How to know when to stop?

Question

Hello, I'm working on a few rehabs and there's a lot of "iffy" problems that I could fix but would cost thousands more.  For example, siding is going bad and painting will only cover it up slightly.  Do I replace and make it brand new or do I just skip?  Another example, roof looks just okay, no leaks, but it definitely does not look new.  Please let me know your thoughts on how to know what to do and when to stop.  Thanks!!

J Scott · Answer

I completely disagree with all the advice about just making things look good.  As Jason pointed out, if you're going to do this as a business, you have a reputation to build and protect, and you do that by selling houses that aren't going to cost your buyers any money in the short-term.

If there is bad siding, replace it.  If the roof is old, replace it.  Factor these costs into your purchase price and just do it.

Here's my litmus test on whether you've done enough work:  Are you comfortable handing your business card to your buyer at closing and saying, "If you have any issues with the house (that aren't your own doing) in the next six month, call me and I'll take care of it."

I do this on every rehab...

Aaron Mazzrillo · Answer

This has more to do with your market than anything else. People can tell you all kinds of 'advice', but none of it means anything and it is not up to you!

The buyers in your market are the decision makers on how much rehab you need to do. Go look at some investor rehab properties that are listed. Find out which have been on the market a long time and which went into escrow quickly. What are the differences in quality?

We are not talking about different neighborhoods either. Look at your comps.

Jason Davis · Answer

I will add that you should also consider if this is a full time business you are doing or are you just going to do one house and move on.  Skipping items could haunt you in the future.  Consider your reputation and how you want to be seen in your community.

I network with ton of realtors, I need a very good reputation. Most of the business I am involved with need realtors, I must maintain a good reputation or it will effect several businesses.

Just my 2cents

John Newland · Answer

The whole point of a rehab is to make the house healthy again for a new buyer.  So if an item is "iffy" or questionable, I think the only answer is to repair or replace.  In my opinion, the stopping point is when all detrimental issues of the property have been addressed AND the place looks the part.  Covering up issues (potential or existing) is unacceptable.  And like Ophelia said, if you notice it, you can bet the picky buyers in this market will notice it too.

J Scott · Answer

Over the 15-20 houses that we've done this for, we've only had one major issue:  a roof, fascia and gutter replacement was screwed up, and during a major storm, water got behind the gutters and fascia board, into the house and ruined the kitchen ceiling and one of the kitchen walls.  The roofer came back to fix the roof and fascia (which cost us nothing, since it was his fault) and our sheetrock and painters came in and fixed the kitchen for just a few bucks (they get a lot of work from us, and were happy to do us this favor).

Other than that, we've had a few wobbly fans, a broken shower handle, a sliding glass door that didn't slide very well, a three-way switch that was installed improperly and a garage door opener that was malfunctioning.  Most of the issues occurred in just three houses.  And in all cases, these were things that my contractors had done during the rehab, and in all cases, they went back and fixed the issues at no cost.

So, in total, it's cost our team about $200 in labor and materials and about 10 hours of time over 15 houses or so...in other words, it's been well worth it, especially considering that we work with the agents of these buyers over and over, and if they had clients who were unhappy, we wouldn't get the repeat business...

Btw, I'm sure one of these days we'll get a buyer who tries to take advantage of our generosity, but I figure that's just part of the business, and I'll deal with it when it happens.

In the meantime, I've had a couple buyers find the house they bought on our blog, and leave comments like, "I bought this house and I love it!"  That makes it all worth it...

Account Closed · Answer

Whoah, on average what does this cost you?

Jason Davis · Answer

I like that idea too.

In all my "careers" running estimates, project management etc, I have always said that if we do a good job on this project, it will bring us more.

The last person who bought a house from you, could control the next sale too.  I plan on using my past buyers (zero as of today) to be a marketing arm for my next houses.  I will let them know where they are.  You never know, someone at there office, church or social activities might be looking for that perfect place.  That could make an easy sale.

Chris Sweeney · Answer

Seen this scenario unfold as well:

buyer: "I love this house it's perfect, let's buy it."

inspector:  "It's a pretty good house but lots of band-aids throughout which need to be addressed."

deal dies

Brant Phillips · Answer

It all comes down to making the best 'business decision'...You have several factors to consider, first being whether you are going to rent or sell the property and what rent/price you are looking to get.  Second, if you use trim board or some other type of 'cover up' will it be noticed and deter the potential buyer.  If it is noticed, you run the risk of planting the seed of thought into the end users mind "I wonder what else he is covering up?".  I'm all about saving money, but I've learned that sometimes by doing things right the first time you are saving money in the long run and also increasing your chances for a quick sale or lease...

Ophelia Nicholson · Answer

The thing with a rehab is that quite simply, if you can notice it so can the buyer. If you fix everything else and miss something then they look for fault in everything.  Not saying you need a brand new roof, maybe power wash the roof but like a Aaron said it really depends on your market. You stop when your house is better than the comp because that means you will get a sale. If your house is the worst around but similar pricing then it will sit on the market and the key with a rehab is to get it sold quickly so you don't have to drop your price.

How to know when to stop?

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