Choosing A House To Fix and Flip: Make sure to take a good look at the kitchen and bathroom.
When evaluating properties for potential investment and flipping, a major consideration is the cost of renovation. In many houses, the two areas most likely to need upgrading — the kitchen and bathroom — can also be the two most expensive areas to remodel. Improvements to a kitchen or bathroom requires input from nearly every major trade, including plumbing, electrical, carpentry, drywall, tile, etc. This can easily take a huge bite out of your profit, so it’s always a good idea to formulate a plan for these two rooms. How thorough do you want to be, and how much can you afford to redo? The key is to take a careful assessment of the work and prioritize to minimize surprises and prevent going seriously over-budget.
Avoid Kitchen Nightmares
Nearly every older home has suffered some years of exposure to problems like leaking drains and damage from accidental overflows.
How are the floors? When you’re checking out a property, be sure to inspect the floors, and I don’t mean the tile surfaces. Water can do an incredible amount of damage in a very short time. If the sub-floor is soft, or if there is a bounce or noticeable dip around the sink area, make sure you know why.
Are the cabinets usable? Even If you install them yourself, new builder-grade cabinets and countertops can easily run from $2,500 – $6,000. Unless your project can justify this expense, try to get away with just paint and a change of hardware.
Evaluate Bathrooms
Looking over a bathroom can reveal a variety of problems. Seeping toilets, and leaky shower curtains and doors, to name a couple, can cause damage that must be addressed.
Again, how are the floors? I have seen dozens of bathroom floors consisting of only the ceramic tile, or multiple layers of linoleum, where the leakage from the tub or toilet had completely destroyed the sub-floor. As a result, with the joists nearly gone, tubs would be balancing precariously on very small sections of unattached framework.
To a skilled contractor, these issues are not a huge deal. But if they were unexpected, and not counted in your cost of repair, it could be quite harmful to the bottom line. It’s best to take a little extra time and give a little extra attention to the state of these areas when choosing a home to renovate. It’ll help ensure a smooth and profitable project.
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Bob Kmosko has been a full time contractor /re-habber/ investor for over 25 years.
His company, TK Homes, is focused on providing discounted wholesale properties to contractors and investors. If you are currently in the market for a wholesale property, or are considering purchasing one the in the future, log on to TKHomes.net and let us know what you need!
Eye of the Buyer
When Rehabbing, Don’t Forget Curb Appeal
When renovating a house, my biggest problem has always been striking a balance between perfectionism and practicality. My propensity is to want every aspect of a project to be as close to ideal as possible, an especially challenging undertaking with older housing stock. To make matters worse, I sometimes focus too much on the aspects of construction that are unseen, at times unnecessary, and therefore unappreciated by potential buyers. As a contractor, I naturally have a tendency to want to concentrate primarily on the things that relate to structural integrity. But as an investor, I have had to learn not to underestimate the power of curb appeal.
Value is in the Eye of the Beholder: The average homebuyer does not necessarily value the improvements that contractors find important. Don’t be too surprised if your buyer is not overly excited by your astute choices in sheeting and vapor barrier, or your wise selection of solid moulding instead of finger-joint, or that extra thick carpet padding . If you think you will use these to successfully justify your price point, you may be disappointed.
Image is Everything: The average homebuyer does value external appearance, and the perceived superiority of the home. A house may be superior structurally to every other house on the block, but if it does not appear that way, it may not be valued by the buyer. Curb appeal always seemed to me to be silly. Flowers, shrubs, plastic shutters — we contractors know these are all meaningless compared to the “important” things like wiring size, stud spacing, and plumbing vents. Yet, the visible portions of the property are often what makes or breaks the sale.
Find a Balance: Do what‘s right, but don‘t go overboard. Be careful not to focus all your time and capital solely on the unseen aspects of a project. Make a concerted effort to direct some energy into areas that buyers appreciate. That may mean mowing that raggedy lawn, trimming the overgrown bushes, and shining up grimy windows. Or maybe the driveway and sidewalks could do with a good power-washing. What may seem like “little things” can go a long way toward adding to the appeal of the property and increasing profit margin upon resale.
First impressions are important, and, when it comes to houses, curb appeal is the first impression. Of course you should focus on the structural integrity of the home, just don’t neglect what buyers will see. If they don’t like what they see on the outside, you’re not likely to get them inside. Remember to see through someone else’s eyes: the eye of the buyer.
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Bob Kmosko has been a full time contractor /rehabber/ investor for over 25 years.
His company, TK Homes, is focused on providing discounted wholesale properties to contractors and investors. If you are currently in the market for a wholesale property, or are considering purchasing one the in the future, log on to TKHomes.net and let us know what you need!
Knowing the Numbers
Doing your own rehab project keeps more money in your pocket.
