What All Goes Into Rehabbing a Single Family House?
Lets Break Down what it takes to properly rehab a house.
Rehabbing a single family house is a popular real estate investment strategy that involves buying a property, fixing it up, and selling it for a profit or renting it out for cash flow. Rehabbing can be a rewarding and lucrative way to create value and generate income from real estate. However, it can also be a challenging and risky endeavor that requires planning, budgeting, and execution.
In this blog post, we will explore what all goes into rehabbing a single family house, from finding and evaluating the property, to making repairs and improvements, to marketing and selling or renting the property. We will also share some tips and best practices on how to rehab a house successfully and avoid common pitfalls.
Finding and Evaluating the Property
The first step in rehabbing a single family house is finding and evaluating the property. You want to look for properties that are in need of repairs or upgrades, but that have good potential for appreciation or rental income. You also want to look for properties that are in desirable locations, such as near good schools, parks, transportation, or amenities.
To find such properties, you can use various sources, such as online platforms, wholesalers, auctions, foreclosures, or referrals. You can also drive around your target neighborhoods and look for signs of distress, such as boarded-up windows, overgrown lawns, or notices of default.
Once you find a potential property, you need to evaluate its current condition and its after repair value (ARV). The ARV is the estimated market value of the property after it is fully renovated and ready to sell or rent. To determine the ARV, you need to do a comparative market analysis (CMA), which involves comparing the property to similar properties that have recently sold or are currently listed in the same area.
You also need to estimate the cost of rehabbing the property, which includes the materials, labor, permits, fees, and contingencies. To estimate the rehab cost, you need to do a thorough inspection of the property and create a rehab checklist that outlines all the repairs and improvements that are needed. You can use online tools, such as HomeAdvisor or Roofstock Academy's Rehab Estimator Toolhttps://learn.roofstock.com/blog/how-to-rehab-house, to help you with this process.
Based on the ARV and the rehab cost, you can then calculate your offer price and your expected profit margin. A common formula used by investors is the 70% rulehttps://www.fortunebuilders.com/how-to-rehab-a-house-on-a-budget/, which states that you should not pay more than 70% of the ARV minus the rehab cost for a property. For example, if the ARV is $200,000 and the rehab cost is $50,000, then your maximum offer price should be $90,000 ($200,000 x 0.7 - $50,000).
Creating a Rehab Plan
The next step in rehabbing a single family house is creating a rehab plan. A rehab plan is a detailed document that outlines the scope of work, the timeline, the budget, and the contractors for your project. A rehab plan helps you organize your project, track your progress, and manage your resources.
To create a rehab planhttps://dhcd.dc.gov/SFRRP, you need to:
• Define your goals. You need to decide what your objectives are for rehabbing the property. Are you planning to sell it or rent it out? What is your target market? What are the features and amenities that they are looking for? How much are they willing to pay?
• Prioritize your tasks. You need to determine which tasks are essential and which ones are optional for your project. You also need to decide which tasks should be done first and which ones can be done later. You can use the following criteria to prioritize your tasks: safety (fixing any hazards or code violations), structure (fixing any foundation or roofing issues), systems (fixing any plumbing or electrical issues), cosmetics (fixing any paint or flooring issues), and extras (adding any upgrades or enhancements).
• Create a timeline. You need to estimate how long each task will take and when it will start and finish. You also need to account for any dependencies or delays that may occur during the project. You can use online tools, such as Gantt charts or project management softwarehttps://files.hudexchange.info/resources/documents/HousingRehabilitationChecklist.doc, to help you with this process.
• Create a budget. You need to estimate how much each task will cost and how much money you have available for your project. You also need to account for any contingencies or overruns that may occur during the project. You can use online toolshttps://www.fortunebuilders.com/real-estate-exit-strategies-part-3-rehabbing/, such as spreadsheets or calculatorshttps://learn.roofstock.com/blog/how-to-rehab-house, to help you with this process.
• Hire contractors. You need to find qualified and reliable contractors who can perform the tasks that you need. You can use various sources, such as referrals, online platforms, or local directories, to find contractors. You also need to check their credentials, licenses, insurance, references, and reviews. You also need to negotiate the terms and conditions of the contract, such as the scope of work, the payment schedule, the warranty, and the dispute resolution.
Executing the Rehab
The third step in rehabbing a single family house is executing the rehab. This is the most labor-intensive and time-consuming part of the process, as it involves overseeing and managing the actual work that is being done on the property. This step requires constant communication, coordination, and supervision of your contractors and your project.
To execute the rehabhttps://dhcd.dc.gov/SFRRP, you need to:
• Pull permits. You need to obtain any permits or approvals that are required by your local authorities for your project. You also need to comply with any codes or regulations that apply to your property. You can consult with your contractors or your local building department to find out what permits or approvals you need.
• Begin demolition. You need to remove any unwanted or damaged items or materials from your property. This may include tearing down walls, ripping out carpets, or hauling away debris. You also need to dispose of any waste or hazardous materials properly and safely.
• Start exterior improvements. You need to make any repairs or upgrades to the exterior of your property. This may include fixing or replacing the roof, siding, windows, doors, gutters, or landscaping. You also need to improve the curb appeal of your property by painting, cleaning, or adding any decorative elements.
• Start interior improvements. You need to make any repairs or upgrades to the interior of your property. This may include fixing or replacing the flooring, walls, ceilings, cabinets, countertops, appliances, fixtures, or hardware. You also need to improve the functionality and aesthetics of your property by adding any insulation, lighting, ventilation, or storage.
• Finish touches. You need to complete any final tasks or details that are needed for your project. This may include cleaning, staging, testing, or inspecting your property. You also need to address any issues or defects that may arise during the project.
Marketing and Selling or Renting the Property
The final step in rehabbing a single family house is marketing and selling or renting the property. This is the most rewarding and profitable part of the process, as it involves showcasing and selling or renting your finished product to your target market. This step requires effective marketing, pricing, and negotiation skills.
To market and sell or rent the propertyhttps://dhcd.dc.gov/SFRRP, you need to:
• Prepare the property. You need to make sure that your property is ready for showing and selling or renting. You also need to make sure that you have all the necessary documents and disclosures for your property.
• Hire an agent. You may want to hire a professional real estate agent who can help you with marketing and selling or renting your property. An agent can help you with listing your property on multiple platforms, taking professional photos and videos, creating flyers and brochures, hosting open houses and showings, screening potential buyers or tenants, handling contracts and paperwork, and closing the deal.
• Price the property. You need to set a realistic and competitive price for your property based on its condition, location, features, amenities, and market demand. You also need to be flexible and willing to adjust your price based on feedback and offers.
• Negotiate the deal. You need to communicate and negotiate with potential buyers or tenants who are interested in your property. You also need to evaluate their offers and counteroffers, accept or reject their terms and conditions, and resolve any issues or disputes that may arise during the process.
Rehabbing a single family house is a complex and comprehensive process that involves finding and evaluating the property, creating a rehab plan, executing the rehab, and marketing and selling or renting the property. Rehabbing can be a rewarding and lucrative way to create value and generate income from real estate if done correctly and efficiently.
However, rehabbing can also be a challenging and risky endeavor that requires planning, budgeting, execution, marketing, pricing, negotiation, skills ,and experience. Therefore, it is important for investors who want to rehab a single family house to do their due diligence before getting started, including reviewing all their options. They should also seek professional advice from experts such as contractors, agents, attorneys, accountants, inspectors, appraisers, lenders, etc.