“Rehabbing Rundown Properties for Profit”
By James Nsien2
http://james-nsien2.com
NCN Real Estate Investments,LLC
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Rehabbing is taking a run-down property commonly known as a “Fixer-Upper”, and turning into one of the most beautiful houses in that neighborhood, while creating equity along the way.
Creating equity by increasing the value of the property and then turning that increased value into cash by selling or “flipping” the property. If you keep it as a rental you get maximum appreciation, stream of income, and tax write-off.
Flipping is a term used primarily in the United States to describe practice of buying an asset and quickly reselling (or “flipping”) it for profit. Though flipping can apply to any asset, the term is most often applied to real estate and initial public offerings.
Fix and flip
Under the “fix and flip” scenario, an investor or flipper will purchase a house at a considerable discount from market value. The discount may be due to the house’s condition (i.e., major renovations and/or repairs needed) or due to the owner(s) needing to sell a house quickly (e.g., relocation, divorce, pending foreclosure). The investor will then perform necessary renovations and repairs, and attempt to make a profit by selling the house quickly at a price nearer to full market value.
Types of flipping:
Multiple investor flipping
Under the multiple investor flip, one investor purchases a property at below-market value, sells it quickly to a second investor, who subsequently sells it to another party.
Real estate flipping
Profits from flipping real estate come from either buying low and selling high in a rapidly-rising market, or buying a house that needs repair and fixing it up.
Some preferred step to be taken for rehabbing are listed below,
Estimate rehabbing costs:
Some of the biggest expenses in rehabbing are roof, structure, plumbing and electrical. So, how do we estimate the cost of repairs so that we can figure out what to sell the property for?
Roof: Look at the fascia and sofit for signs of wood root or termite damage. Look at the top of the roof for loose shingles. Look at the ceilings for water stains or discolorations or holes.
Structure: I walk around the property looking for cracks in the foundation. If you’ve got a structural problem, it’s expensive ($7,500 – $30,000) to repair and could kill your deal.
Plumbing: Look under the sinks in the kitchen and bathrooms. Look at the floor to see if there are any uneven spots and shower stalls for leaks. Most of all–look outside the property for any large trees with roots that are growing under the house. That could cause major plumbing headaches.
Electrical: Fuse box or breakers? How long since the electrical was updated? Check the air conditioning unit. I always get an electrician to check out the house if I am not sure.
Also, tile or carpet? Depending on the area and demographics, folks prefer one or the other. Best to know which one. Assume you will have to paint inside and out and do some minor landscaping. Don’t forget to take the pulse of the neighborhood. Pride of ownership or run down properties? Close to public transportation, shopping, and schools?
If you break it down like this, after a while, you will know what things costs, and you can estimate repairs before rehabbing or wholesaling it to another investor.
Do it yourself or hire:
There are two ways to rehab: Do it yourself or hire someone. There are pros and cons to both. If you can do it, you save money on labor. The downside is that if you don’t fix according to code, you will have major problems. If you have a day job that only leaves you nights and weekends. It might pull on for months.
With rehabbers, you have the cost of labor; and you have to make sure they do a good job; but they can do it in a lot less time than it would take you. That means you sell it faster and move on to your next deal.
Supplies and expenses:
Unless you’re with Home Depot or Lowe’s, pay your rehabber a bit extra to help you get the supplies. Of course, it is not uncommon to make four or five trips daily to get supplies. Most rehabbers expect all the supplies to be there for them, but you make sure they bring their own tools for the job. Make sure you keep separate invoices and receipts for each property.
Keep a low profile:
When you are rehabbing, cover all the windows. Keep the doors closed. Take your signs off the car when you are there. Don’t let your rehabbers show up in commercial vehicles. Keep the music to a minimum. Don’t have more than two cars in the driveway. Why? Code enforcement.
Permits:
Speaking of permits, you really need them for structure, roof, electrical, and plumbing, and in many areas, windows. Some you can do on your own on the weekends and avoid permits. You have to weigh your risks and decide what to do.
Negotiating:
If there is enough room in the deal, then we have no problem in working with Realtors, but we should only pay 3%. Most will say they have a buyer for us. Now, if they have a problem with 3% and want to list it, we should give them one of two responses. First, would you rather make 6% of nothing or 3% of something? Second, tell them we will pay a listing service a couple of hundred to throw it on the MS.
When you do have a qualified buyer, it means nothing unless the underwriter has approved them.
James Nsien2
NCN Real Estate Investments, LLC
Originally posted 2009-04-07 21:08:27. Republished by Blog Post Promoter