How do I estimate rehab on this property?

Question

Matthew Paul · Answer

Ok the house is old , , there is a high probability of 2 things , LEAD PAINT ( lots of it )  and asbestos .  Another thing to look for  TERMITES ,its a wood house .  its a 4 plex , now what I dont see are fire escapes . And depending on your location , a fire sprinkler system .  I see lots of money leaving your pockets .  I see $15K to 25K for a roof .  I can tell you this , that house will be constant work .

Trevor Gaal · Answer

That's a beautiful place @Heather Schmidtknecht

A common mistake is over estimating the ARV. I don't know the area, but looking at that property you're probably correct that it would be worth 300k after the rehab, but the proper due diligence would be to find at least 3 comps (your agent will do this for you)… just make sure they're actually comparable (location, units, bedrooms, square footage, etc)

A lot of the info you'll need for the calculator is in the listing, but if the building expenses and gross rents have been omitted just ask your realtor to get that information for you.

It's not a problem to view the property more than once. When people are house-hunting they'll view a dozen and then go back and view their short list a second time, so that's pretty standard and any real estate agent wouldn't mind. Since it's been on the market for so long you won't need to pounce on and write an offer while you're still on the front lawn.

You should have a scope of work ready for your contractors. If they're not all on the same page then you won't be able to compare the bids. You need to be sure what you want done and what you don't. If you're not 100% sure if you want to replace all the doors and trim (as an example) then ask them to break that job out and price it separately.

Last tip from me on this post:

I like to have the property under contract before I give any trades people the address for a walk through. Many contractors are either investors/flippers themselves or they already work with an investor who they'll give the lead to and end up doing the work on the property anyway. You can lose a great property that way... but like I said in my previous post you can always back out of the deal if the quotes for rehab come in too high.

Sorry, I'm being so long-winded. Just trying to help you be more informed. It's a big decision!

T :)

Trevor Gaal · Answer

Hi @Heather Schmidtknecht

Have you run the numbers on this property using the BP Calculator? I'm willing to bet you'll eliminate this property and won't need to worry about booking anyone for a site visit. You can play around with the rehab cost value in the calculator to see how that effects the outcome.

From my modest experience with rehab projects you're looking at a minimum of $70,000, (The windows alone will be 40k). But with an older property you can count on running into extra expenses, so if you can't make the numbers work with an $100-110,000 reno you'd be taking a big risk.

How long has the property been on the market? If it's up past 120 days and the seller is in fact motivated you might be surprised what they'll accept for it. So when you're doing your analysis find the purchase price that makes the numbers work (with plenty of cushion room). Offer that number subject to inspection and financing, you can always back out if the quotes come in too high.

Then get at least 3  from each trade to walk through the property at the same time. Contractors will likely go a bit lower if they know they're competing for the job. Besides the obvious (roofers, painters, window guys, etc) don't forget to bring electricians and plumbers too. If your electrician finds knob and tube wiring you might as well forget about it... easily another 30k to rewire a big place like that!

I hope that gives you something to think about and I hope it helps.

Please repost what your results where, the BP community would love to learn from your experience with this property.

Good luck!

T :)

Kathy Henley · Answer

What a great opportunity to learn stuff @Heather Schmidtknecht If you don't have any contractors on your team, start looking today. Roofing contractors, painters and window people will offer budgetary quotes for free. Book some appointments right away. Be there and shadow the contractor, learn from them. Has the electrical system been upgraded? Are the water lines still cast iron? Listen to what they are learning about the building. Their quote will be high, because you haven't yet established a relationship, but you will. The age of the property is worth a hard look. Any upgrades may take money out of your pocket. Their bids will be a rough idea of your future spending. Then decide if the deal makes sense.

When you talk with other investors in your area, ask for referrals. Now you have more names to call.

When you talk with other investors in your area, ask for referrals.  Now you have more names to call.

Trevor Gaal · Answer

@Heather Schmidtknecht I'm honestly a little bit relieved to hear you're looking for a different deal. My very first property I had to do an eviction and a 20k rehab to fix the damage and it nearly turned me off real estate for good... that's not the kind of negative experience you want for your first deal. You're much better off having a nice boring investment than the bag full of problems this property was going to give you!

@Kay Khan had a fantastic suggestion. Do a joint venture partnership with someone who has the knowledge and experience. You bring the financing, they bring the deal, knowledge, time and hustle. Split the profits.

Best of luck on the next one!

Cheers,

T :)

Kay Khan · Answer

@Heather Schmidtknecht IMHO, find a seasoned partner/mentor who is already doing what you would like to do and JV with them. That will cut the learning curve many folds.

Trevor Gaal · Answer

@Matthew Paul yes!

Also, unless the plumbing was upgraded you could be looking at 50k to replace the old cast iron pipes. If you miss the opportunity to do this while you're doing your initial renovation it will cost double... problem is they corrode from the inside out, so they may "look" good, but they might be close to the end of their life.

I think what we're trying to say is that as beautiful as this property is, it's going to be a money pit. Great investment decisions are made only on the numbers, so please review your analysis with your real estate team. Your realtor and mortgage broker can give you some great advice and really help you out on this decision.

Your real estate agent will make sure you can back out. You can certainly use the inspection with some of these things we've talked about. Backing out because of windows would be questionable because you should know just by looking at them during your viewing, (even though you're going to have sticker-shock when you get the quote, you still should have known better). However, if your inspector discovered there's knob and tube electrical or asbestos or plumbing issues those are all very costly and not obvious during a viewing and you could easily back out of the deal. Again, just work with your realtor to ensure you can still back out even if the inspection doesn't turn up anything hidden and major.

I'm sorry if you've been discouraged by our feedback on this property. If this isn't the right one, that's okay, there's plenty more out there so don't give up!

T :)

Kathy Henley · Answer

@Heather Schmidtknecht Be straight with the listing agent and introduce yourself as an investor. Have one contractor with you on the first walk-through, one who is interested in bidding on some interior work.

Listing agent and contractors will be nicer to you if you are in contract to buy.

How do I estimate rehab on this property?

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