What Things To Repair/replace?
I'm working on my first rehab project. An REO that has been vacant for almost one year. My strategy will be to buy, fix and resell and .I've decided that my target market will be first-time homebuyers.
Is there a general rule about things that should be repaired or replace?
A contractor told me that I should always repair and/or replace the following:
Roof
Furnace/ air conditioning unit
hot water heater
Hey,
"If I knew then what I knew now..." famous words right.
I use to buy rehab houses, in what I what politely call lower middle class (under $100k), and put in moldings and fixtures you would find in $300k houses. I figured that I was doing the work, so the small increase in costs would be offset by the speed of sale and higher price.
My REA would shake her head and call me an idiot. She would say I was wasting time and money. I would tell here I knew best.
Well, I was wrong and she was right.
Now:
1) I only fix it...if it is broke.
2) I only replace it...if it is required by law.
That means if the single pane window works, it stays in the house. If the house doesn't have a garbage disposal, it still doesn't have one when I leave.
So if the roof is fine, why woud you replace it. If it has 5 more years of life, leave it alone.
If the water heater works, leave it alone.
Thanks for the response
In most of the REO's I'm looking at the power and the water have been shuff off. Therefore, I do not know if these things are working.
It's very odd that the contractor would mention the things you listed. Those are usually the last things you would replace since they don't increase resale value but are quite expensive. The roof can usually be pressure washed and it will look immensely better. Unless of course it is simply too far gone. You can't tell by looking at the exterior of a water heater how long it will last. Unless it just looks bad I would simply leave it alone. Even if it looks rusty on the exterior, that doesn't tell you anything about the interior lining which is what counts. If it looks ugly simply put a water heater jacket on it. I also will clean up the exterior HVAC unit if it looks old. The paint will fade just like the paint on a car. You can use the same products you would use on a car to shine it up. Mostly I would say just put in attractive carpet, paint, have shiny fixtures, and replace any old light fixtures. You can get great looking light fixtures for about $10.00 to $15.00.
davmille...
I can understand the logic behind not fixing it if it ain't broke....however...my personal philosophy is not to offer anything I wouldn't live in myself. To make sure I don't go overboard in expenses, I buy low...as low as I can, which allows me to step up the level of improvement. My ex and I use to take shotgun houses and turn them into 3 bedroom, 2 bath houses with floor plans that flowed. If I can't make functional and attractive improvements, affordably, I pass on that particular house.
I personally feel I have a responsibility not to offer an inferior product and potentially create another REO. I like for the new home owner to feel that his/her house won't fall down around their head piece by piece. I've seen where investors have come in and done just the minimum possible - perhaps because they know the clientele they sell to will not know any better. I'm assuming that you all are talking about low income housing, because typically people who can afford better, also know to inspect more thoroughly. [ Edited by makingaliving on Date 01/19/2004 ]
If the house needs
Roof
Furnace/ air conditioning unit
hot water heater
replaced you better damn well be getting the cost of those items right off the price of the house along with everything else.
The roof, furnace and hot water heater are SUPPOSED to be in working order. Paying all that money to fix them isn't going to add a penny to the value of the house, unless you are getting the money for those items taken off the selling price.
makingaliving,
Who said anything about offering an inferior product? I simply said, you can't tell the condition of a water heater by looking at it, a roof looks better if it's cleaned, and a hvac unit looks better if its cleaned up also. You wouldn't try to sell a car that was covered with mud, bugs, salt, and tar would you? People simply have a difficult time looking beyond grime. If the roof has mildew or dirt streaks on it, they think it looks like it might need replacing. If they see rust on the outside of a water heater, they think it might be rusted out inside although the outside has nothing to do with the liner condition. If they see a faded out paint job on the hvac unit because it is in a sunny location, they think it might go out soon. I certainly wouldn't go out and replace them unless they were clearly needed though. More than likely they are going to be inspected anyhow, and the inspector will mention if the roof or hvac needs immediate replacement. There are going to be more than enough things that need replacing without replacing things that just need to be shined up.
Yhagood-
I'm a MA Realtor, and negotiate Home Inspections all the time. There are very few repairs that will bring back more $$ in resale than you put into it. The advice above is correct. Just faxed off a Inspection reply before logging on, and my guy will be happy with $1,000 for Furnace repair / Electric work to bring up to code.
