Rehabbing a house can be a nail-biting experience, particularly the first time around. Sometimes, nice readers over at my blog email asking advice about their latest rehab project. Generally, the questions involve finishing issues such as whether to paint or replace kitchen cabinets, or if carpet or wood floors work better in a rental. I always try to answer, mainly because I remember what it’s like to be a new investor with seemingly thousands of decisions, all pounding away at the bottom line.

Secretly, I’m hoping the writer remembers that mine is just another opinion. Ask 10 different rehab professionals and get 10 different answers. All are probably right to varying degrees and all may be dead wrong for the project in question. It’s akin to asking a complete stranger if you should get a dog. Everyone’s got an opinion but you’re going to be the only one taking Cujo on a walk every night.

Asking the Right Questions

When making rehab choices, you need to:

• Know your exit strategy
• Know your market
• Know your budget

Once you’ve identified these three, it’s much easier to make rehab decisions.

What’s your exit strategy?

Do you plan to sell this house quickly for profit? Then you’ll need to investigate the common materials and finishes of houses for sale in the same price range and neighborhood. If all the other kids on the market have granite counters, you can’t cheap out with laminate without hurting your bottom line. In this case, durability gives way to aesthetics. Make it pretty.

Do you plan to hold long term and rent? Tenants are notoriously hard on rent houses. Durability of materials trumps looks. Renters in most markets don’t expect the same level of custom upgrades as buyers and the house may have to be redone before selling anyway. Think neutral and sturdy.

What does your market dictate?

Part of the joy of having a few houses under your belt is having folks think you’re an expert, but here’s the rub. No one- no matter how smart and/or successful-can be an expert in your market unless they live and invest in your market. And even then, so many variables come into play that any expert advice may not apply anyhow.

What do prospective tenants in this particular neighborhood, at this particular price-point expect? Do they want central air and heat or are window units and space heaters okay? Laminate or granite counters? Builder grade carpet or hardwood floors? The only way to know is to talk to current and former tenants, attend open houses, and make a few calls. However, if you’ve lived in the area any length of time, you may know the answers already.

What’s the budget?

There’s a tipping point with every house and every neighborhood where one more dollar spent will not bring another dollar of profit no matter what. It’s called, Over Improvement for Market and the principle applies for both rent houses and flips.

For example: A 1/1 duplex rents for $500/month.

In an upscale area full of young professionals, upgrading to granite counters and stainless appliances might warrant a rental increase to $750 and attract a more stable tenant.

In a declining area, it won’t raise the rent one penny because prospective tenants can’t pay more than $500 a month working at Burger Barn. And it might attract an unmarked van to swipe the lovely appliances.

The Payoff

Rehabbing old houses is lots of fun. Of course, not everyone gets a thrill from sawdust and color charts (silly beans) and that’s okay. But making rehab selections doesn’t have to be paralyzing either.

There’s nothing better than picking paint colors, siding and sinks on a Friday night. Researching new products and trying something a little different with each house adds spice to the rehab life. And who doesn’t love taking out the frustrations via sledgehammer on a wall that simply must come down before midnight?

But the big payoff comes when you see something rotting and icky transformed into a solid, functional asset to the community.

And fortunately, it gets easier as you go.

Kitchen cabinets desperately in need of rehab decision-making skillz.

Mid-project, after a first coat of Sherwin Williams Dover White.

And finally, after a hand-rubbed glaze, polyurethane coating and new hardware.

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Tags: contractor, rehab, rehabber, Rehabbing

In July 2006, Martin Korab hired Eric Rowland, a contractor, after seeing one of Mr. Korab’s advertisements under the name “Mercury Woods Carpentry” in the telephone book. Mr. Rowland gave Mr. Korab a written proposal along with a diagram detailing a bathroom renovation project, and accepted a deposit of $3,750.00 upon Mr. Korab signing the proposal.

Thereafter, Mr. Rowland attempted to apply for a work permit and was rejected by the Hillsborough, New Jersey Building Department because he failed to register as a contractor with the New Jersey Division of Consumer Affairs. When Mr. Korab asked for his deposit monies back, Mr. Rowland refused to comply arguing that he should be compensated for his time and work in preparing the plans and applying for the work permit. Mr. Korab called the police, who determined that, neither Mr. Rowland nor Mercury Woods Carpentry was a registered contractor. Mr. Rowland advised the police that we has unaware of the registration requirement imposed by New Jersey law. Mr. Rowland was thereafter charged, by way of indictment, with violating the Contractor’s Registration Act, N.J.S.A. 56:8-136 et seq.

The Contractor’s Registration Act was adopted in 2004 (and became effective on December 31, 2005) and states that “no person shall offer to perform, or engage or attempt to engage in the business of making or selling home improvements unless registered with the Division of Consumer Affairs in accordance with the provisions of this act.” [N.J.S.A. 56:8-138(a)] The enactment of this law was a further extension of the New Jersey Legislature’s mission to protect consumers from fraudulent merchants and insure public safety—in this case, from contractors who were operating without licenses, proper insurance, and were taking peoples’ money without performing the services for which they were contracted.

Although this statute provides for regulatory relief, it also states that violations may be dealt with under the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-1 et seq.), or by way of criminal prosecution. The relevant part of the statute reads: “In addition to any other penalty provided by law, a person who knowingly violates any of the provisions of this act is guilty of a crime of the fourth degree.” [N.J.S.A. 56:8-146]. It was for his failure to register with the Department of Consumer Affairs that Mr. Rowland was indicted for a fourth degree crime under this provision of the act.

