Rehabbing property can be the most rewarding, most lucrative and most intimidating of all real estate transactions. Buying distressed property, or fixer uppers, or rehabs, or whatever you want to call them is an excellent way to get property at vastly reduced prices. But many real estate investors are afraid to tackle rehabs, because the size of the job or the amount of work involves appears more than they can handle. It doesn’t have to be that way!
A systematic approach and a good contractor can help you take on the most complex rehab and turn it into a successful project. Renovating and repairing property is one of the best ways to improve the property value, and increase your equity – but I can’t stress enough how important it is to have a reliable contractor to work with. If you’re just starting in real estate investing, and don’t know any contractors personally, ask around. Talk to other investors, talk to brokers and bankers and real estate agents: in short, anyone who has experience with contractors. Get referrals and check references. There’s nothing more frustrating that dealing with a contractor who doesn’t show up when he or she says they will, who has a genetic inability to get the job done right and constantly causes delays in projects. If you’re dealing with someone like that – stop it, and find a true professional.
Once you have established a relationship with a dependable contractor, consult them on every rehab property you’re considering buying. Listen to their advice – they’re the professionals in that field —- if you can’t trust what they tell you, why are you working with them?
Here’s a step-by-step guide to tackling a fixer-upper:
Meet with your contractor and go over exactly what’s needed
When I’m contemplating buying a fixer-upper, I do a walk through of the property, and evaluate for myself what needs to be done. Keep in mind that I’ve been doing this a fair number of years now, and have been around this particular block before, so I have experience at judging the scope of a job.
After I look at the property, I make an appointment with my contractor, and we go through the property together. I tell him my vision of what needs to be done, and get his advice and input. We always make sure we’re on the same page – it saves a lot of time and trouble down the road if he knows how I’m thinking.
Define the job and buy the materials
Once we establish the entire scope of the job, we figure out a time line. Depending on the financing for the renovation (e.g.- if a bank is paying for it, they’ll want to see the “draw schedule” of when repairs will be made, so the financing can follow the work performed), we’ll establish in what order what repairs will be made.
Demolition
Through painful experience over the years, I’ve learned that it’s easier to tear it all out first, then start the new construction or repair or remodel after everything has been cleare
d away. Otherwise, you’re stepping over trash and two-by-fours and pieces of wallboard – not only does it present an environment when some will get hurt, but it’s a real pain to deal with. So clean up first: get a dumpster delivered right at the outset, and tear out everything that’s going – kitchen, bath, drop ceilings, paneling, whatever. Get it out of the way first.
Roof, Windows and Siding
Many jobs begin with the exterior – frequently with a new roof. This should be your first priority – replacement of the roof will make sure the interior of the house stays dry while the rest of the work is being done. If replacement of windows and siding are needed for a particular house, I’ll do that at the same time as the roof. There’s another good reason for the exterior work to be done quickly: if you’re looking to quick-turn the property as soon as possible, a new exterior and evidence that repairs are being made to a fixer-upper are sure attention- grabbers for the neighbors and anyone driving by the property.
Plumbing and HVAC
Don’t shuffle this portion of the rehab off until the end of the project. Very early in my investment career I worked with a contractor who did that – after he and his crew got done finishing all the sheetrock and painting, they turned the water back on only to find three broken pipes that promptly ruined most of the work we’d just completed. I never made that mistake again! The same thing applies to the HVAC (Heating, Ventilation and Air Conditioning) system – if it needs replacing, do it first, then all the finish work can be done around it.
Framing and Subflooring
Once the exterior and the plumbing and HVAC problems have been dealt with, interior framing and subflooring can be completed. Any walls torn out during the demolition can be replaced now, and new electrical outlets, if required, can be done at this time. If the house has an unfinished basement, I will frequently take the time and effort to finish it, because that’s an important selling point with many of my buyers.
Sheet Rock
Once all the other major renovation work has been completed, it’s time to start the sheet rock, or drywall. Wherever possible I’ll patch holes, or existing damage, but many times that’s just not possible, and the overall look of the house is much more finished with new sheetrock throughout.
Painting
Once all the sheetrock and major systems have been completed, it’s time for paint. A coat of primer and a first coat of paint will reveal any flaws in the work done to this point. We stop, fix the flaws, and apply two more coats of paint. If I’m going to keep this property as a rental, my own personal preference is to use semi-gloss for the ease of clean-up.
New Kitchens and Baths
The vinyl floors go down first, then any new cabinets, commodes, vanities, etc. A lot of investors I know, myself included, take the measurements to somewhere like Home Depot or Lowe’s and have their designers lay out the kitchens. It’s much easier than doing it yourself.
Finish Work
This phase is the final detail work that contractors usually refer to as the “punch out” portion of a job. It involves completing the little things like light switches, outlets, fixtures and switch plates.
Carpeting
This is usually the very last thing we put in. With all the traipsing back and forth and workers running in and out, we don’t want to ruin new carpet by installing it too soon. I usually install wall-to-wall carpeting in every home I purchase.
Final Clean Up and Landscaping
A final walk through and the interior should be clean, bright and ready to show. If the exterior needs any landscaping, this is when it’s done. Pick low maintenance plants, shrubs and trees that will require a minimum of effort to keep neat and trimmed.
Marketing
The absolute final phase, of course, is marketing. Frequently the improvements I’ve started will bring potential buyers to me well before the job is complete, but on average, I like to have the house in excellent condition before I show it to people.
You see? A logical, systematic approach that breaks the rehab up into manageable sections, and a reliable contractor. That’s what you need to tackle the most difficult rehab project. Nothing to it!