For example, a roof may cost you $6,000 .... but if you left it alone ( and it's not leaking ) a buyer may discount that a couple of thousand, max, off their purchase price.. or you can offer them some cash back toward it. You are not obligated to provide brand new systems. Either way, the only way you'd do it is if your repair would bring back the money you've put into it, plus profit. There is no way that the buyer will offer you$10,000 more for your property because the roof is new.
Best repairs are paint, carpet ( if needed ) and get all the clutter/junk out.
-MikeD
I do the things that the Occupancy Inspector requests done before I sell. This way when the new owner go for their permit everything is done. That will mean no red flags go up in the buyers mind that something else might be wrong. I think a buyer that has a list of things that need to be done might look elsewhere. To me not making them have to do anything required by the township,boro, ect. makes my property look better
davmille
well, since you put it that way....
Thanks everyone for your respones. In my opinion, my target end buyer will be first time home buyers who will qualify for an FHA mortgage. From things that I've read the house has to be up to certain standards for the buyer to quality for an FHA Mortgage. Therefore, I will not be light on the repairs. However, I will be sure to deduct these repairs from my offer price.
I usually try to get my rehabs up to FHA standards at the least. New light fixtures, bathroom cabinet/mirrors really add a lot more value than you would initially think. I beleive that anything with fuses needs to be brought up to circuit breakers. I think that I may have made a mistake (first time) on my current rehab. I added a new GFA furnace. The old one was OIL FA with the tank in the basement. Worked just fine but was from 1947. I went back and forth arguing this in my mind for weeks and finally gave into my desire to updating the furnace. Result- the furnace is nice. My cost 2600.00. Additional resale value added to house? Maybe $500.00. Reality- The buyers may have discounted for the older furnace and I could have negotiated putting in a new one before closing and having them add the cost into their offer. Instead I put the furnace in and bumped up my list price to compensate myself for the cost but I'm pretty darn sure that I will only get what I would've gotten with the old furnace in there plus maybe $500 bucks. Hard lesson to learn. This is a 2 bedrm ranch and I think I'm about to lose my A.. on it!
Live N' Learn. What do you think guys?[ Edited by Sandbahr on Date 01/19/2004 ]
I would suggest reading the book "Buy it, Fix it, sell it, & profit" by Kevin Myers THis is the definative book on rehab and would have saved me tens of thousands in the beginning had I had it as a resource.
I am a contractor that does everything from radio towers to libraries, gyms, and tiny 5x5 bathrooms. My crew does rehab for myself and many investors in my area. Women buy houses, always. If you are a rehabber you are in the business of "making women happy for money"
I use the C_K_B sizzle approach. C=Curb appeal K=kitchen B=bathroom & the sizzle is the $150 faucet I put in the kitchen, the gold trimmed shower door or some other shiny doo dad that the women like (unless I can get a hot tub for a couple of hundred and throw that in the back).
Women aren't concerned about electrical other than that it works, or plumbing, or the roof (if it looks nice). I would seldom pressure wash shingles as you can take years off their life and if they are questionable they will look worse. Metal roof yes.
You have to play to your market. In my market it is tough and tight, I do put in crown molding or trim as it is cheap and easy and puts my house at the top of the heap. When you have 20 homes in the 50K-70K range for sale at any given time
and only 10 of them sell each year you want to make sure yours is in the 10 that sell and preferably at the top of the heap so it sells fast.
Best of Luck!
Randall
Randall,
I appreciate the information you added. I'm not sure I could agree on the pressure washing thing though. In my area, even the realtors advise doing this. You do bring up a good point though. I would certainly make sure I got someone to wash the shingles who had done it before. If you had someone who was inexperienced and was using high pressure and temperatures, you certainly could get some damage. I've even heard of people accidentally peeling the paint off of their car!
Sounds as if your contractor recommended his high profit/seller low return items to you. Not only would I take advice of others who have replied, I would not dobusiness with him as his advice proves he is out for himself and not to help his client. Bet he has a low referrqal business.
Tobey, CA Realtor
[addsig]