Los Angeles, CA · Member since 2009 · 717 posts · 50 votes
Hello, I am currently rehabbing a couple lower end houses where the ARV is $135k and $175k. There are a lot of iffy items like the siding that could be replaced, but "might" pass with it being painted. Most of the siding is good, but there are parts where there is rot. I'm wondering if I am going over board on these rehabs. For example, in this price point, I am doing granite counters, stainless steel appliances, gutters, asphalt driveways (most cases), new cabinets, recessed lighting, new baths, new trim and doors, and the list goes on. Typically they are gut rehabs and I am spending around $45-50k on each. The spread is ok, but getting thinner as the market has slowed down. Am I going over board on these rehabs in the 135k ARV mark? Is there anything I could to save costs or thoughts? Thanks.
Greg P., it all depends on the market you are working in. Do the other properties in the same area and price range have granite counter-tops, recessed lighting, etc? Over-rehabbing can be a big problem and can eat into your profits, but doing it just a little bit can give you a big edge in selling quickly, you just have to find a balance. That said, $40-50K for a gut rehab with that level of improvement seems pretty good to me, but in a $135K property I would probably go with "stainless looking" appliances and would leave out the recessed lighting, unless of course those are standard in your area.
Greg P., it all depends on the market you are working in. Do the other properties in the same area and price range have granite counter-tops, recessed lighting, etc? Over-rehabbing can be a big problem and can eat into your profits, but doing it just a little bit can give you a big edge in selling quickly, you just have to find a balance. That said, $40-50K for a gut rehab with that level of improvement seems pretty good to me, but in a $135K property I would probably go with "stainless looking" appliances and would leave out the recessed lighting, unless of course those are standard in your area.
James is spot on. When I first took a tour of my rehabber's houses, I didn't see anything special, and thought to myself I'd spend the extra 10-15k to really pretty the houses up. However he has been rehabbing his area for 15 years and moves the houses quickly for a nice profit, because he does exactly what his market calls for.
So check out the fit and finish of similar houses, and be conscious of not over capitalizing, no matter how tempting it may be.
You need to find the "sweet spot" of rehabbing, where the properties will sell very quickly (and you'll get a great reputation) but where you won't be spending extra money. There's no one right answer, and as the guys above said, it will depend on your market.
In my market (we do entry-level houses in this price range), we want everything to be new and completely safe, but not necessarily upgraded. So, we'll do all new flooring, paint, cabinets, countertops, lighting fixtures, plumbing fixtures, appliances, etc. But, we won't do granite, we won't do hardwoods, we won't do recessed lighting, etc.
As for siding, we'll replace any bad (rotted, worn, etc) siding to match the rest of the house, and then paint, so the buyers won't even be able to tell what siding was replaced. We won't do anything with concrete/asphalt unless it's a safety concern or such an eyesore that it will impact the sale of the house. We'll replace any doors/windows that need it, but if they are in good shape, a coat of paint will make them look new.
Again, for my market, everything new, nothing upgraded -- and our properties fly off the shelves at that price point.
J Scott when doing these types of properties (lower end) what kind of flooring, cabinets, counter-tops and appliances would you use if they in fact do need to be replaced? also what would be considered higher end properties (in your area) in which you would use higher end products?
If they are redoing ceiling because they are tearing out the ceiling tiles for example, wouldn't it be worth it to just do the recessed because of the exposed ceiling? Or for a unfinished basement? Thanks guys.
If they are redoing ceiling because they are tearing out the ceiling tiles for example, wouldn't it be worth it to just do the recessed because of the exposed ceiling? Or for a unfinished basement? Thanks guys.
I did not mean to say recessed lighting is something I would never do in any scenario, just that in standard rehabs with a $135K ARV that would not be in the works. Certainly, there are times when specific properties offer unique opportunities to easily include nice upgrades, which I would encourage, I was just speaking generally.
@ J Scot is dead on on how he rehabs & probably why he is quickly able to unload, therefor lowering his holding costs (figure $100 a day a property sits in a flip).
Only thing I would add is CURB APPEAL, CURB APPEAL, CURB APPEAL.
J Scott when doing these types of properties (lower end) what kind of flooring, cabinets, counter-tops and appliances would you use if they in fact do need to be replaced? also what would be considered higher end properties (in your area) in which you would use higher end products?
For flooring, we use mid-grade carpet and nice vinyl (both of which are inexpensive in this area -- we can do both for about $1.10 per sf). We'll often use a nice laminate hardwood in the entryway to make a good first impression.
For cabinets, we use a chinese made low-end line provided by a local supplier that is nicer than anything you'd get at the big box stores, but still inexpensive (a typical kitchen would be about $2000 in cabinets). For countertops, we use a high-gloss laminate that looks like stone/granite (this is one place where we probably do a small disservice to our buyers, as the high-gloss doesn't last nearly as well as the matte finish, but looks much nicer when new, which is why we use it).
For appliances, we use a faux stainless -- low-end that we get from Home Depot. Fridge, range, microwave, dishwasher, washer/dryer all for about $2100.
We use lower-end brushed nickel fixtures (lighting and plumbing), all new registers/switches/outlets/plates, and standard 6-panel MDF doors.
As for recessed lighting, the cost comes from the materials and the electrician's labor, so whether you're tearing out the ceiling or not probably won't impact the cost too much, unless you're tearing out enough sheetrock to make the wiring a lot easier. We pay about $65 per can light installed, which can add up pretty quickly if you're doing a lot of them.
If I'm above $150K price point (high-end first time homebuyer or homebuyer looking to upgrade), we'll use granite in the kitchens, hardwoods in the shared living areas, and slightly nicer appliances.
Staging is actually our biggest "secret"...there are other rehabbers in our area that do just as nice a job on the rehabs (some even nicer), their houses don't show nearly as well as ours do, because they're not staged. But, that's a separate discussion...