Rehabbing an Existing Property in a High Demand Area

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Rehabbing an Existing Property in a High Demand Area

Felipe A.
Gaithersburg, MD · Member since 2015 · 32 posts · 3 votes

I am not sure what sub forum to direct this to - this one seemed like the best one.  I'm turning to the forum for some preliminary advice.

Here's the short version:

My father still lives in the house I grew up in.  It's in Florida and it's located in a very high demand/high value area.  The house is a 1920s house on a corner lot but hasn't had big improvements (outside of a minor reno on the kitchen) - there's no central AC, for example.  Great lot size and a house with "great bones" (the architecture of the house is very classic style of this area).  I'd say comparables with corner lots in this area (assuming major upgrades/reno has been done) are in the $1M+ but my father's house would probably only sell for 600-700k because of its condition.  The house is completely paid off.

IMO, he has 2 main options:

1) Make a major renovation (not a tear down but a full gutting) - somewhere in the $100-200k range, build an addition, add a pool, gut most of the inside, etc. and truly make it an amazing house that he could turn around and sell for $1-1.5m in the near future.  Or, if he chooses to, he can gift it or sell it to family at a discounted price.

2) Make a minor renovation ($40-50k) to make it very comfortable (central AC, new bathroom, etc.) and hold onto the asset and maybe down the road gift it or sell it to one of his children.

The house is his best asset and my attitude has always been #1.  It can be a pretty amazing house and can be used to host family from out of town, etc., and keep the house "in the family" for generations.

If #1 is the choice, where does one start?  I'm sure there are estate planning scenarios he has to account for and there are financial impacts for it as well - besides increased property taxes, what other financial implications are there?  I'm guessing he should take out a home equity line to finance the construction but i'd have to see if the interest deductions on his taxes would offset the increased property values and interest payments on the line.

Anyhow, I figured I'd turn the forum for some advice.  What other considerations should I take into account?

Thanks in advance!

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John Arendsen
Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
10y

That makes two of us on the photos.

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  • Charles Adams
    carpenter · Saint Joseph, MO · Member since 2015 · 11 posts · 6 votes
    10y

    Hi Filipe

    My first question is how old is your father and why are you flooting these ideas knowing the reason would help for better ideas/suggestions and your father wouldn't be able to live in the house while the renovations are being done. Florida homes are built on a slab so to install proper ac/heating you have to cut channels or venting channels in the concrete/floor you could come through the attic but that's not green and a professional would advise against it, is the ac your biggest desire to update? If it's retirement income then I'd stick with the cheapest renovation possible improving the property and increasing the value a lot of times landscaping and or grounds work done improves the visual there by the perceived value and that can be done while your father lives there. 

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  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
    10y

    Not quite sure a circa '20's home would be built on a slab as they really didn't start slab on grade construction until around the early '50's. As far as your anticipated rehab costs are concerned whatever figure you come up with double it. 

    As a general contractor, real estate broker, investor and property manager for the past 40 years I can tell you first hand that rehab and repair projects prove to be the most costly and have even been known to break the bank.

    There are so many unknowns and uncontrolled variables with rehab projects. When you're having a cavity filled the dentist doesn't start filling until he's dug out all the decay and sometimes it becomes necessary to remove the entire tooth. 

    However, unlike a rehabber a dentist can get a bit of a heads up with an Xray. But because you can't really see or even begin to know what's needed until you expose most if not all the bones you're kind of shooting in the dark and can only pay as you go.

    One of our specialty niches is insurance repair and that says it all. The first thing you do as a contractor whence finishing your initial scope of work is include the clause:

    "We reserve the right to demand additional compensation for any/all damages and/or repairs needed that were not visible during the initial scope but are discovered during the course of this project. Such damages may include but are not limited to termite damage, dry rot, mold, deterioration, decomposition and/or threatening structural issues discovered during the course of this project"

    That should give you some insight as to what you may expect as you move through an undertaking such as you are describing. It's not what you can see, it's what you can't see that will reach out and bite you right in the behind.

    The only way you can even get close to a realistic cost study is to strip the home down to the bones, thoroughly inspect the foundation, check for adequate drainage away from the structure, thoroughly inspect the infrastructure including the cast iron and/or clay water and sewage plumbing and the electrical and gas lines. 

    Once you've done that you can begging to more accurately estimate the overall ARV of the home. But then practically speaking who's willing to spend that much money and take that much time on something that could still be a crap shoot.

    Now having said all that, because the home was built circa '20's you may be able to get your local historical society interested in the project. But do bear in mind that going down that road can be an equally arduous and frustrating experience. 

    However, there are often some funds associated with them via special grants from certain philanthropic and/or governmental programs favoring the restoration and retention of what they consider historical homes/structures. 

    Good luck!

    0Reply
  • Felipe A.
    OP
    Gaithersburg, MD · Member since 2015 · 32 posts · 3 votes
    10y
    Originally posted by @Charles Adams:

    Hi Filipe

    My first question is how old is your father and why are you flooting these ideas knowing the reason would help for better ideas/suggestions and your father wouldn't be able to live in the house while the renovations are being done. Florida homes are built on a slab so to install proper ac/heating you have to cut channels or venting channels in the concrete/floor you could come through the attic but that's not green and a professional would advise against it, is the ac your biggest desire to update? If it's retirement income then I'd stick with the cheapest renovation possible improving the property and increasing the value a lot of times landscaping and or grounds work done improves the visual there by the perceived value and that can be done while your father lives there. 

     Hi Charles.  He's in his mid 60s.  We do have a plan in place while the renovations are being done (staying with a family member), regardless if it's for 2 months or 6 months.

