By S.E. Slack
You’ve seen them on television. They make turning broken-down homes into jewels that sell in bidding wars look easy. But the experts say that most of the work of rehabbing a home and turning it over quickly for a profit comes from planning nearly every detail ahead of time.
Location is critical, says Carla Showalter, partner of Bulk Home Buyers. Investors watch for cities like Las Vegas, for example, which are bouncing back from multiple years of real estate downs. Once a city is chosen, investors narrow choices down to specific neighborhoods and listings that fit their criteria.
They map out the single-family homes, check the surrounding setting to be sure it’s appealing to prospective buyers and drive by the home during different times of the day. If a home is vacant, they’ll walk around the property to perform a cursory inspection, eyeballing big-ticket repair items like the foundation, roof, siding and anything else visible from the exterior.
Then they wait and watch the market they’ve selected. If the houses they are watching go into a pending sale status very quickly, they know they’ve got a hot neighborhood.
Since everyone wants to snag the best possible deal, it’s tempting to submit a lowball offer on a potential rehab project, Showalter said. Don’t do it, she advises. Instead, pay full price and grab the home you really want as long as it meets your financial requirements.
Those should include considerations such as the cost of the investment, the cost to spruce up and repair the home, holding costs, legal fees and closing costs.
“Rehab costs should be estimated and then doubled for new investors,” said Showalter. “More experienced investors can determine numbers more closely.”
Holding costs, she says, include things like mortgage payments, yard care, maintenance and utility costs while you work on and then market the property for sale.
“Experienced investors look for properties that can turn into positive cash flow,” Showalter said. “If you aren’t convinced you have found that, don’t make the leap.”