rental, or a flip. Contrary to popular opinion, women want the best of these two in the neighborhood. It's no different than at your house. Keep the woman happy, and she will keep you happy.