    As to your AC comment, it should not be a significant issue because as per him (he's an engineer himself and has been in the homes business for some time) it should not be an issue.  At this point, we're looking to go beyond nice landscaping and rehabbing on the cheap simply because it's akin to a bandaid approach to fixing something.  In my mind, if the money is there, shouldn't we look at more robust improvements?

    One of my biggest questions is where to start.  I think for one he needs to figure out what he wants to do with the house as part of his estate but I know he favors option #1 (full reno).  Assuming that's the case, does he meet with an architect first to get ideas on paper?  

    John, great insight.  I really like the historical society approach - an interesting idea but I can see how that can open a can of bureaucratic worms.

    0Reply
  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
    10y

    @Felipe A., Absolutely spot on about that point. Getting involved with the "bureaucratic worms"  happens by default when you go down that road. 

    0Reply
  • Gary Anderson
    Wholesaler · Lehigh Acres, FL · Member since 2015 · 2 posts · 0 votes
    10y

    98% of all homes in Florida have the air handler in the garage hanging from the ceiling and the cold air intake is usually in the ceiling in the biggest room of the home. I'm a rehabber in the Fort Myers / Naples area 

    0Reply
  • Charles Adams
    carpenter · Saint Joseph, MO · Member since 2015 · 11 posts · 6 votes
    10y
    Originally posted by @John Arendsen:

    Not quite sure a circa '20's home would be built on a slab as they really didn't start slab on grade construction until around the early '50's. As far as your anticipated rehab costs are concerned whatever figure you come up with double it. 

    As a general contractor, real estate broker, investor and property manager for the past 40 years I can tell you first hand that rehab and repair projects prove to be the most costly and have even been known to break the bank.

    There are so many unknowns and uncontrolled variables with rehab projects. When you're having a cavity filled the dentist doesn't start filling until he's dug out all the decay and sometimes it becomes necessary to remove the entire tooth. 

    However, unlike a rehabber a dentist can get a bit of a heads up with an Xray. But because you can't really see or even begin to know what's needed until you expose most if not all the bones you're kind of shooting in the dark and can only pay as you go.

    One of our specialty niches is insurance repair and that says it all. The first thing you do as a contractor whence finishing your initial scope of work is include the clause:

    "We reserve the right to demand additional compensation for any/all damages and/or repairs needed that were not visible during the initial scope but are discovered during the course of this project. Such damages may include but are not limited to termite damage, dry rot, mold, deterioration, decomposition and/or threatening structural issues discovered during the course of this project"

    That should give you some insight as to what you may expect as you move through an undertaking such as you are describing. It's not what you can see, it's what you can't see that will reach out and bite you right in the behind.

    The only way you can even get close to a realistic cost study is to strip the home down to the bones, thoroughly inspect the foundation, check for adequate drainage away from the structure, thoroughly inspect the infrastructure including the cast iron and/or clay water and sewage plumbing and the electrical and gas lines. 

    Once you've done that you can begging to more accurately estimate the overall ARV of the home. But then practically speaking who's willing to spend that much money and take that much time on something that could still be a crap shoot.

    Now having said all that, because the home was built circa '20's you may be able to get your local historical society interested in the project. But do bear in mind that going down that road can be an equally arduous and frustrating experience. 

    However, there are often some funds associated with them via special grants from certain philanthropic and/or governmental programs favoring the restoration and retention of what they consider historical homes/structures. 

    Good luck!

     Everything John said is on spot, especially it being a high end neighborhood you could get the city interested in helping you'll need your salesmanship to do it, a lot of times as far as I know Governments aren't giving out money these days for renovations but they maybe able to steer you towards grant money, overall it sounds like your father has plenty of time to decide and that number one is in your favor I wish you the best I get the feeling you'll  gut the house and do a major redo make sure you send me photos 

    0Reply
  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
    10y

    That makes two of us on the photos.

    1Reply
  • Mike Strelser
    Wholesaler · Fort Myers, FL · Member since 2015 · 6 posts · 3 votes
    10y

    Hi Filipe,

    Sound like a big decision for your family. @John Arendsen is right about the budget, especially with a century old home. I've had some experience in FL with rehabing 1920's-40's and most of the time you have no idea what it will take.

    You need to locate a top notch home inspection company that can get you a report and video of the crawl space, attic and any other structurally significant area that you can share in the planning stage.

    I just had a new construction home designed in S Fort Myers modeled after a 1940's bungalow and hiring the right people will make or break your project. (I can share the architect's name if you'd like)

    For your ARV and budget I would look for at least 1-2 general contractors and an architect that is vetted in the classical style of your particular home. You're most likely adding space so having a well designed plan will help keep you project from running away on you.

    0Reply
  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
    10y

    @Felipe A., As @Mike Strelser so astutely stated vetting contractors and architects that specialize in this particular niche is of utmost importance. As in selecting a doctor to perform a serious procedure you wouldn't hire a podiatrist to perform an Aortic Valve Replacement in your heart would you? 

    On the subject of finding a good home inspector the only proviso there would be to caution you that they do not normally (unless you pay them handsomely) do any DESTRUCTIVE INSPECTION. This is normally only done in the event of a fire, flood, earthquake, wind or disaster related insurance claim in order to determine if the structure is totaled or repairable. 

    But should you start digging into walls and/or removing siding in order to determine extent of damage or repairs you will be responsible for repairing what you destroy in the process and this often results in the deal breaker as it's too expensive and time consuming to go down that road. 

    As a general contractor, real estate broker, investor and developer this is when I climb to the top of the highest hill and yell to the top of my lungs....................N E X T!!

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