Purchasing a rehab. What to do?

Question

Hey I want to purchase my very first rehab. I just don’t know the steps. I’ve located the house and I have an agent in place. Do I need to bring a contractor with me when I go look at the house so they can estimate the repairs?

Jim K. · Answer

@Chad MadlockI don't mean to be cruel, but I don't think you have the knowledge to do this deal. There are some red flags. Typically, people who buy rehabs should have some knowledge about rehabbing. They get this after some experience partnering in such deals or working on properties with others. Second, you're taking this agent's word instead of working up your own estimate. I've never met an agent who shied away from exaggerating to make a sale happen and collect his cut. Finally, instead of reading up about this, doing research, here you are in an internet forum asking people you simply don't know for advice.You might want to hold off on this until you've spent some quality time reading up on rehabbing. On the other hand, if you're the type that learns by doing, jump on in and be prepared to submit to the learning curve and probably lose some money.

Greg Miller · Answer

The simple answer is yes. You want to know the price of the property, full rehab costs, and long term capital expenditures before you sign as the buyer. This is a very smart strategy. Otherwise, unknown costs will occur that you did not see coming. The contractor can explain the costs but more importantly why. This is where hands-on learning really takes place. As a point of reference, I have been through enough properties with contractors that I can walk into a potential single family and know that a full bathroom gut is going to cost $4000. This is because I have seen it on a contractor estimate and have paid the actual budget line item on past projects.Here is another piece of advice. Ask to see at least two other projects that the contractor has recently completed. You want to see there level of detail, work quality, and vision. I recently hired a contractor, but not before seeing three other projects they were currently working on. This made me very comfortable moving forward with them.

Chad Madlock · Answer

Thanks for the reply. @ Katherine Kesselring Arredondo. I’m just now seeing this post. I had put real estate off for a minute, but I’m really vested into doing this now more than ever.

Katherine Kesselring Arredondo · Answer

Hey @Chad Madlock, I think there is some key information missing that could be important. Do you have a trusted contractor already? It is much easier to get started if you already have a working relationship with a contractor. You have to put a lot of faith in them when you don't have experience. If you don't I would have more than one give you an estimate and (as mentioned earlier) speak to their recent references. You might break even on this deal but you will learn a lot by doing. You are already in this thing, so get the most you can out of it. Ask questions on the forum when you are unsure if you don't have someone else to guide you. And keep moving forward. All investors eventually lose money on a deal, the question is if you improve your business as a result and do better next time. I applaud you for making the leap, and suggest you get as much help as you can to get this thing across the finish line. If you aren't already you should be looking for a Real Estate Agent who works mostly with investors. A retail agent WILL NOT be able to help you. Good luck and keep us posted!

Chad Madlock · Answer

Thanks for the good feedback got me really really thinking now @Matthew Paul

Matthew Paul · Answer

Heres another thing to consider if it is on the MLS and its a good deal to rehab and flip , it would have been sold the first day . Here are some rough numbers , $52K purchase , closing cost and holding insurance etc $6k , rehab $30K so we are at $88K . List price $100 k sells at $95K Sales commission and closing $7K Total costs $95k . You Broke even . ( based on costs in Maryland)

Gilbert Dominguez · Answer

When purchasing a rehab or fixer upper you definitely want to base you numbers off of actual repair and installation quotes provided to you directly from local contactors if you do already have contractors on your team.

Chad Madlock · Answer

I was wanting to fix and flip the price is 59000 I was wanting to offer 52000 the agent said after repair I probably could sell it for 100000 @Matthew Paul

Matthew Paul · Answer

Well this sounds scary , honestly if you have no experience the first one will be an education . But education isnt free . Sure you want to bring a contractor , but be prepared to pay him for his time and expertise . Second dont hold him to that price for rehab , all you are getting on a walk thru is a good guestimate . Are you gonna buy and hold or fix and flip ? If its fix and flip remember , you make your money when you buy the property . If you think its like the tv shows , forget it , its nowhere close . Its hard work to make it all come together , even harder to make a profit

Chad Madlock · Answer

Thanks Greg for the good feedback I will get on that ASAP