Let's Talk About Rehabs for the next Few Months.....or more....
If you have never done a Rehab project, then the next few months will be very informative for you. I plan to document my own Rehab project and go over what we “thought” would be the Rehab, then give the details of what it became. Note that I am referring to a Rehab as something less than $50,000 or so. I call Fixer Uppers the homes that need a complete gut and reconstruction of all the interior, plumping, HVAC, electric, etc. So for this Blog segment for the next few months I will only talk about Rehabs.
The first step in any Rehab Project is finding the Right Home. You have to figure in a lot of factors and here are some basics:
- Is the home in a hot neighborhood (ex: Park Circle, Mt Pleasant, Wagener Terrace on the peninsula, etc.).? You might be aware the home market in Charleston, SC and surrounding towns is very competitive. So if you think you have found your perfect Rehab home, then you better get your Realtor® involved so you can get it Off The Market asap. In these hot neighborhoods, it is very common to see a home go Active Contingent within 2-5 days. If the home is in an up and coming area, then you may get a little more time to review the home before making the offer. I would suggest you find the up and coming neighborhoods, because you will pay much more for the home if it is in a hot neighborhood (bidding wars are common).
- How much work is involved and is it more than the home will be worth? There are many formulas out there so I will let you study them on your own. For this Blog, I will simply state the basics on calculating home value. If you buy it for $250,000 and it will take $50,000 to rehab the kitchen, add new floors, update all the electric and get a new HVAC system, then you need to verify that other homes in the neighborhood have sold for at least $300,000 (called the ARV After Repair Value). Your Realtor® can provide you a quick CMA (Comparative Market Analysis).
- Is this a Flip or are you planning on Living there for 3+ years? Living there for 3+ years helps with your budget a bit as you may be able to factor in some yearly Appreciation (according to CTAR we are seeing median sales price has been going up by 4+% to 7+% for the past 5 years), as long as we don’t have a crash any time soon. If it is a Flip, then the budget has to be adhered to more closely. The last thing you want to have is a home that is now overpriced after your 3 month Rehab and you can’t sell it without a loss.
- Get your Contractor on board to help you view the home at the first possible visit. Verify your contractor has all the proper Licensing and Insurance (don’t be afraid to Ask). Ask your contractor to give you some “ballpark” numbers on what it would cost to Rehab the home so you can do some sort of budget. Note that this is a Ball Park number, as you never really know what you will find when you start tearing out walls, floors, ceilings, roofs, etc.. A lot of people suggest adding more (say 20%-25%) to the Estimate you get from your contractor, since you will see more fixes that should be done.
More to come on other Factors to consider……just a quick starting point for now to get you thinking.
Be sure to work with your Realtor® to help you find the right Area that matches what your Investment is going to be. Do you want less than $100,000 homes or more than $300,000 homes? Your Realtor® will also be able to help you see what the homes are selling for, then explain what the neighborhood Median Sales price has been the past 3-5 years. You can then make up your own mind on If you think the neighborhood is a good investment or not.
Gary Buchanan/Realtor® w/AgentOwned Realty - firstname.lastname@example.org 843-647-7743