Deal Analysis - How far should we rehab?

Question

Alright I'm a new member, so I'll try to be quick and to the point...

Our team bought a flip in Burnsville, MN this past week. It was a hoarder house, and has been vacant for 10 yrs. We are 4 weeks from closing, and we need to decide on how far to take this project. We currently see 3 option :

1 - Bare minimum - Simply make the home fanciable and livable. Includes: Drywall repairs, appliances, some paint, some flooring, roof, furnace ac and water heater, etc. About $275 ARV

2 - Lipstick - Make it decent. All of the above, plus: paint siding, all flooring, all paint, paint kitchen cabinets, fixtures where needed. ARV tbd

3 - Full Renovation - Top of the market. Go all out. All of the above, plus: extensive drywall and texture, total kitchen reno, total bath reno, new siding, windows, all new fixtures. $370 ARV

Let me know your thoughts. Purchase price was $180, so just trying to figure out how to maximize profits/time. Some pics are included.

Thanks in advance!

Ethan Pankratz · Answer

@John Woodrich I totally agree, reassessing when we can actually see the home sounds like the best plan. Thanks for the input.

Nick C. · Answer

What are the comps telling you? Rehab it to the standard of the neighborhood. Every flip needs to have functional electric, plumbing, roof, hvac, etc. But don't overrehab on the cosmetics. What I mean is don't put in a $10k granite slab if all the comps have formica, etc.

Every neighborhood has a ceiling regardless of how nice you make the house.

John Woodrich · Answer

@Ethan Pankratz your goal in this is to maximize profit with out taking on more risk than needed.  My game plan for a long time was your option 3.  Every house we fully renovated knowing that certain renovations were more geared towards a quick sale instead of additional ROI.  Now I look at things a bit differently.  For example I am a flipper and am wholesaling my first property.  I should make $35k with no work while leaving $50-$60k on the bone for a flipper.  My prior game plan was to take on the construction timeline, financing, etc to try and make $90k on the house.  But now time is important also and financing isn't endless...

Sounds like you have many options but some uncertainty with the plumbing system.  If I were in your shoes I would remove all of the items and re-assess your options when the house is clear.  I would also consider what experience you have and your financing costs if you have them.  If this is your first project I would plan a "lipstick job" taking you 2-3 months as things always come up.

Greg H. · Answer

No matter which way you go , I cannot imagine that extensive or not full replacement of water lines, electrical and mechanicals such as a heating are not going to be needed or required by the city when a permit is pulled on a property that has been vacant for 10 years .  I would suggest a very thorough evaluation of what is needed prior to moving forward as you could easily be looking at $25000-50000 before even beginning to look at your 1-3 list of options

Kuba F. · Answer

@Ethan Pankratz

If you have projects at different time horizons then the best way to compare them is using an annualized rate of return.  Take the ROI of each scenario and extend it to a year.

Ethan Pankratz · Answer

@Nick C. There are no comps on the low end, the neighborhood supports 300-375, with a few higher end properties. We're currently thinking that we should let the neighborhood raise our price, so to speak. Just like a neighborhood has a ceiling, it also has a floor to some extent. Thought?

Greg Dickerson · Answer

@Ethan Pankratz It all depends on the cost of each scenario but for me personally i would do a full gut and renovate on a house thats been vacant and unattended that long. I like to know everything is as good as it can be and Im not passing along any issues to a buyer. The goal should be to uncover issues and take care of them. A good experienced contract will be able to determine and anticipate potential issues.

Ethan Pankratz · Answer

@Kuba F. That's a great idea, I'll run the numbers and see. I'm also concerned about the higher risk of uncovering unforeseen issues with the extensive remodel. Any advice?

Ethan Pankratz · Answer

@Greg H. The power is on and working, and it was heated over the past winter. Not sure on plumbing, as we could not reach the sinks/toilets to see.

Deal Analysis - How far should we rehab?

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