The Rehabber’s Eye

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Who hasn’t dreamed of buying a run-down house and fixing it up? For most it remains a fantasy as very few people actually pursue the idea. Of the few people who do make the attempt many fail miserably. Finding a house that needs to be rehabbed is easy; finding one that will allow you to do so and make a profit is a horse of a different color.

So what makes a house a good candidate for a rehab project? The obvious answer is that you have to buy at a price that will allow you to make a profit but there is more to it than that. Before price even comes into play you must determine if a property is even worthy of being considered. There are a number of things you need to look at, if it passes the test then you can move on to the financial aspects of the deal.

The Test

Is the overall structure sound? If not, what will it take to make it so? Foundation and structural issues can be so expensive to deal with that it will eliminate any chance at profit. That doesn’t mean that you should rule out a house that has these problems, you just need to be very careful before you proceed. Get repair estimates before making any offer and always assume that if you find one problem of this type there will be others.

Is the house in repairable condition? Many older structures would be considered functionally obsolete. The layout of the rooms may be all wrong, the plumbing and electric hopelessly outdated or other issues may exist which may make it all but impossible to bring it up to par with today’s homes. If this is the case the best option may be a complete demolition. This is not a scenario that will allow for a profit in most cases.

Is the project within your ability? This does not mean that you need to be swinging a hammer and doing the work yourself. The question is do you have what it takes to manage a project from start to finish? Many first-time, and even experienced, rehabbers blow it by taking on a project that will put them in way over their heads.

A Great Deal?

A couple of years ago I received a call from a friend who said he found a great deal but needed a partner. We had previously partnered on one deal and he had done a couple of others on his own. The house he found was way beyond his ability and he knew it, so he called me. The property would be worth a minimum of $75,000 fixed up yet the current owner just wanted to dump it. He indicated that he would be happy with $10,000 cash. It certainly looked like a winner at first glance.

We looked at the property the next day had I immediately saw that this deal had loser written all over it. As you would expect, it needed a new kitchen, bath, paint and other upgrades. However the foundation was in need of serious repair which would include jacking the house up. There was a second floor addition that had been so poorly done that it was actually falling down and many other items required attention. My rough estimate showed that we would need a bare minimum of $60,000 to $70,000 for this project. I would not have taken this house for free.

The Rehabber’s Eye

My friend had been ready to jump on this property and tried to convince me that we could make it work. As we went through things item by item his tune changed. He came to realize that he had come very close to making a huge mistake, the same kind of mistake that many beginners make. Experience is definitely the best teacher but is often a very expensive one.

When I first started rehabbing fifteen years ago I had a tendency to be overly optimistic. I always thought I could do it faster and for less money than it would really require. Today I can look at a property and quickly come up with a fairly accurate estimate of how much it will cost and how long it will take. I can also envision what a project will look like when it is completed. More importantly I can also see when it is best to walk away and look for the next deal. This is not a skill that you can acquire by reading a book or learning at some boot camp. You only get it from experience, until you do you need to use caution before proceeding with any project. In time you too will have the rehabber’s eye, use it wisely.

You’ve got to be very careful if you don’t know where you are going, because you might not get there. –Yogi Berra

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  1. I was always taught that if the foundation is damaged, you walk away and find another property… (large cracks in concrete, uneven floors setting on top of basement or shifted/shifting foundation)

  2. You raise some very good points about “fliiping”.

    I was watching one of those house flipping shows over the weekend and the young couple, who were investing in a home to flip, appeared to be novices. I don’t follow the flippers and their lives too closely, in fact every time I watch the show I see new characters. But this young couple had failed to follow city codes which set their project back a few days and obviously added to their overall cost for repairs.

    My point is… that experience plays a large role in a successful flip and like you mentioned, experience helps to identify problems in advance.

  3. Steven Boorstein on

    In my opinion, rehabbing is a specialty in real estate, just like landlording. I think those that succeed long term, like the author suggested, start off with smaller projects and work upwards as they gain experience. Especially in more difficult markets like this one, with high levels of property inventory, you don’t want to bite off more than you can chew (or fix)!

    Steven Boorstein
    Landlord Business Insider

  4. As a contractor I can tell you there are 2 keys to rehabbing…

    One is buiyng at the right price which is a little trickey right now. Start with a shortsale or forclosure if you can.

    Two is not over building. You need to take a real look at your competition (homes withing a 1/2 mile or so) and build just slightly better than them. If you spend too much you will not get you money back.

    You can save money by doing the labor intensive stuff yourself, but leave the skill stuff upto the contractors.

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