Estimating rehab costs Becoming a professional rehabilitator of Houses
How to estimate the cost of repairs so you can figure out what to sell the property for. When you do a walk through, look at four things: roof, structure, plumbing and electrical. These are the biggest expenses AND all require permits.
• Roof: Look at the fascia and so fit for signs of wood root or termite damage. Look at the top of the roof for loose shingles. Look at the ceilings for water stains or discolorations or holes.
• Structure: walk around the property looking for cracks in the foundation. If you've got a structural problem, it's expensive to repair and could kill your deal.
• Plumbing: Look under the sinks in the kitchen and bathrooms. Look at the floor to see if there are any uneven spots and shower stalls for leaks. Most of all--look outside the property for any large trees with roots that are growing under the house. That could cause major plumbing headaches.
• Electrical: Fuse box or breakers? How long since the electrical was updated? Check the air conditioning unit. Always get an electrician to check out the house if you are not sure.
Also, tile or carpet? Depending on the area and demographics, folks prefer one or the other. Best to know which one. Assume you will have to paint inside and out and do some minor landscaping. Don't forget to take the pulse of the neighborhood. Pride of ownership or run down properties? Close to public transportation, shopping, and schools?
If you break it down like this, after a while, you will know what things costs, and you can estimate repairs before rehabbing or wholesaling it to another investor.
To Handyman or no handyman?
There are two ways to rehab: Do it yourself or hire someone. There are pros and cons to both. If you can do it, you save money on labor. The downside is that if you don't fix according to code, you will have major problems. If you have a day job that only leaves you nights and weekends. It might drag on for months.
With rehabbers, you have the cost of labor; and you have to make sure they do a good job; but they can do it in a lot less time than it would take you. That means you sell it faster and move on to your next deal. Now, I only work with rehabbers who are referred to me by other investors.
If you have to use a new one and you don't know, always give them a small project to see how they do. If satisfied, they get more work. Otherwise, show them the door.
You can them in milestones or weekly payments. With milestones, when they finish the kitchen, they get X amount; the bathroom, X amount, and so on. Weekly payments are fine as long as they don't get behind. If you've paid the rehabber 75%, but he's only completed 50% of the work, how are you going to handle this? This is why you need to stay on top of them each day.
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Keep a low profile
When you are rehabbing, cover all the windows. Keep the doors closed. Take your signs off the car when you are there. Don't let your rehabbers show up in commercial vehicles. Keep the music to a minimum. Don't have more than two cars in the driveway.
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Permit issues
Speaking of permits, you really need them for structure, roof, electrical, and plumbing, and in many areas, windows. Some you can do on your own on the weekends and avoid permits, but you are playing a cat and mouse game with the city. I am not advocating one or the other. You have to weigh your risks and decide what to do.
Sign in the yard
Don't start advertising until you are 95% done with the house. Some people will say advertise the moment you bought the property. The problem is having potential buyers come into a property and just gutted--wires hanging everywhere, broken drywall on the floor, and holes in the ceiling.
Most won't make an offer until the work is finished. And, they are a distraction y ouneed to focus on completing the rehab, not trying to sell it. Of course, you know the house will sell, so don’t be in a hurry to do it wrong.
If you put a sign out in the yard before the house isn't ready to show, tell them you will call them back when it is ready. So, when you are indeed ready, you will have a list of 20 or so potential buyers.
Negotiating deals
If there is enough room in the deal, you will have no problem working with Realtors, but only pay 3%. Most will say they have a buyer for you. Now, if they have a problem with 3% and want to list it, I give them one of two responses. First, would you rather make 6% of nothing or 3% of something? Second, tell them you will pay a listing service.
When you do have a qualified buyer, it means nothing unless the underwriter has approved them. If they use their own mortgage broker, speak to him personally, tell them they have 30-45 days to close.
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