Rehabbing a house can seem like a daunting task. The work that is required may not seem worth it at first.
However, in 2022, investors made an average ROI of 26.9% on fixer-uppers.
Creating a beautiful home is a rewarding venture, both financially and personally. However, you need to know how to do it before you make your purchase.
In this article, we’re going to discuss everything you need to know about how to purchase a rehab property. By the end, you’ll know how to take a run-down, undesirable property and turn it into a profitable masterpiece.
What Is a House Rehab
When we talk about “rehabbing” a property, we’re referring to the process of renovating and restoring a piece of real estate. The goal is to increase its functionality, improve its appearance, and raise its value.
Properties that need to be renovated are typically dilapidated and distressed. They can also be eyesores in a community.
This strategy involves purchasing a property at a lower cost, renovating it, and then selling it or renting it for a higher price.
Depending on the property that you find, you may only have to focus on improving aesthetics. However, some buildings will need repairs and work done to the structure.
Functional improvements, cosmetic home upgrades, and structural repairs tend to be the focus of a home improvement project.
How Much Does It Cost
How much you spend on your home renovation is up to you. We’ll talk more later about budgeting as well.
The cost is going to be dependent on several factors. The size of the property will make the biggest difference.
Larger homes require more materials and labor. This will increase the cost.
The type of property will also make a difference. Are you renovating a single-family home, a multi-family property, or a condo?
The extent of that renovation is also crucial. Structural repairs or changes that need to be done to the foundation will be much more expensive than cosmetic upgrades. If you’re painting and changing the cabinets, it will be a lot less expensive than fixing a cracked foundation.
As you may expect, the choice of materials and finishes will also impact your budget. High-end materials will increase overall cost. However, there are budget-friendly options that you may want to take advantage of.
The time of year can also make a difference. If there is a high demand for labor, the cost will increase.
You should also keep in mind there may be unexpected issues during your rehab project. This unfortunately cannot be calculated prior.
Blindly taking on a big property renovation project is the last thing you want to do. Rehabbing a property isn’t buying a house and getting started.
You must have a fix-and-flip strategy. This will allow you to make the most out of the project.
Art of Strategic Renovations
You should take the time to learn about which upgrades add the most value to a property. Learning how to balance aesthetic improvements with essential repairs and functional upgrades is also key.
While it is your property and you want to like it, you’ll also need to think long-term. To increase curb appeal, you’ll need to know what’s in style and what your ideal buyers or renters like.
Creating a property that appeals to the masses can be very beneficial; however, you also don’t want to make the property too trendy. You don’t want the upgrades to be out of style in a few months.
Sourcing Quality Materials
The backbone of a durable and attractive rehab property is high-quality materials. Before pulling the trigger and buying the first item, be sure to explore recommendations.
You’ll want to find the best places to source your materials. There are some cost-effective yet high-quality tools, equipment, and materials that you can purchase. It does take time to find those, so don’t rush it.
Resources You Need
To be successful, you need to equip yourself with the right knowledge and resources. Whether you are hiring a professional to do the entire renovation or you’re going to DIY part of it, you need several things to be successful.
First, you’ll need to educate yourself. This is especially true if you’ve never purchased a rehab property before. You can learn a lot by doing it, but don’t underestimate the power of online courses, podcasts, and books.
You may find real estate investment forums to be helpful as well. You’ll have the chance to learn from other people’s mistakes and ask questions. It will give you the opportunity to prepare for your rehab property.
There are also conferences, YouTube videos, and professional training certifications that you can use. The more you know, the easier the process will be.
Legal and Compliance Guidance
When you’re putting your strategy together, you’ll need to think about any legal complications. There are local and federal laws that you’ll need to follow. You don’t want to risk getting fined or having your project delayed.
Another way to make your journey easier is to connect with professionals and like-minded individuals. You can gain valuable insight from others who work within the industry.
Step 1: Property Condition Assessment
The first step is to assess the property’s condition. This is one of the most crucial steps. This will allow you to identify any structural issues, water damage, and other needed repairs.
This assessment will serve as the foundation for creating a comprehensive plan. It will guide you through the process.
Taking detailed notes will be helpful in the future. Once you get started, it may be hard to remember everything. You may gather information during this step that needs to be shared with outside laborers and contractors.
Step 2: Create a Checklist
Once that is completed, you’ll write out a checklist. This will also be with you through the renovation project.
Make this list as organized as possible. Divide it into categories such as cosmetic, plumbing, structural, and electrical. This will act as your roadmap. It will also ensure you don’t miss anything or make any crucial errors.
