As a real estate investor, here’s a question I have to ask on a regular basis involving a property for sale: Should I renovate it? Or pass on the property as an investment?
The challenge is that appearances often are deceiving. Simply eyeballing a home is not enough. A property may look attractive, a roof may seem solid and the plumbing may work, but, beneath the shingles, siding and floorboards, disaster can lurk.
I spend the majority of my time determining which renovations are absolutely necessary, and, whether those projects have the potential to push the cost of the project too high.
I need to determine the renovation costs to figure if the house can be sold for a profit, or provide a steady rental income regardless of whether I plan to purchase the property myself or offer it for wholesale to another real estate investor.
Experience teaches me that I need a team whose judgment I can trust to help me make this decision. I have a group of carpenters, plumbers, foundation engineers and heating and cooling experts that can properly inspect a property. My suggestion to fellow investors, along with tips below, is this: Inspect the inspectors. Do not arbitrarily select someone who calls himself a “home inspector,” but has minimal knowledge of how to spot troublesome signs that render a property too expensive to repair.
Also I work with the seller to educate and negotiate, keeping all the repair issues in mind. However, if the problems are so severe and so obvious, I immediately cross that home off my list of potential investments.
Start by using the following tips as a way to size up a possible investment property:
Easy and Affordable Improvements
- Identify the improvements you can do quickly and easily without permits or licensed contractors, some of which may only require a few hours of work and little cost.
- Clean the yard, mow the lawn, plant bushes, and remove debris from inside the home and the garage.
- Strengthen curbside appeal, as well as repaint the front door or install some walkway lights that do not involve hiring an electrician. These cosmetic changes can enhance the value of a home, attract buyers and result in a quick sale.
Roof-to-Floor and Wall-to-Wall Inspection
- This task is non-negotiable; it must happen, because the risks are too great to purchase a home that may literally be on the verge of collapsing.
- This is where it is vital you have a good contractor and partners you can trust, who can pinpoint problems, estimate the cost of repairs and allow you to evaluate whether there is still some room to make a profit with a particular home.
The Essential 5 Repairs
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Up-to-date kitchen and baths
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Leak-free plumbing
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Dependable heating and air conditioning
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Solid roof
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Solid foundation
If any of these things are awry, I need to know the scope of the problem, the cost to fix each one and the overall financial impact.
Therefore, if a plumber tells me all the pipes need to be removed, because of corrosion, that alone may be reason enough to pass on the property.
Or, if the foundation of a home has visible cracks and an inspector believes the property is at risk of falling apart, I re-evaluate, renegotiate or run.
And finally, if a kitchen, which is one of the first rooms potential buyers choose to enter, needs new appliances, cabinets and flooring . . . in that situation, things may not be so dire. With the right help, an investor can transform an ugly kitchen into a shining model of warmth for as little as $5,000.
Listen to more detail on this from Kevin on blog talk radio here.
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