Rehab for Profit or Equity
In 2006, I did my first property flip/rehab. My husband and I bought a condo that was in awful shape, but the price was right and the sellers were more than willing to deal since it had been on the market for 4 months.
It had great features and good bones, but it was in AWFUL shape – So awful that I considered buying a hazmat suit for the cleanup. It had 20 foot ceilings in the entry, but it looked like there was blood splattered on them – the owner claimed her child had flung milkshake up there, and we chose to believe her…
So, while it seemed to be a gut, we didn’t change anything structurally. Mainly, we cleaned out 15 garbage bags full of trash left behind. Disposed of broken furniture and ripped out all of the flooring (carpet in a majority of the house) and linoleum in the kitchen and entryway and gave the home new furnishings.
Here is a list of what we did.
- Replace carpeting with new carpeting
- Replace linoleum with tile (travertine)
- Ripped out Kitchen Countertops and replaced with granite tiles and backsplashes.
- New appliances (Range and Dishwasher)
- New window coverings
- New baseboards
- Repaint the entire home (Removed the blood/milkshake splatters)
- Staged the home.
- Made some minor repairs to the HVAC unit
- Minor plumbing repairs
We spent about $20,000 after having bought the home for $320,000. We listed the unit at $399,000, which was just marginally higher than the other units on the market.
This whole process was accomplished in 1 month, although in the time from when we bought until we sold, 4 additional condos came on the market. I could feel the market losing steam and it was just announced that several lenders had declared bankruptcy – I decided that we needed this sold NOW.
BEFORE AND AFTER
There were 6 units listed for sale in the same complex -- Ours, the one that had been on the market and then the 4 new additions. The cheapest unit was listed at $365,000 but was not even in remotely the same condition as ours.
As an investor, you only have a successful outcome once you’ve sold and we did everything we could to sell fast. But, while we had hoped to sell at a higher price, given the drastic market changes we were seeing, we decided to keep our price similar to others in the complex and lowered our expectations slightly.
We wanted out, so we raised the commission to the buyer’s agent. At 3.5%, we knew that every agent would show our property. We had the home staged beautifully and after the renovations, we had the cleanest and most beautiful unit in the complex.
Within 2 weeks, our strategy had paid off and we had a full price offer. We accepted it and closed within 30 days. Just one month later, the market weakened further and some of the units sold much later at a MUCH lower price.
The last unit sold at $330,000 just a few months after we exited. We had narrowly missed one of the greatest declines in the real estate market, ever. As an investor, the game is not to hold onto the property.
Truly, the old idiom, pigs get fed and hogs get slaughtered is very appropriate unless you are in a rising market. As a homeowner making these fixes just means you get a better deal and equity in the property from day one.
If you are looking to rehab a property to become your home, or if you are an investor who has aspirations to flip property, let us help you get your bearings and find a property where you can get a great deal and add value.
We have vendors and contractors that can get things done quickly, professionally and at the right price. We love sharing our experiences with our clients and look forward to talking with you about your goals soon.