Question for experienced rehabbers

What types of problems do even the most experienced rehabbers stay away from? I currently have a property prospect that needs misc. work from plumbing to roof problems, etc. No foundation problems as yet discovered. I have a set amount I can spend to be profitable, but am concerned I’m getting in over my head. Any guidelines that would be useful? Thanks!

Hi fitzgerald222,

I wrote a really long response, but for some reason, the computer erased it after I hit the “post” button. Weird? Anyways I’ll keep this one short. It’s best to learn from others mistakes instead of making them yourself. Saves time that way. Don’t buy houses if they have:

-major structural problems that would be too problematic to repair.
-if there has been chemical problems with the soil because of nearby industries or other sources
-in a drug, crime infested area that will never sell.
-asbestos (I’ve heard horror stories of how expensive it is to remove)

Most everything else can be fixed. I am still in the long, drawn out process of buying a fire-damaged house. It will be a very lucrative deal, but it will also require the most intensive rehab I’ve ever done. Don’t shy away from a terrible looking house. Could be a money making gem in the end. Good luck.

Thanks Fancypants. Do you have contractors visit the home before or after you makr an offer?

Everything can be fixed, for a price. When the cost of rehabbing exceeds the cost of tearing it down and building a new house, don’t rehab it. New construction will usually sell for more. You’ll basically be offering lot value to the seller.

Bring your contractors in as early as possible to get estimates. Usually that happens during the option period. Sometimes a seller is willing to let you tour the house with contractors before you make an offer, it just depends on the seller.

If there’s something wrong with the lot – prone to flooding, bad neighborhood, next door to a toxic waste dump, etc… then there’s no reason to be looking there. Rehabbing is cash and time intensive - if there is something beyond your control that is putting caps on ARV, look for a better deal.

Just my opinions. I look for crummy houses in really nice neighborhoods. The dirts cost more, but I’m looking at 50K profit per house as a minimum. It may sound like a lot of profit, but it really does take a lot of effort, time, and energy to do it right. I can only do 3 or so houses a year; but when I’m done, they’re really nice houses and I feel good about my work.

I have my contractor give me an exact bid before I make an offer to buy. I only do this because he gives me free bids, because he’s the only contractor I use. But if I was paying to get bids, then I would wait until the house is tied up under contract, that way if my offer was rejected I wouldn’t be losing money on bids and home inspection fees. Most contractors will say that their bid will be free if you decide to use them for the job. Hope this helps.

The only repairs that would scare me off :
-high risk that the building will be destroyed during repair
-cost to repair exceeds the cost of tearing down and building new

Of course the numbers have to work and the property has to be desirable! I would be willing to deal with foundation, structural, mold, plumbing or electrical redo, even asbestos or environmental issues if the price was right.

Since I make a heck of a lot of offers, I never get specific bids until I’ve negotiated a contract. The one exception might be if it is just TOO weird of a house to guesstimate the repairs on, but I don’t think I’ve run into that yet. Once you’ve done a few rehabs you’ll be able to guess pretty accurately how much the rehab is going to cost. I almost always get an option period for 5-10 days to get bids and make sure I wasn’t off in my estimating - in which case I can renegotiate during the option period.

If you’re not comfortable making repair estimates though, then by all means get your bids together before you make the offer!

Thanks for the advice Kbird, I do need to locate a good contractor. I’ll work on that.

Ya know dirt aint cheap no more! They aren’t making anymore of it either. Good land deals are hard to come by these days, builder spec loans are even harder to come buy. If you come across a good piece of land and the structure is not even close to worth what the dirt is a good REHAB loan will let you demolish and rebuild as long as you can get it done in less than 6 months. You have to look at what the problems are with the existing structure and way out cost to repair vs. comparable sales in the neighborhood see if there is any profit left at the end. I recently did a deal where everything had to go except the foundation, plans were developed based on the current foundation and a brand new house was born, because of the area the values were high and the profit was grand. This particular home stuck out like a sore thumb in a neighborhood of beautiful homes, until we got in there.

I Read someone post here that they put a mechanics lien on a property before going to the closing table (in order to prevent the seller from doulbecrossing him/her).

What is to prevent the holder of the lien from refusing to release it?

Thinking creatively here… :smiley: can one have the mechanic assign his interest in the lien to you the buyer via some vehicle (trust assignment) over to you before/during the time the lien is put into place?

HI Nomore925,

After the rehab is complete and the contractor has been paid satisfactorily, make them sign a "release of liens’ form. Basically this just states that you are happy with the work of the contractor and you’ve paid them. It also states that the contractor was paid and is satisfied. You and the contractor will both sign it. It holds up in court if the contractor tries to be unscrupulous and says you never payed them.


I see what you are saying.

So in the case of the person I was quoting, he buys a property for say 100k, with the agreement that seller will give him back 50k and carry the note (tax savings)?. Buyer creatively walks away with cash.

If seller decides he wants to keep the 50k, buyer simply withholds payment from the “mechanic” who then refuses to release the lein…house goes to auction(?)

There is nothing that will scare me away if the numbers work. ;D

However, next time I get a slab foundation repaired I am going to pass on the slab leak detection that is included.

If I don’t know about it I don’t have to fork out $2K to fix it and I don’t have to disclose it to the buyer either.

Ahhh, sometimes ignorance really is bliss.