Rehabbing Your First House

Account Closed · 2012-04-17T09:27:42-07:00

I know many of you may have seen the topic and thought about your first fix and flip. I actually would like to get some of your opinion's on rehabbing my first home to live in. Let me explain. My wife and I are getting ready to buy our first house and we are going to rehab it and live in it. We are getting an FHA 203k loan. We'll be able to include all renovations in the mortgage and can use any amount on repairs as long as the value after the work makes sense. So the way I see it we can pick up a nice place at about 65% of arv less the repairs and really do an outstanding rehab heres an example using my last deal's numbers. I find a place with an Arv of $380k I buy the place for $175k To do a regular rehab might be about 60k but say I wanted to put about $100k into it. I would be into this place for about $275k and have a spectacular looking house. one of the best on the block. And im stil about $100k below fmv. I'll have an amazing house with a ton of equity that I could live in very comfortably. Does this make sense? The second part is how i manage a task like this and how we shoupd screen general contractors. My wife and i have a vision for what we want our house to look like but with this type of a project we want to make sure we're careful and get the most bang for our buck. Any thoughts from anyone familiar with rehabs? Do contractors usually have vision or do i have to design every detail?

Nathan Emmert

Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes

14y

My advice, don't do it. Looks at most renovations that normal people do, turn on HGVT sometime. They spend $40 or 60k in improvements and increase their house price by $20 - 40k. Normal people don't have the experience or connections to rehab for profit, it is an acquired skill.

Some of the problems I see. Based on the rehab you're talking about, the house won't be livable at purchase. Is that eligible for a 203k loan? I know FHA has livability requirements on their normal loans.

Assuming it's not livable, and you can get the loan, you are going to be paying both the $275k mortgage and your rent until you can move in. What's the going to do to your cash flow?

How is your wife, is she an emotional shopper? Personally, my wife can't see "potential". She sees dirt, ugly, messy. Is your wife going to support your vision of turning trash to treasure?

Last, it doesn't sound like you have a vision of what you want. You say you do, but then you ask if the contractor will do it for you. You're basically looking for a custom home builder but looking to pay contractor rates, that's probably not going to turn out well. Every time he goes a direction from his vision and your vision tells him to go some place else, it's going to add $$$$.

Unless you really know what you're doing, let someone else do the hard work for you and buy a home you love. Finding a house at 70% of ARV - repair costs will be a lot of work. Managing a $100k remodel of a house is a HUGE amount of work. There's a lot of risk in this. Sure, it could work out great... you just don't strike me as equipped to jump in at that level just yet. Go find a short sale or foreclosure that just needs a cosmetic update. Less money, less risk, still a nice reward.

Rehabbing Your First House

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