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Rehabbing for Beginners - Part 1 of 3
by Shaun Sharry, general contractor
Where is my money best spent on a rehab project? This has been the most often asked question I get from all of my customers over the last 8 years or so. My answer remains the same: Cost (what you spend) versus Value (what you get in return). So let's take a little time to explore it.
The theory of "do not fix it if it is not broken" does not always apply on a rehab project. The key is to get the most appealing product that will bring the highest return without breaking the bank, so to speak. So how do you do this, you might ask? It is simple: ask yourself the same question over and over again. How much will it cost and is it worth it in the end? This is known as Cost vs. Value.
If you have done your homework, you already know the basics: how much you are paying, how much it is worth after repairs and what the market is. So you now know how much you are able to spend (this is the key to a good deal) to get it to a marketable condition and still make a profit. The important thing to remember here is this: once you have learned to ascertain a viable scope and budget, do not make the deal if it does not fit and there is not adequate money to complete all the necessary repairs. This is that magical number known as the After Repair Value (ARV). The real definition of the ARV is - "after all the needed and necessary repairs are made." So let's get started on this complex road to riches.
The first things you have to spend money on are the required items. These should be evident and have been pointed out in your inspection report. They are called "health and safety" issues. Your inspection report covers all the major components of your rehab project: the roof, foundation, appliances, HVAC and heater system, water heater, electrical, plumbing and structural (rotted wood, termites, water damage) issues. Have these things priced out by a professional. Subtract that from your total budget, and we will go through the rest of the property.
These are usually not the issues that investors miss. It is all the little things that add up to a lot where most get bitten right in the wallet. So the key is to address these things before purchasing - so you know you have enough budgeted to get them all done and end up with a successful sale/lease.
We will start with the exterior. This is the first impression that a prospective buyer/renter gets of your property. You all know the old saying: first impressions are important!!! This is still just as true now as ever. Make sure the lawn is kept mowed, edged and in good order. Make sure all the hedges at are window level and all trees cut up to at least 7 feet from the ground. You want to show off the property, not hide it.
If there are flower beds, make sure they are clean and maybe plant a few colorful inexpensive plants or flowers. Add mulch so there is an appealing and inviting look to the front of the house. Make sure the entry is swept clean and has a fresh coat of paint if needed. Make sure that all rotted wood has been replaced properly. Check to see that the gutters are in good repair and straight. And it is always a good idea to pressure wash the exterior (especially brick), sidewalks, driveway and entry way.
If the house needs painting, ensure that you get a quality and neat paint job that attracts. Check on the exterior lighting as well. This is a key factor that sticks in people's minds as it is a safety factor as well as adds to the curb appeal. Make sure they are clean and in good repair, or that they are replaced and match. These are costs that add value to the property. They make it more inviting and appealing to prospective buyers/renters and help the property sale/rent quicker. Remember - the longer it sits on the market, the more it is costing you.
Now on to the interior. The first thing that people notice when you open the door is how it smells. If it stinks, it really does not matter how nice the house looks. Consider air fresheners. Do not use the plug-in types, as they have been known to short out and cause fires. They now make little battery operated units that shoot out little burst on timed intervals, and they seem to last a long time. This way the house is continually being freshened, even when you are not there.
The same holds true for cabinets/pantries/closets. The type of fresheners that twist open or have little vents in the top are ideal. Put them at opposite ends of each connected set of cabinets (one at the top and one at the bottom) and push them to the back of the cabinet. Nothing speaks volumes more than an inviting and fresh smell. This may seem unimportant to most, but is essential in helping the house move off the market and is not that expensive.
Next are the flooring/carpets. Make sure the ceramic is clean and shiny, as well as any hardwood floors. If the carpet was in very good shape and left, make sure it was cleaned properly and deodorized. Nothing holds odor worse than carpet. If it was replaced - see that it is vacuumed and freshened regularly.
... continued in the next issue ...
Workshops by Shaun Sharry and Kevin Smith
Shaun Sharry has joined forces with another real estate expert and frequent contributor to this newsletter - professional inspector and investor Kevin Smith. Together, Shaun and Kevin teach regular workshops "Rehab Management", "Scope and Budget", and more. They freely share their vast experience in rehabbing, budgeting, management, and other critical aspects of real estate business. Please call for the current class schedule and availability. Shaun Sharry can be reached at 713-702-3490 (cell) or 281-392-7295 (office) or by email, and Kevin Smith can be reached at 713-858-1330
Shaun Sharry, general contractor
Shaun Sharry is the President of The Dependable Renovators, LLC - a construction company specializing in turn-key rehabilitation projects. Shaun brings to the table 20 years of experience in the industry, coupled with hard work and professional ethics. If you need your project done right the first time, call (281) 392-7295 or visit www.thedependablerenovators.com.