Rehabbing houses to sell retail is a business plain and simple. If you wholesale homes or have a rental portfolio, do not kid yourself into thinking you know what it takes. Yes -in the hysteria of housing boom you could overcome just about any fundamental mistake let alone move the poorest planned dogs. The game today is serious -anyone thinking they can passively rehab is destined to failure;however,with serious thought,planning,and WORK (just as with anything) wealth can be created.
There are two key markets to making money in real estate these days: rentals and rehabbed homes to sell to the entry level housing market. Due to the lack of investor financing and the constraints of both valuation and owner occupied financing,mainly deep-discounted housing,owner financing (another story),and the best priced rehabbed home in the neighborhood are the real estate products moving.
Do we agree that rehabbing homes is a business? Do you know what the key to business is? The word is RESEARCH
According to Websters Dictionary the definition of the word ‘research’ is:
Main Entry:1re·search
Pronunciation:\ri-ˈsərch,ˈrē-ˌ\
Function:noun
Etymology:Middle French recerche, from recercher to go about seeking,from Old French recerchier, from re- + cerchier,sercher to search — more at search
Date:1577
1 : careful or diligent search
2 : studious inquiry or examination;especially : investigation or experimentation aimed at the discovery and interpretation of facts,revision of accepted theories or laws in the light of new facts,or practical application of such new or revised theories or laws
3 : the collecting of information about a particular subject
So how do we apply this to help insure the odds of success with rehabbing homes?
- Strict discipline on the numbers -look at the average of the comps without pushing the envelope when determining investment costs and sales price.
- Maximum 65% ARV investment while offsetting for cost of capital and average Days on Market for the neighborhood.
- Marketing Team. You need a Realtor that does more than just list a house. Pick leaders that knows what design/layout elements are moving houses,brings buyer to the table,and is a top producer.
- Know your buyer. Whom is your target market for the neighborhood and what are they buying?
- Know your competition. Walk 6-8 comparable homes both before your take down purchase and retailing the home. Make sure you up-fit your home to at least minimum standards (if not excelling),offsetting deficiencies with bonuses (and/or pricing),and setting your retail pricing realistically
- Know your rehab team. Efficiency,professionalism,and Skill are essential. Apply as appropriate.
- Efficiently move your inventory.
Each one of those topics is an article itself. I will work at breaking each of them up down the road. However,let me give you a few quick thoughts. Went to look at a potential project last week with an investor who is an old time landlord. His idea of what works for rehab to retailing homes is all wrong. He simply cannot get away with using his rental crew that doesn’t have the carpentry skills for the proper fit and finish nor will his cost cutting cheap porcelain tile work when the competition is using nice subway,glass,and various stone tiles. Not knowing what your competition offers will cost your retail house to sit on the market longer,sell lower,and (most importantly) slow the turn of your inventory. Keeping the blinders on and refusing to see what buyers want and are willing to pay for is a fatal mistake. Successfully rehabbing (and selling) homes is not about what you or I like -it is about what the customer wants!
Research.
Research your housing market,buyers,competition,lenders,Realtors,and your rehab crews. Constantly work at educating and communicating so all parties know one anothers’ needs/wants,can adjust as needed,and meet deadlines/goals. Anyone that doesn’t run their operations like a business will only slow you down -keep an eye out for replacements.
Insure your odds of success and continued prosperity -research. It is this research that will provide you with the ability to make educated adjustments as needed.
by Tyler S. McCracken -a Charlotte,NC real estate investor and hard money lender.
• admin
May 14th,2010 at 10:08 PM • Edit | Delete | Spam
Replys to article from http://www.askthelandlord.com members:
Jeremiah(IN)
« Reply #1 on:May 13,2010,08:38:30 PM »
Another great Read! Thanks
JohhnyC
« Reply #2 on:May 13,2010,08:54:48 PM »
Tyler,very nice article.
Although I do my own work and my bread and butter is not rehabbing,your following statement is very true-> “Successfully rehabbing (and selling) homes is not about what you or I like -it is about what the customer wants!”
John
New Jersey
mike (mo)
« Reply #3 on:Today at 08:04:28 AM »
it will be real interesting to see how the entry level housing is impacted by the loss of the tax credit.
tyler
« Reply #4 on:Today at 08:17:24 PM »
agree with you mike… 1st time homes will be under pressure especially over the next 2-4 months…
however,i will offer this. the first time homebuyer market is the catalyst for all moveup markets… most other markets (generalization) other than niches will perform at a lower level then entry….so as it underperforms that which is behind it will follow along.
btw… we are seeing some real good deal flow starting to open up over here…
Sean
Excellent article Ty! I shared it with my investor this morning and he said it was an “eye opener”.
tyler
« Reply #6 on:Today at 09:04:13 PM »messageRemove Split
Thanks Sean -Appreciate the feedback.
• Ellie
May 16th,2010 at 1:03 PM • Edit | Delete | Spam
Another great read Tyler. Name of the game is ROI – no matter which segment you are in. The last decade brought in investors that had no clue egged on by shows that promised overnight income with no investment of time or money.
• Terri Pour-Rastegar
May 16th,2010 at 3:01 PM • Edit | Delete | Spam
I wholeheartedly agree! I have sold properties at the wholesale and retail level,and I have a strong focus on building my rental portfolio. If I were to apply my ‘rental-rehab’ mentality to a ‘retail-rehab’ project,I would surely fail. Although my rehabbed rental properties are a step up from most,I have to bring my game to a whole other level when getting a property ready for the retail market. Especially THIS market–it is a buyer’s market,if ever there was one!
Very good piece,Tyler. Thanks!
• shannon
May 17th,2010 at 3:06 PM • Edit | Delete | Spam
“Not knowing what your competition offers will cost your retail house to sit on the market longer,sell lower,and (most importantly) slow the turn of your inventory. Keeping the blinders on and refusing to see what buyers want and are willing to pay for is a fatal mistake.”
Excellent point…keep on top of the trends,what was once hot,now may not. subway tile is usually a safe bet – timeless.. but these days anything goes,glass,travertine,mosaics…i try to get the ‘wow’ factor on a budget,yet not date the rehab. course depends too on if youre talking low income housing or bread and butter.. i m assuming you are referring to bread and butter….
• shannon
May 17th,2010 at 3:07 PM • Edit | Delete | Spam
speaking of which – what do you do as a ‘wow’ factor to move a property that is a lower income,starter home?
• admin
May 18th,2010 at 2:06 PM • Edit | Delete | Spam
shannon -each market is different;however ‘wow’ factors are essential at all economic levels. At the lowest levels,I think the wow factors sell a house even more;afterall,most homes (at that level) simply don’t have much wow -think about the possibilities with that niche. Low income really depends on what the pros/cons of the individual house (of what it has to offer or not). Rainhead shower,upgrade countertops (from formica),nice patio/deck in rear,stylish light/hardware accessories…
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