The Art of partial rehab

The Art of partial rehab

Investor · Israel · Member since 2016 · 35 posts · 6 votes

Hey everyone.

I'm flip investor, managing all the process remotely from abroad.

In area where I'm investing, flipping houses usually means doing a full rehab. I'm talking about places with pricing above average, with old houses(up to 100 years old).  These houses would be very distressed and require everything replaced with new - roof, mechanicals, plumbing, electrical, flooring, windows and e.t.c. If all the numbers work at the point of due diligence, I step forward and close the deal. From this point the rehab would be kinda easy(that doesn't say not challenging, but the opposite!!). That mean all new stuff will be included to scope of work. 

I would like to understand the partial rehab puzzle. I know there are areas with partially rehabbed houses that sells pretty well. The advantadges of rehab like this are fully understood - less capital invested, less time frame to work, less unexpectables, less room for mistakes. The key is building the right scope of work and try to optimize rehabbing budget as much as possible. Sometimes its even more facelift than a rehab. 

Disclamer, my expirience is limited because of the long distance from a properties.

So who is working on strategy like this here? What is your thumb rule to build scope of work that hits the target? 

Any advice or shared expirience will be much appreciated.

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Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
7y

Maybe it’s a matter of knocking out a few walls to create larger open spaces, adding a bathroom, adding value to kitchen. Or focusing on those items that boost appraisal:

  • Kitchens
  • Bathrooms
  • Mechanicals
  • Roof
  • Windows

One of the problems in doing one of these “less intensive” rehabs on older houses is that you run into basic issues with electrical & plumbing. Many of these have plaster. Add in, you have to bring electrical and plumbing up to code, and you may be reconfiguring a few walls – many times it makes more sense to remove plaster, rewire and replumb. My home market is Indianapolis, so I know retail buyers don’t want to pay 225k – 450k for plaster walls with a new coat of paint.

What leads your decision making is having a good idea what is on the market currently in the IMMEDIATE area. What are the finishes and configurations? What are these selling for? Now, you have to set a TARGET retail price. Look at current state of the property. How much ROI you think is reasonable. Holding/selling costs. WHAT TYPE OF REHAB IS NECESSARY TO HIT THE TARGET? How much will it cost? **You have to have tight comps, and make sure you are comparing an apple to an apple.

Once you know all of this, now you know what the property is worth to you (your purchase price).  What it is worth to you is all that matters.  If you can't get it for your price, then don't waste your time. 

This is the way it has to be done, whether you are doing a full rehab, or a remodel. It’s a basic fundamental that doesn’t change.

One of the big stumbling blocks I see with flippers is - they don’t evaluate well and purchase at too high a price. This creates a situation where they are rehabbing on hope and positive thinking vs. rehabbing for target returns.

The retail possibilities are what they are. Rehabbing to hit that target - is what it is. The difference is evaluation and purchase price.

Now, with a somewhat newer home that is up to code, the prescription is more about doing a remodel, but using rehab contractors, not remodeling contractors. The property evaluation and equation work exactly the same. 

Hope that helps a little.

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  • Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    @Alex Khodnev the partial rehab strategy you are describing is just a retail flip or what some are calling "wholetailing". This is a great strategy and much less risky than a full rehab.

    The key or challenge is finding good houses under market value that need minimal cosmetic repairs. If the area is in high enough demand you can simply list the house on the MLS and do nothing at all.

  • Investor · Israel · Member since 2016 · 35 posts · 6 votes
    7y

    @Greg Dickerson thanks for your response.

    Actually what I mean is replacing necessary items and just paint or refinish others. In terms of budget that could cost 20-30K while full rehabbing in my area costs around 80K.

    The question is HOW to build the exact Scope Of Work for each property. What need to be replaced and what only refinished? What should add me the most value? How to lead the rehab budget to maximize selling price?

  • Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Alex Khodnev:

    @Greg Dickerson thanks for your response.

    Actually what I mean is replacing necessary items and just paint or refinish others. In terms of budget that could cost 20-30K while full rehabbing in my area costs around 80K.

    The question is HOW to build the exact Scope Of Work for each property. What need to be replaced and what only refinished? What should add me the most value? How to lead the rehab budget to maximize selling price?

    It's going to be different for each house and each market. The best thing to do is document your selections and specifications into one document to provide the contractors.

    As far as what items will generate the highest return, this is something you need to determine by educating yourself on the market. You do this by talking to realtors, other investors and looking at the comps. Keep an eye on other flip houses in the markets you're looking at..

  • Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    7y

    Maybe it’s a matter of knocking out a few walls to create larger open spaces, adding a bathroom, adding value to kitchen. Or focusing on those items that boost appraisal:

    • Kitchens
    • Bathrooms
    • Mechanicals
    • Roof
    • Windows

    One of the problems in doing one of these “less intensive” rehabs on older houses is that you run into basic issues with electrical & plumbing. Many of these have plaster. Add in, you have to bring electrical and plumbing up to code, and you may be reconfiguring a few walls – many times it makes more sense to remove plaster, rewire and replumb. My home market is Indianapolis, so I know retail buyers don’t want to pay 225k – 450k for plaster walls with a new coat of paint.

    What leads your decision making is having a good idea what is on the market currently in the IMMEDIATE area. What are the finishes and configurations? What are these selling for? Now, you have to set a TARGET retail price. Look at current state of the property. How much ROI you think is reasonable. Holding/selling costs. WHAT TYPE OF REHAB IS NECESSARY TO HIT THE TARGET? How much will it cost? **You have to have tight comps, and make sure you are comparing an apple to an apple.

    Once you know all of this, now you know what the property is worth to you (your purchase price).  What it is worth to you is all that matters.  If you can't get it for your price, then don't waste your time. 

    This is the way it has to be done, whether you are doing a full rehab, or a remodel. It’s a basic fundamental that doesn’t change.

    One of the big stumbling blocks I see with flippers is - they don’t evaluate well and purchase at too high a price. This creates a situation where they are rehabbing on hope and positive thinking vs. rehabbing for target returns.

    The retail possibilities are what they are. Rehabbing to hit that target - is what it is. The difference is evaluation and purchase price.

    Now, with a somewhat newer home that is up to code, the prescription is more about doing a remodel, but using rehab contractors, not remodeling contractors. The property evaluation and equation work exactly the same. 

    Hope that helps a little.

  • Investor · Israel · Member since 2016 · 35 posts · 6 votes
    7y

    WOW @Ritch Bonisa! Thanks for such a valuable input!! 

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