The Law Division judge (which is the trial court level in New Jersey) dismissed the indictment against Mr. Rowland because the judge interpreted the statute as requiring the State to prove that Mr. Rowland knew his conduct violated the law. Since the indictment did not contain any evidence demonstrating such knowledge, the judge reasoned that the indictment could not stand.

The State appealed to the Appellate Division in New Jersey arguing that the lower court judge misinterpreted the Contractor’s Registration Act; and, the State asserted that it is not a requirement to prove that Mr. Rowland had knowledge of the law.

In rendering its decision in favor of the State, the Appellate Division found that ignorance of the law is irrelevant. The basic conduct that is prohibited by the act, and the elements that constitute the fourth degree offense, are 1.) engaging in the home-improvements business; and 2.) not being registered with the Division of Consumer Affairs. Mr. Rowland argued that without any proof that he was given notice of the law, his prosecution under the statute is a violation of due process. Relying upon other cases that have found business registration laws very common in states for the purposes of providing public safety, the Court dismissed Mr. Rowland’s argument that he was being denied due process. The Appellate Division reversed the lower court’s order to dismiss the indictment against Mr. Rowland and remanded the case for trial.

This case sends a clear message in New Jersey: Home-improvement contractors must be registered with the Division of Consumer Affairs or face the possibility of criminal penalties. While this may appear harsh, particularly given the fact that contractors will be held accountable whether or not they are aware of the registration requirement, the purpose is to protect consumers from unsafe and unscrupulous contractors.

Tags: contractor, contractor law, court, housing, law, legal, real estate investing, Real Estate Law

I recently had an episode with a property manager and thought I’d share some obvious wisdom with everyone. We all have busy lives and from time to time we forget to do what we’re supposed to.

HERE’S YOUR REMINDER:

Stay on Top of Your Property Managers!

Don’t just assume that they are going to do everything you tell them to do.
I just dealt with a situation, where, had I been on top of things, there wouldn’t have been any problems. I needed a contractor to handle an electrical issue on an out-of-state multi-family property. I found one (always look for your own contractors and other servicemen - the odds are you’ll get a much better rate then the ones your property manager recommends) and set the ball in motion to get the job started last week. Today I get a phone call from the contractor asking when he can get into the property!

I was incensed!

Wasn’t my manager supposed to be handling that?
If I had stayed on top of things instead of just handing them off, they would probabaly have gotten taken care of (OR if they used their own people - managers work much harder when they get a piece of the action!). Instead, I had to get them on the phone and express my serious disappointment (ANGER).

That, my friends is another little lesson learned for me (AGAIN)!

Tags: bigger pockets, biggerpockets, contractor, electrician, landlord, lesson, management-company, manager, property-manager, real estate investing

Blogs can be very effective communication tools for people in all areas of real estate. Real Estate Agents, Lenders, Investors and other professionals in this field can all benefit from blogging. Here’s a few ways to add to your success by blogging.

First, I wanted to mention a few important keys:
- Focus on Your Niche and Your Area
- Be consistent
- Use your expertise to attract locals
- Keep your readers interested

I realize that much of this is obvious, but all 4 points are very important if your real estate blog is to lead you to success.

Real Estate Agents / Realtor Blogging

Why would someone want to read the blog of a real estate agent? Successful agents draw a good chunk of their business from referrals. These agents are out and about in the community, and are seen as experts in the community.

If agents can convey news, trends, demographics to their community or those interested in that community, they will enhance their presence. Their blog becomes a key information source which will become valuable — as a result, this agent will be seen as an expert in the community, whether or not they are the “Top Agent” for the area. One of the best blogs around that that can be emulated is Curbed. This site highlights New York City real estate, trends, news, etc. If there is a building for sale, Curbed will write about it. The site generates interest because it has become the pulse of New York City real estate. Do that in your town/city, and you’re sure to drive business to record levels.

Lender Blogging

Lenders can benefit for the same reasons as real estate agents. The key to blogging as a lender is not boring your audience. There is only so much financial information people can process. If you can filter the information and put it in easy to understand terms, you will benefit your market. Instead of only providing mortgage info, why not go the same route as the real estate agent — give the community focused news about the housing market in their community. You can also provide them with articles that will help them understand how mortgages work, what loans would be best for them, and so on.

Other Real Estate Professionals

What about the local interior designer or contractor? Do you think a blog would work for these guys? YES! These professionals can highlight recent work and projects they’ve worked on. People love to see before and after photos. Share with your market the great work you’ve done and continue to do, and they will call you. Would you rather work with a landscaper who’se work you can see online, and proves his expertise, or the guy in the local phonebook?

Real Estate Investor Blogging

From a business standpoint, I’m not sure how blogging would benefit the average real estate investor. By sharing your exploits, hardships, and successes with a blog, you will benefit other investors. You will give them access to invaluable information which will hopefully help them to avoid problems themselves, and to be more successful. However, how will it help you to find more deals? I think the answer to that is, by sharing your success with others, you draw their confidence. If people see that you do good work and make money, they will be more inclined to work with you.

As you can see, blogging can be beneficial to people in many areas of real estate. Share with us how your blog has helped your business.

Tags: blog, blogging, contractor, curbed, estate, lender, real, realestate, realestateblog, realtor, weblog