Hello BP! How Much Rehab is too much?

Question

Hello Bigger Pockets! I'm looking to get in to real-estate investing and purchase my first house in the next few months. I'm planning on house hacking and adding a studio ADU for extra income. However I am having trouble finding good places to fit the BRRR strategy. Most places I am seeing either have major issues (foundation, structural, or major water damage) or have been remodeled recently and are quite nice. Some of the nicer places could still use a little updating (tile and granite in the kitchen and hardwood floors) but the price doesn't really reflect that. I am looking in the Santa Cruz Mountains in California so I know it's a hot market, but houses have been sitting for longer and many have had to drop their asking price by 20-50k to sell.

When you're looking for a property, what are some easily recognizable red flags you look for? Anything that from listing pictures or a walk through could disqualify a place right away? I saw one place that had good rehab potential but it was not in the best location as it didn't have any sun on the property.

Great to meet you all and I'm looking forward to being part of this community.

Best,

When you're looking for a property, what are some easily recognizable red flags you look for?  Anything that from listing pictures or a walk through could disqualify a place right away?  I saw one place that had good rehab potential but it was not in the best location as it didn't have any sun on the property.

Great to meet you all and I'm looking forward to being part of this community.

Best,

Brian C. · Answer

Hey Kip

The market has slowed down a bit lately, but still lots of demand for housing. Your wise to avoid those dark/no sun places in SLV. I'd also avoid too close to the river or potential slide locations up there. Also, there's lots of competition in the lower price/fixer market so I'd advise having your financing setup in advance so you can act quick if you find something.

Welcome to BP and happy house hunting! :)

Kip Wanaselja · Answer

Thanks for the responses everybody!  I'm working with a realtor and have just got together some financing options.  She's been a pretty good resource so far, and is quite helpful.  I also have an uncle who is an architect so I have talked with him a good bit about how difficult certain projects are and have a better idea on that as well.

I am still working on my funnel and trying to build out my network (part of the reason I am on this forum ;) ),  but wanted to wait until I had some financing in place before doing too much.  I have mostly been looking on the MLS/Zillow, and while I have seen a couple places that would be good candidates, it was before I had financing and they went quickly.  I have not tried driving for dollars yet, although I did do a few passes around the neighborhood I live in currently.  Unfortunately there are very few unoccupied houses around, and even ones that could be considered "unlivable" have people in them.  I will keep looking though.

Andrew Ibarra · Answer

@Kip Wanaselja It is inspiring to see you combine two real estate strategies in a hot market! I am interested in your lead funnel. From the light description in your post, would it be incorrect to assume that you are getting your leads from the MLS or Zillow? Since your looking for value-add properties, have you tried driving-for-dollars?  My understanding is that value-add properties that have been on the MLS for several months have a higher barrier of entry for investors. Barriers such as major water damage or structural damage.

Christina J. · Answer

Welcome, @Kip Wanaselja! Great question for your intro post!

I'm not extremely familiar with your market, so I hesitate to give specific advice on what to look for there in your neighborhood. But generally speaking, it could be wise to get input from a real estate agent. When my husband and I first started building our portfolio, we built a strong relationship with a very knowledgeable local realtor who was able to advise us on what updates we would be able to recoup costs on relative to rental rates in the neighborhoods we were exploring. The advice was invaluable and kept us from over-improving our B class properties beyond what the market would support.

Now that we have 8 deals and almost as many renovations under our belt, we have a much better feel for our market and can make those decisions easily on each property. But we had to start somewhere, and having that on-the-ground expertise kept us from losing money.

Joining your local Real Estate Investors Association (REIA) would also help you build a network familiar with your market and give you local resources who could advise you on specific renovation values.

Best of luck as you launch your investing career and look forward to following your success here on Bigger Pockets!

Hello BP! How Much Rehab is too much?

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