By: The Hughes Brothers
Sometimes you will buy a single family home (SFH) for the purpose of rehabilitating the property back to a more livable condition. Your intent may be to fixup and hold long term. Or, your intent may be to fixup and resell quickly for a profit. This article will deal with the rehab process regardless of what your ultimate goal with the property is.
First, look for a house that has potential. This may sound trite, but if you use your common sense you will succeed. The fixup opportunity begins with a house that needs improvement for the neighborhood that it is located in. For example, if you find a house in a nice neighborhood that needs a new roof, yard work, and a paint job, you might consider buying it. Especially if all the other houses around are well maintained. If the whole neighborhood is in a run down condition, you best leave the house alone.
Realize this. Neighborhoods have lives. Some neighborhoods live more than one life. You want to buy houses that need improvement in neighborhoods that are on the “upswing” (coming back to life). Drive around the neighborhood that you are considering buying an SFH in. If you are in an older neighborhood, but see some new roofs, siding, paint jobs, landscaping and a general “concern” for the housing, buy. Most neighborhoods that will “come back” will not totally hit bottom. They will reach a point where values will level off or even decline. This will attract buyers that couldn’t afford to buy in the same neighborhood if values were still rising. This provides an opportunity for buyers to acquire a home at a weak market price. These same buyers usually spend time and money putting improvements into their house after they close. Thereafter, the neighborhood begins to come alive again and values start rising.
Your goal should be to identify those neighborhoods. Once identified, you should seek out buying opportunities. Here are some leads:
Once you have located an SFH that needs rehabbing, go thru the house with a legal pad and make notes as to what needs improving. Next, estimate the cost of the repairs. Even though you are not a contractor, it is a good idea to start getting a feel for what things cost. So, some estimating experience is important even if you turn out to be “way off” in your estimate.
Before you make an offer, take your contractor through the house and get his estimate of costs. Now is probably a good time to talk about contractors. Most contractors are honest people; many are not. It is critical that you find a contractor that you can TRUST even if his bid is a little higher than someone else’s. Contractors that are not honest make their big profit in “back charging” you for changes that you make in the scope of work. This is why it is very important that you include EVERYTHING in your original bid. There will undoubtedly be some repair items that will come up after the fact, but you should have an agreed upon procedure for handling them.
Also, require that the contractor give you a copy of his liability and workers compensation insurance coverage (certificate of insurance). You would be surprised at the number of Independent Contactors that fall off a roof as a “contractor”, but hit the ground as an “employee.”
Here are some suggestions for the type of improvements that you will want to make when rehabbing (those that will return you the most money for each dollar invested):
The main idea here is to keep your expenses low and make the kind of improvements that impress people (buyers). Be sure to make these improvements quick, starting with the outside first (preferably the front yard). This will get the neighbors working on your side and attract positive attention while you are working on the inside.
While on the subject of neighbors, be sure to contact all of the immediate neighbors and tell them what you are doing. You would be surprised at the number of people who want to supply their new neighbors. Also, the neighbors will keep an eye on the house while you and your contractor are not there (nights and weekends). This helps prevent vandalism.
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