April 2014 Article
Rehab for Resale
Your clients might believe a common myth, arising out of a recovering real estate market and unrealistic TV shows, that making a profit from “flipping” houses is easily done by novices, without any expert advice. As you know, nothing could be further from the truth.
Helping your clients with a successful purchase-rehab-resale project requires careful property searching, detailed market research, and adhering to an effective formula for making a profit from the venture. Seasoned rehabbers look for both the practical, and what could be called the “transformational” possibilities of a candidate property. Simply put, they want to cure defects and jazz up the appearance within a budget that allows them to sell the house for more than they have invested in it. As you view a potential property for your rehabber clients, consider these ideas:
Look for properties that are in a distressed condition, but remember that curing structural or mechanical problems can add only so much value. Because of that, naïve homebuyers and investors frequently pay too much for a property that is too expensive to fix. Look for opportunities to cure cosmetic and functional problems, because they offer the best return on investment.
Look for properties where the kitchens or baths are obsolete and dysfunctional. These properties can often be strongly discounted when purchasing, and updating them will offer the greatest opportunity for resale profit.
Look for bad designs that can be transformed. For example, it might be possible to transform a dysfunctional floor plan into a more efficient flow of space. Another example might be a clever kitchen redesign that closes an unnecessary doorway to accommodate another bank of cabinets or an informal eating area. It is not usually cost effective, however, to move too many walls, or to add foundation square footage.
Evaluate the property’s rehab potential within the limitations of what would be appropriate for the neighborhood’s overall style, scope, and price range. Your client should look toward transforming the property into the best it can be, but not an over-priced tour de force that is inappropriate for the area.
By Jim Luger, CDEI
Certified Distance Education Instructor
Continuing Ed Express