As you go, check the items once they are completed. A rehab property can be a big challenge, and marking off the completed items will help you feel accomplished. It will also help you see your progress.
Step 3: Make a Rehab Budget
After you have your checklist, it will be easier to make a comprehensive budget. You’ll need to consider all the potential costs. This includes materials, labor, and permits.
You should also include a buffer for unexpected expenses. You never know what you’re going to find when you purchase a rehab property. Unfortunately, inspectors can miss issues, and you need to be prepared for the unforeseen.
Having a well-thought-out budget will help you manage your finances effectively. It can also help you prevent overspending during the process.
Depending on how large your renovation project is, it can get expensive. You don’t want to get halfway through your project and realize that you’re out of money.
When you’re making your budget, you should include your ARV (after repair value). Forgetting this could be detrimental to your profits.
Your primary goal is to make money, and this calculation will allow you to be strategic and make the most possible. The ARV will help you establish a reasonable limit on how much you can pay and spend on the property.
Understanding this estimation will allow you to gauge your property’s competitiveness in the current market.
This calculation is easy to forget, but it is vital for making a profit.
Step 4: Find a Contractor
Unless you’re planning on doing the entire project yourself, you’re going to need a contractor.
Not all contractors are worth hiring. You should spend time researching professionals and finding one with a good track record. They should have experience working on properties similar to yours.
Don’t be afraid to ask them questions about past projects and their credentials.
You should also obtain multiple quotes and check references. Your contractors should be licensed and insured as well.
Before construction begins, it’s vital that you obtain the right permits. A good contractor will help you with this step as well. Failure to get the right ones could lead to complications in the future.
Step 5: Debris and Trash Removal
Once you have your budget, contractor, and permits, it’s time to get started.
It’s not glamorous, but clearing the property of trash and debris is important. A clean slate will make it easier and safer for you and your team. You’ll be able to move around the property without worrying about tripping or trash getting in your way.
During this process, remove structures or materials that can’t be used.
You’ll then be able to see the property’s true potential. It may help you and the contractor make a plan.
Be sure to properly dispose of the garage. Some materials require specific care and removal.
Step 6: Start Interior Renovation
You’ll want to tackle any structural issues before starting on cosmetic enhancements. This includes fixing foundation issues, repairing walls, and addressing any issues that compromise the property’s stability.
You should also ensure that the electrical and plumbing systems meet the local building codes. Whether you are selling the property or renting it out, you want the property to be safe. Doing this first will also prevent complications later on.
Moisture and water damage can be a huge issue in fixer-uppers. If there is any leaky or water damage, those should be addressed as soon as possible.
If you have to replace damaged insulin or address problems with the insulation, those should be high on the priority list.
If you’re planning on changing the layout, be sure that you aren’t removing any load-bearing walls.
You can then move on to upgrading the floors and lighting fixtures. Be sure to consider energy-efficient options and place the lighting strategically to enhance the ambiance of the space.
You can then start painting the walls and cabinets, updating the countertops, and installing new appliances.
The final touches are last. This includes window treatments and decorative elements. Ensure the work meets quality standards and is up to code.
Step 7: Work On the Exterior
Once the interior is complete, you can move on to the outside. This is where you can significantly increase curb appeal. Adding a fresh coat of paint and replacing the garage door can make a big difference.
Lawn care is easily overlooked, but it can do wonders for your property’s appearance. Trim all overgrown bushes, trees, and plants. You can add flowerbeds and shrubs to create a good first impression.
You should also add exterior lighting. This will increase aesthetics and safety.
Gutter maintenance is not glamorous either, but it is important. They should be cleaned and inspected.
If there are any issues, they should be addressed before finishing your project. You may want to consider installing gutter guards to prevent clogs and damage.
Lastly, you should replace or repair damaged trim. Adding details can enhance the property and make it more appealing as well.
Step 8: Finalize the Project
The final step is to inspect the property. Ensure that all plan improvements are executed as desired.
This will give you a chance to address any last-minute issues. You can also make small adjustments to your liking.
Once everything is complete and in order, you can prepare for your showcase. Showing your masterpiece to the public will be satisfying and rewarding.
Then, you can hire a property management company to market it for you. They will find interested tenants and have someone move in as soon as possible. You will then start to see the profits roll in.
Unlocking the Hidden Potential of a Rehab Property
Buying a rehab property can be overwhelming, no matter how many rental properties you have. They are a lot of work and require patience.
However, you shouldn’t let a daunting task scare you away. With the right information, tools, and contacts, you can turn a rehab property into profits.
Since 2002, our team at Reedy & Company Realtors, LLC has been helping property owners just like you. Give us a call today for all your investment property needs.