Real Estate Investor · Indianapolis, IN · Member since 2009 · 120 posts · 13 votes
I just read an article on yahoo finance called "6 things you think add value to your home--but really don't" (posted on the bulletins).
#2 on the list is "overbuilding for the neighborhood." Now, this article is directed towards homeowners who eventually want to sell. But this absolutely goes for real estate investors/rehabbers as well. You can increase the the value of your investment up to a certain point, but you have to keep in mind what a potential buyer (or renter) is willing to pay in a given neighborhood, and what the comps are around your investment property.
A co-worker of mine knew an investor who did just that: he overbuilt for the neighborhood. The renovations and appliances he put into his property were not justified by the neighborhood it was in.
He broke a very important rule: Do not rehab a property to be what YOU would live in! Rehab the property for who you will be marketing it to.
Real Estate Investor · North Carolina · Member since 2008 · 1k+ posts · 483 votes
15y
Steve - with my students a majority of their co-signing parents are out of state. I assume if they're affluent enough to send kids to college they own real estate, or at least don't want their credit screwed with a civil action, though going after someone out of state would be a major PITA for me.
Couple years ago I had $4000 worth of damages but after explaining to each out of state co-signer that they were ultimately responsible, that the lease specified that they must reimburse for legal costs, and then dragging one of their kids into court twice - the parents came around and the checks rolled in for the damages.
Getting co-signers for my blue-collar and low-income renters is a great idea, but not too realistic. I have actually had parents of a prospective tenant burst out laughing at the request. That in and of itself DISQUALIFIED that tenant!
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Knowing your market is very important. There have been numerous articles over the years pointing out how using a contractor to perform certain remodel jobs often returns less than the investment.
I agree that you need to know what potential buyers are looking for, what improvements will add value or make a home salable. A rehabber learns quickly because it can be very costly if you don't.
Real Estate Investor · North Carolina · Member since 2008 · 1k+ posts · 483 votes
15y
Coming from a rental perspective, I just rehabbed two homes to be the best in their particular college neighborhoods.
Results? The students loved it, their co-signing parents loved it, and I'm getting excellent rent with plenty of available deep-pockets to cover the inevitable damage to all the shiny new upgrades.
Wish me luck, though: this year more than ever before my co-signing parents are all attorneys..........
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Mark,
Do you insist that the co-signers own real estate, and that all owners on the deed sign on as co-signers? I even prefer that the piece of real estate they own be in the same county.
Real Estate Investor · North Carolina · Member since 2008 · 1k+ posts · 483 votes
15y
Steve - with my students a majority of their co-signing parents are out of state. I assume if they're affluent enough to send kids to college they own real estate, or at least don't want their credit screwed with a civil action, though going after someone out of state would be a major PITA for me.
Couple years ago I had $4000 worth of damages but after explaining to each out of state co-signer that they were ultimately responsible, that the lease specified that they must reimburse for legal costs, and then dragging one of their kids into court twice - the parents came around and the checks rolled in for the damages.
Getting co-signers for my blue-collar and low-income renters is a great idea, but not too realistic. I have actually had parents of a prospective tenant burst out laughing at the request. That in and of itself DISQUALIFIED that tenant!
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
I have had rentals, a tri-plex being a gut- rehab that was brought up beyond the sales and rental market of the neighborhood, winding stairs, balcony, sunken great room. It's near a colleg and the kids love it and they are always rented very quickly. BUT, the costs of doing so met the rental cash flow requirements, so it works and the property was to be held to payoff.
Christie is absolutley right, know the market and do not overbuild, especially with a flip. There are unusual times where we can vary from these standard rules, but usually, she is correct!
Investor · Little Rock, AR · Member since 2010 · 628 posts · 251 votes
15y
Originally posted by Financexaminer:
Christie is absolutley right, know the market and do not overbuild, especially with a flip. There are unusual times where we can vary from these standard rules, but usually, she is correct!
All of this is true. But, you still want to insure your product is the best in the neighborhood. I have been guilty of overdoing it for a particular neighborhood. It is an humbeling experience when trying to recoup.
Don
Investor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
15y
I think there is a pretty large exception to that rule, in that if you "overbuild" you can redefine what the market is. I have actually done this twice with multiple flips in the same market area and it worked both times. We went into areas where the majority of homes were either single story 2/1's or 3/1's. Most of the homes in these areas were owned by seniors but we noticed an influx of younger families moving into the area. With that in mind, we started either adding on significantly to the existing houses or tearing them down and rebuilding. In turn, these homes sold relatively quickly as they came on the market.
Starter homes in these areas sold from anywhere in the high 200k to low 400k range. With an investment of on average 100k - 250k, we could resell anywhere between 750k - 1M. Of course, the first few didn't quite go as high because we were making the market. In short time though, we were able to realize higher gains because of the first few deals we did and because other people had either started redoing their own homes or other flippers were doing the same thing.
This is not an exit strategy you would do in a down market, like the current one (nationally). However, if we had stuck to not overbuilding for the market we would have missed out on some fairly large gains.
Real Estate Investor · Indianapolis, IN · Member since 2009 · 120 posts · 13 votes
15y
Brian, I've heard of people doing that before. They called it "creating their own comps." I don't think it's a bad idea but it definitely takes time and money (you have to buy multiple houses in one area) to "redefine what the market is."
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Originally posted by Christie .:
Brian, I've heard of people doing that before. They called it "creating their own comps." I don't think it's a bad idea but it definitely takes time and money (you have to buy multiple houses in one area) to "redefine what the market is."
Not always, but mostly true. However, in today's market, this does not work for the most part because the cost to build new is much higher than the cost to buy existing sq. footage and improve.
Real Estate Investor · Geneva, IL · Member since 2010 · 82 posts · 29 votes
15y
I don't 100% agree with that especially in this market. A wise man once told me "In this market its a fashion show and a price war" If you can cosmetically over do it, you will a significant result in market time which equals real money. We have put granite and SS appliances in many homes under $150,000. Obvioulsy its very cheap stainless and granite but someone in that price range isn't expecting that. It may cost us $2,000-$3,000 more. We may see a very minor increase in price if any but the Market time is often significantly reduced which saves us a ton of carrying costs and lets us get our money back in play that much faster.