As a contractor and home renovator, I have spent a lot of years fixing up other peoples’ properties. I’ve always found it rather satisfying to transform the eyesore into the aesthetically pleasing, and I was content with doing “a day’s work for a day’s pay.” This philosophy is not necessarily wrong, but it’s not particularly lucrative either. I realized that my customers were the ones reaping the most rewards from my labors.
A Project
One case in point that really opened my eyes was a job I did a few years back for a customer in suburban NJ. This customer wanted to buy a particular home, and consulted me as to the extent of work that would be required before the house was purchased. The customer used my estimates (worst case scenarios) to negotiate a purchase price that was significantly discounted. The purchase price was $270,000. Other homes in the area (livable, but not recently updated), were selling for around $300,000.
After the customer bought the house, I was hired to complete some rather extensive work on the home. The renovations included were as follows: three remodeled bathrooms, a remodeled kitchen, the installation of new windows in the entire house, the building of a custom ceramic tile sun porch, all new interior and exterior doors, and a complete re-painting of the home’s interior.
A job of this size kept my workers and I busy for four solid months, so we were quite pleased, and figured we were doing pretty well.
But when we started to look more closely at the numbers and time spent (figures that have since plagued me over the years), we realized that our customer was reaping a whole lot more of the benefits of our labor than we were.
The Breakdown
1. The work had cost the homeowner approximately $90,000: about $55,000 labor, and $35,000. in materials.
2. Four months after completion of the work, (which was 8 months after the original purchase), the homeowner listed the house for sale.
3. The asking price was $580,000., and we got a good laugh over “how unrealistic” (in our estimation) this price was.
4. After being listed for around 60 days, the homeowner got an offer for $520,000. They negotiated for a few weeks, and eventually settled on $528,000.
The Clincher
Eleven months, and 3 weeks after the original purchase of the property, the owners re-sold it. The original purchase price: $270,000. The amount for the remodel (labor and materials): $90,000. The total invested in the house: $360,000.
* Price the house sold for one year after purchase: $528,000.
* Subtract total cost of house – $360,000.
Homeowner’s net profit in one year $168,000.
An Eye Opener
Bottom line: we did all the work, (and yes, received our wages ), but we added value to a project that far exceeded our profit.
Our profit for increasing the value of the house by $258,000 was only $55,000; materials were $35,000. The home owner’s profit for simply buying the house, and hiring us was $168,000. If this had been our own project, we would have made $223,000 for the same 4-month work period.
This may seem like an exaggerated example, and you may be working in a much less expensive housing market. Still, taking into account the regional variation in price points, the percentages are the same. Even if the value you add is double, those numbers are nothing to sneeze at. If you’re going to make $20,000 on a rehab, then maybe you can make $40,000 or $50,000 doing it yourself. Or, looking at it another way, work half the time for the same money. Either way, it pays to know the numbers.
You also have to be able to get a project house at the right price. That’s where TK Homes (Newton, NC) comes in. Part of our service is to provide these types of properties for wholesalers to do their thing, and keep the value for themselves. Let us work with you. Bob Kmosko, TK Homes, Newton, NC. Email us at: realpro.2010@gmail.com Visit our website: TKHomes.net.
(Re)Considering Rehabbing
Whether it’s new to you or you‘ve done it before, seller-financed rehabbing in today’s market is a smart way to expand your business
Whether or not you’ve ever been involved in a rehab, now’s the perfect time to cash in on the benefits. In an economy where work is slow and competition fierce, rehabbing provides the potential to build your business today and implement a long-term vision for the future. Here are some very good reasons to consider it:
1. Relies Less On New Customers: If work is slow, no need to fret about estimates and quotes to get that next job. You’ll already have a project to work on at your own pace. And if you have employees, why pay them to sit around? Send them to work at your project house.
2. Turns Downtime Into Potential Profits: You’ve worked on jobs that have improved your customer’s kitchens, bathrooms, etc. And , yes, these jobs have provided you with a good paycheck. But all of those improvements have added value to your customers’ properties, all due to your hard labor. Why not work to earn that equity for yourself?
3. Takes Advantage Of the Current Buyers’ Market and Flexible Financing: Again, in today’s real estate market, we all need to be flexible to turn a profit. That includes sellers. If they’re motivated, they’ll be willing to work out financing terms you can handle.
4. Increases Options with Multiple Exit Strategies: A rehab gives you a number of ways to dispense with a property. You can do a straight out sale, a lease option, or a rental. In any case, if you find one at the right price, you can potentially pay it off quickly, own it free and clear, and get a fast lump sum, or continue to receive monthly payments.
We all know that dealing with the banks today and conventional financing is an iffy proposition. Why not try a rehab and be ready for a sale just in time for the market’s recovery? TK Homes is looking for projects that can be mutually beneficial. If you think you have one, give us a call or drop us an e-mail.
Robert Kmosko, TK Homes, Newton, NC, 828-461-4813, realpro2010@gmail.com
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