I just bought my first rehab property. I was curious if anyone has had success doing Build-To-Suit rehab projects? How does the process/agreement typically work?
I wasn't sure if it was a good idea to start advertising my property For Sale, the day I close as a Build-To-Suit house. This way potential buyers could do material selections and tailor the renovation to their wants/needs?
How do you advertise build-to-suit? What is the agreement with the homeowner?
Any input would be great.
Thanks for your time.
We started advertising immediately on our last project with great success. The eventual buyers were actually in the property right after demo and kept coming back. We offered to do exactly what you are referring to but they were not ready to commit.
They ended up buying after renovation which was better for use as we were not limited by them.
I personally believe this would be a mistake, with a few minor exceptions.
Exception one: I bought a home a few years back that only needed about $20k in rehab so it was very light work for my area, kitchen was perfect and area was fantastic. My agent already had a first time home buyer looking in the area so they were brought by to look at the house just a few days after rehab started. While I did not offer to tailor my rehab to their specs, I did describe exactly what would be done and they locked it up before I ever finished rehab work.
In my opinion, marketing to tailor a rehab to a potential buyer's specs is a mistake because, unless they put up a non-refundable large EMD to protect you, you may lose out on doing stuff you may not have done. Also, home buyers often do not have the imagination to see a finished product from the current condition.
You are better off picking paint, carpet, tile, granite, and all other color tones in ranges that appeal to the masses, use the same items and colors over and over and get in to get out as quickly as possible.
This is a mistake, especially for your first flip. Buyers always slow down construction, they change their minds often, they don't want to pay a fair value for changes, they expect far too much of their builders time, and ultimately they make jobs less profitable.
As stated above just use finishes with mass appeal and if you've bought right and done a nice job you'll find a buyer.
I agree with Steve 100%. If your market is a sellers market, you want as many offers as necessary to negotiate the best deal for you.
Agreed with the responses above. I have a house undergoing construction right now. The house is nearly torn down to the studs (no sheetrock) and I got an offer on it today (which we'll be accepting).
We've already told the buyer, "Take a look at how our other houses look -- this one will look exactly the same. We can't do anything custom prior to closing, but if you want anything changed after closing, we're happy to provide the labor and materials at cost."
That should be a good compromise if the buyer is insistent on custom finishes...
Big mistake. What if the potential buyer has really bad taste, you build the house to suite their poor choices and then they back out on a finance or HOA clause? You want to make your houses appeal to 90% of the potential homebuyers. You have to know what is important in your area when it comes to features and upgrades. Remember, your ultimate goal is to spend the least amount of money to make the most amount of money. You are not going to live there.....so you need to pick what you are going to spend your money on to maximize the home appeal.
I am actually going through that right now with a home I just bought but have yet to close on it. After offer was accepted my agent call and said she had a buyer who really wants the house, we agree to meet with him and after we ask him all that he wanted done to the house, it came in about what we were going to spend on it(around 25K) problem is he only looking to spend around 135-140 and our CMA came in at around $155-160k. House is across street from a nice lake. So we decided to just do our rehab and listed in the MLS to get the exposure for a higher price.
If it is a nice house where you know it will sell very fast, then I would expose it and get the most for your money verse having to be tied up with one buyer and what they want done to it and what not.
I agree with most of what's been said. However; what type of rehab is it? If it's a lower end house, I'd just finish it, and then sell. However; if it's a higher end home, I'd do a cost breakdown, and anything over and above that are considered upgrades, and the overage must be paid in cash by buyer to seller. That way, should the escrow fall out, you're not paying for things you don't want, or don't necessarily add value.
If you don't want to do it that way, and want to let them have some input, have a range of choices 3 paint colors, 3 faucets, 3 styles of lighting fixtures, 3 countertop choices w/colors that work with paint colors you've selected, carpet, tile, etc., that fit your budget, keep them all neutral; and let them pick from that. That way, they have some choice, but won't mess up your schedule, and if the deal falls through, there's nothing lost.
Thanks for the input everyone. My initial thoughts of advantages with build-to-suit were that you could market the property to potential buyers earlier in the rehab process and get a buyer in-line to buy the property before the rehab was finished and therefore have less holding costs/risk.
I agree that build-to-suit is probably not a good idea, unless as Will suggested, you get a large non-refundable EMD upfront that can be used as insurance against the deal falling through. I was thinking build-to-suit could be an alternative marketing strategy, but it sounds like the best marketing strategy is to 'build'-to-suit' for the masses and the property should be able to sell itself.
Thanks again for the input.