Must Do, Should Do, Could Do

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When you’re rehabbing a house for re-sale, you’re faced with deciding which approach to take to make that house sellable without overbuilding.  How do you do that?  Well, largely, it comes from experience and mentorship, but there are some general “rules-of-thumb” that you can employ to help you choose.

We break our rehab lists into three categories; the “Must Do” list are those things that would prevent a retail buyer from obtaining a loan (FHA restrictions), or something that will surely be caught on a house inspection that we would have to fix anyway.

These things include an old (15+ years) furnace, an old (10+ years) water heater, a fuse box or a breaker panel manufactured by Federal Pacific Electric (FPE) or Wadsworth, a decaying or “frito-ing” roof, broken or damaged components such as doors, walls, windows, flooring, cabinets, or countertops, or certain “handyman special enhancements” that are clearly code violations, just to name a few.

The next list is the “Should Do”, and it includes things that are likely to sway buyers into the “buy it” camp.  Since kitchens and bathrooms are the biggest factors in house-buying decisions, these are things like updating the kitchen and bathroom cabinets and countertops, faucets, sinks, and lighting.

This is where things get a little fuzzy.  Depending on the current market, some of these things can slide between the “Should Do” and “Could Do” list.  If the market is strong and houses are flying off the shelf, you don’t have to do quite as much, although doing so can cause a house to move fast.

This is, of course, where your mentors and REALTOR partners come in – they can help advise you on what is appropriate in the current market in the neighborhood where you are working.  Keep in mind that you’re not trying to do the least amount of work to get by; you’re trying to do the appropriate amount of work to have a good product without overbuilding.

The final category, the “Could Do” list is reserved for markets with high competition and/or low retail sales.  These are the things that, when done, make a huge difference in the property.  And, like I talked about above, some of these could slide into the “Should Do” list in certain situations.

For example, removing a wall to create an open floor plan is potentially a pricier option that has the possibility of creating a big “wow” factor and thus selling the house quickly.  Or you could use higher-end finishes in the kitchen and/or baths, adding unexpected features like a steam shower or a beautiful backsplash in the kitchen.

All of this, of course, is subjective.  Each investor needs to analyze the situation to determine what is necessary for the rehab, and considering the time of year that the property will be entering the market.  But how can you be sure of any of this?

Until you’ve gotten the experience under your belt to just “know” the answer, you must rely on your REALTOR partner and your mentors or colleagues to help you understand.  Even more accomplished investors are always checking-in with others on this point, just to remain neutral.

The final word on this is to make sure that YOU are the one ultimately calling the shots on what’s needed for your rehab.  While builders can be awesome assets in the design department, remember that their price goes up right along with features.  So don’t let “feature-creep” crater your budget.

 



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