Rehab for dummies (I’m the dummy)

[Patrick Menefee]

Good morning BP

As I spend more time practicing analyzing deals I know the rehab piece is one spot i need some help. I’ve heard plenty of warnings about misestimated rehab costs, and i know that this is definitely not a strength of mine right now. So it’s time to start learning.

I have a few specific tactical questions when looking at a potential BRRRR property. First, I imagine it all starts with designing the rehab rather than just pointing to a house that needs work and saying "fix it!" How detailed of a plan should this be? Does it need to be formally written up in some way, or just a vision you can share with a contractor? Is it good to have a professional draw something up, and if so how much does that typically cost?

Once you know what the end looks like, how do you price it? Can you schedule a contractor to come provide a quote when you go do a showing before you make an offer? And then is the best bet to try to get them lined up at that point to jump in at closing?

Thanks in advance for all the help!

Patrick

[Patricia Steiner]

Patrick, I have a few concerns:  

1.  As a buyer, you do not pay commissions. Why not add some bench strength and find a realtor who specializes in working with investors to help you.  Brokers/Realtors have a host of resources to help their clients; a contractor who won't give you the time of day as a "newbie, non-owner" will show-up for a realtor who provides an ongoing referral base of business.  And, pricing is determined by market demand. A broker/realtor can tell you what price points are selling, what the price point is in a certain market, and what demand is currently (how long it will take to sell at various price points).  

Warning.  Not all realtors are created equally.  Again, you need one who is experienced in working with investors - especially those doing projects like the ones you're considering.  You don't need someone who is the "queen/king" of Facebook and park benches. You need someone who knows and loves dirt.

2.  Over-improving will kill you.  Designing?  Save that for your own home.  You need to understand how bank appraise/value a property for financing when it has sold twice within the same year.  It's not to your advantage.  And, not all improvements increase value/price.

3.  Market Demand.  The housing market is cooling.  What was a great investment last year is not now.  I have flippers calling me looking for work as handymen/home improvement because their flips haven't sold and the demand has vanished on them.  

I would like to recommend something else too:  Stop analyzing. Stop looking for properties. Stop planning.  Go look at completed flips/rehabbed properties currently listed for sale.  Compare those to the condition when purchased.  Look at price, price drops, time on market.  

My apologies for being so direct.  As a Broker and Investor, I am seeing a lot of financial fallout from investors.  It's downright ugly.