Risks can outweigh benefits for home rehabbing

Great rehab markets are all over the country right now.
Zillow
Nov 19, 2013

By S.E. Slack

Ready to rehabilitate a home in record time to score big bucks? Not so fast. Experts say the risks can outweigh the benefits for first-time investors if they are dropping everything they have into a single purchase.

“It looks easy on television,” said Carla Showalter, partner of Bulk Home Buyers, “but those are experienced investors purchasing many houses. If one is not successful, it’s only a small part of their portfolio. If you only buy one home and it’s not successful, you can lose your entire investment.”

Great rehab markets are all over the country right now. Zillow reports that locales like Sin City, for example, where home values have dropped a staggering 60 percent or more since 2006, are now experiencing comebacks that are drawing home buyers back to the area.

Wherever you decide to hang your rehabbing hat, know your market inside-out before you ever make that first offer, said Showalter.

“Look online at all the listings in your area that seem to fit your criteria,” she said. “Map them and drive by every single one. If they are vacant, stop and look around. Evaluate all the big ticket items, like the roof, framing, plumbing electrical and foundation.”

Carefully examine the neighborhood, too, she said. If you find a fantastic deal next to a cemetery, train track, busy road, gas station, dry cleaners or similar setting, it might not be so fantastic. Drive by the home in the morning, evening and on a weekend. As you watch the market you’ve chosen, you will know you are on the right track when the houses you’re watching go into a pending sale status very quickly.

“Everyone wants the best possible deal,” she said. “But when you find a screamin’ deal, don’t lowball! Pay full price and grab it.”

If your pick is listed higher than your planned budget, crunch the numbers and offer only what it is worth to you. Once all expenses have been considered, the project should cost you no more than 75 percent of the home’s average retail value.

Resist the urge to make big repairs on your own, she said. A home inspector will be hired to spot any repairs needed when you eventually sell the home. Using an experienced home inspector or contractor to help with required repairs can save you time and, ultimately, money.

No matter how long you think it will take you to rehab those first few homes, double the timeframe so that you don’t underestimate the time needed to turn over the property.