How to Avoid a Rehab Nightmare

by Cooksquared

Real Estate Investor

Author website

With the refinance boom just about over and house sales slowing, now might be a great time for investors to think about doing a few upgrades on their properties. I mention the refinance boom because I know a lot of people used those funds to upgrade properties. Doing upgrades now puts the current investor at a distinct advantage because the upgrades will be newer and with declining demand should be about the same price as six months ago (not including the increased cost of materials). So where do you begin as an investor?

First, read everything you can. Keep the following generic tips in mind…

• Don’t upgrade an investment property like its your personal residence (even if it is!)
• Splurge on the little things, scrimp on the big things (see a few exceptions below)
• Negotiate, Negotiate, and then Negotiate some more (even with National retailers like Home Depot)
• Go neutral with everything

Second, plan the rehab in the areas that will get the most bangs for your buck. While this many seem simple, it is more complicated than many people think. Most people purchase a generic book or look at a website and see that bathroom upgrades add the most value. The problem with this method is that it does not account for the area or the property. There are many areas where houses are small and people pay significant premiums for finished basements for example.

Additionally, your house may have average bathrooms, but an atrocious kitchen. Here, it may be better to tackle the kitchen instead of making the bathrooms really shine. The most important tool you have in this process is the open house. If you are investing in apartment buildings, this also applies. Make sure you shop your competition. Think like a buyer. If you were looking for a house in this neighborhood, what would make this house better than (or equal to) all the other houses in the market? If every house has a great kitchen, finished basements, and average bathrooms, plan accordingly with your house.

I would recommend a few areas to spend a little bit more. First, the front door/address sign/mailbox should at least have middle of the road fixtures and hardware. Don’t buy the cheapest screen door or allow the address sign to be rusted. These are cheap things that really upgrade the property in the mind of the buyer. You can get fairly cheap address numbers at Home Depot and you can get a very nice used screen door in just about any town. These things really add to curb appeal.

Finally, there are a few items that are worth upgrading, especially if you will be renting a property to perspective tenants. These also work great for selling a property as well. Tile floors are number one on my list. Barring some very serious wear, they maintain a great new look and can really take a pounding. People who buy vinyl or laminates end up replacing them almost after every tenant change because of appliance change over. Other little things like cabinet fixtures (knobs, handles, etc.) really make average cabinets look great. Furthermore, if you are an apartment or rental property investor, it is worth it to buy appliances. The amount of wear and tear on a property from tenants moving in and out will net you a saving after about the third tenant change over.

Always go into a rehab with a goal. This goal should come from what you have seen at the competition and your selling strategy. If you are a rental investor and you notice that you are constantly replacing something, investigate it. It might be worth providing that item to a tenant or upgrading to a sturdier version. Don’t stress if it doesn’t go the way you planned. Rehabbing takes experience. For every disaster there will be some great learning. When in doubt, stick to the goal and you should have a successful rehab.