The Myth of “No Rehab” Rehabs
In the course of a typical week, I get to see and hear about a lot of properties for sale to rehabbers. Inevitably among them are properties advertised by sellers or wholesalers as “No rehab needed” or “Move-in ready condition!”
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Now, every time I read an email from a wholesaler that says a property needs no rehab (or even “very little” rehab) and has a bunch of built-in equity, I laugh a little bit. While I imagine there are houses out there that could be purchased and resold for a profit without putting in any time, effort or money, I believe these are the major exception to the rule.
There are two reasons for this:
First, if a property needs absolutely no rehab (or even pretty much no rehab) and can be bought and resold for a profit, then why isn’t the seller just selling it to a retail buyer at a higher price? For example, if a wholesaler tells me that he has a property for sale at $50K that is worth $70K with no rehab, then why isn’t that wholesaler selling the property to a retail buyer for $70K and leaving me out of the deal?
Of course, if you ask them about this, most wholesalers will tell you that “I don’t have the cash to buy the property myself,” or “I’m not in the flipping business.” Sorry, those reasons don’t make a whole lot of sense to me. If a wholesaler has the opportunity to either make $5K by wholesaling to me or to make $25K by flipping himself (without having to do any rehab), he’ll figure out a way to borrow the money and become a flipper for this one deal.
The very fact that a wholesaler is trying to sell to me for a lower price instead of immediately reselling the deal to a retail buyer for what he says it’s worth is all the information I need to know that the deal isn’t as lucrative as he’d like others to believe.
Secondly, I’ll occasionally have a wholesaler or seller tell me that a house only needs $1-3K in repairs. They’ll often call these “paint and carpet” rehabs, as that’s all the rehab that’s needed — new paint and new carpet.
Again, as far as I’m concerned, $1-3K rehabs are just a myth.
In all the houses I’ve bought and rehabbed, the minimum amount of work I would ever consider doing before reselling to an owner occupant is as follows:
- Exterior Paint: Unless it’s vinyl or brick siding, new exterior paint is almost always needed to create some basic curb appeal.
- Interior Paint: I would never consider trying to sell a retail rehab without fresh interior paint.
- New Flooring: As very minimum, carpet in the shared living areas and bedrooms, vinyl flooring in the kitchen and bathrooms.
- New Appliances: Without appliances, a house probably won't be able to sell with an FHA loan (at minimum, a fridge and oven). Adding a dishwasher, microwave and washer/dryer isn't that much more expensive and will make your house stand out.
- New Electrical Fixtures: New light fixtures and fans make an old house look updated.
- New Plumbing Fixtures: Likewise, new plumbing fixtures bring an air of renovation to an older house.
- Roof Maintenance: An inspector will catch roof issues that can be costly, so I’ll always do roof maintenance.
- HVAC Maintenance: Likewise, a dirty furnace will be a red flag to inspectors, so get them cleaned and maintained.
- Cleaning: Most important, I’ll never try to sell a house without getting a house cleaner to scrub it floor to ceiling.
- New Light Switches, Outlets, Covers, Registers, Smoke Alarms, etc: Want to make a house look brand new? Replace the little things like outlets, switches, and HVAC registers.
This the very minimum that I’d do in any house. Perhaps I’ll occasionally come across a house that doesn’t need one or more of these things, but that’s *very* rare, and I’d probably do it anyway.
Now, even a bare bones rehab with only these things would cost $10-11K with decent and insured contractors. Even using uninsured day-laborers and builder-grade materials would cost at least $5-7K to do this type of rehab. Even just literally doing interior paint and new carpet is likely to cost more than $3K for a typical 3 bedroom house.
So, if a wholesaler tells me that a house “only needs 1-3K worth of rehab,” a big red flag is going to go up in my head…
Photo: Casey Serin