The Art of partial rehab

[Alex Khodnev]

Hey everyone.

I'm flip investor, managing all the process remotely from abroad.

In area where I'm investing, flipping houses usually means doing a full rehab. I'm talking about places with pricing above average, with old houses(up to 100 years old).  These houses would be very distressed and require everything replaced with new - roof, mechanicals, plumbing, electrical, flooring, windows and e.t.c. If all the numbers work at the point of due diligence, I step forward and close the deal. From this point the rehab would be kinda easy(that doesn't say not challenging, but the opposite!!). That mean all new stuff will be included to scope of work. 

I would like to understand the partial rehab puzzle. I know there are areas with partially rehabbed houses that sells pretty well. The advantadges of rehab like this are fully understood - less capital invested, less time frame to work, less unexpectables, less room for mistakes. The key is building the right scope of work and try to optimize rehabbing budget as much as possible. Sometimes its even more facelift than a rehab. 

Disclamer, my expirience is limited because of the long distance from a properties.

So who is working on strategy like this here? What is your thumb rule to build scope of work that hits the target? 

Any advice or shared expirience will be much appreciated.

[Ritch Bonisa]

Maybe it’s a matter of knocking out a few walls to create larger open spaces, adding a bathroom, adding value to kitchen. Or focusing on those items that boost appraisal:

• Kitchens
• Bathrooms
• Mechanicals
• Roof
• Windows

One of the problems in doing one of these “less intensive” rehabs on older houses is that you run into basic issues with electrical & plumbing. Many of these have plaster. Add in, you have to bring electrical and plumbing up to code, and you may be reconfiguring a few walls – many times it makes more sense to remove plaster, rewire and replumb. My home market is Indianapolis, so I know retail buyers don’t want to pay 225k – 450k for plaster walls with a new coat of paint.

What leads your decision making is having a good idea what is on the market currently in the IMMEDIATE area. What are the finishes and configurations? What are these selling for? Now, you have to set a TARGET retail price. Look at current state of the property. How much ROI you think is reasonable. Holding/selling costs. WHAT TYPE OF REHAB IS NECESSARY TO HIT THE TARGET? How much will it cost? **You have to have tight comps, and make sure you are comparing an apple to an apple.

Once you know all of this, now you know what the property is worth to you (your purchase price).  What it is worth to you is all that matters.  If you can't get it for your price, then don't waste your time. 

This is the way it has to be done, whether you are doing a full rehab, or a remodel. It’s a basic fundamental that doesn’t change.

One of the big stumbling blocks I see with flippers is - they don’t evaluate well and purchase at too high a price. This creates a situation where they are rehabbing on hope and positive thinking vs. rehabbing for target returns.

The retail possibilities are what they are. Rehabbing to hit that target - is what it is. The difference is evaluation and purchase price.

Now, with a somewhat newer home that is up to code, the prescription is more about doing a remodel, but using rehab contractors, not remodeling contractors. The property evaluation and equation work exactly the same. 

Hope that helps a little.