So, you're going to be a rehabber? Awesome choice. The time to get started is immediately after the closing. Put a “For Sale by Owner" sign in your back seat, and head to your new property to plant it. When the calls start to come in, ask prospective buyers if they prefer to see the property under repair or after completion. Some buyers are willing to buy the property at a lower price and see the repairs through themselves. If you're lucky enough to find buyers now, make certain they are either paying cash or the property will pass a lender's inspection.
If you are willing to show the property while it is being rehabbed, then place an ad in the paper. Take into consideration that you will be able to ask a higher price after repairs are completed. We find that buyers are more receptive to signing a contract after the house is in show condition.
If this is your first rehab, bear in mind that this is probably where you will make most of your mistakes. We will give you lots of great tips to help you avoid many of the mistakes, but some are bound to happen because your new and most new investors tend to over-remodel.
The number one piece of advice we can give you is don't get caught up in the remodeling. You are not going to live there! Say it over and over until it sinks in:
I am not going to live here, I am not going to live here, I am not going to live here.
As women, we find we are worse than men when it comes to over-remodeling. We like to add our personal touch and overspend. We have a second chant for you:
I will not over-remodel, I will not over-remodel, I will not over-remodel.
Here are some tips to help you on your way to rehabbing a property:
Locks - Change the locks and put a lock box on the door. A lock box is a metal box inside which you can store the keys and it hangs on the doorknob. The front panel has a combination that can be changed at any time. You will want to give workers the combination and then change it when they have finished. You can buy a lock box at home improvement stores or at a local real estate supply store.
Introduce yourself to the neighbors who will be thrilled to meet the person remodeling their neighborhood eyesore. A neighbor may have a friend or relative looking for a house in that area. Exchange phone numbers with the neighbors and ask them to keep an eye on the property.
Utilities: Arrange to have the utilities turned on the day of closing and give them your mailing address. Don't have bills sent to the property. Arrange for gas, electric and water service.
Maintenance: Arrange for lawn and/or pool maintenance. If you have time and you want to cut costs, you can choose to handle this maintenance yourself.
How to Remodel: In the interest of time, you or your contractor should plan to start the day after closing, not the same day, in case there are any closing delays. Submit applications immediately for any permits that are required.
Before you begin remodeling any property, take into consideration the neighborhood, your asking price, how much equity is in the property, and your budget. Next, determine where to spend your remodeling dollars. For example, if the property has 3 bedrooms and 1 bathroom, it may be worthwhile to completely remodel the bathroom. Planning ahead like this will help keep you from going over budget. Remember, going over budget for those personal touches means less money in your pocket when the house is sold.
We have three very important words regarding remodeling:
Modernize, modernize, modernize!
Your house may be the closest thing to a new home most people will ever own. Spend a little extra time and money and make it look like a new house. The newer it looks, the faster it will sell. Use the most up-to-date colors, tiles, accessories, etc. Get rid of all the old things that date the house such as blue bathrooms, green carpet, dark wood paneling, linoleum floors, yellow appliances, etc. You get the picture.
Curb Appeal: The exterior of the house must have curb appeal. This is the first impression a prospective buyer has of the house. For prospective buyers to become actual buyers, they must like your house enough to walk in the front door.
We recommend paint your house with a neutral exterior paint and matching trim color. For example, these combinations work well: white paint with peach trim, tan paint with hunter green trim, and light gray paint with dark gray trim. To add charm and character, paint the front door and decorative shutters in the trim color. If there is an old mailbox attached to the house, replace it with a new white one with gold numbers. If there is a freestanding mailbox, paint it the same color as the trim. Install a new porch light; gold carriage style light fixtures look nice and are relatively inexpensive. Place new numbers on the house and paint them the trim color.
Color Scheme: Inside, keep use neutral colors for the carpet, tile, and paint. Colors like white, beige, cream or any light color work well and make rooms appear larger. That makes it easier for buyers to envision their belongings in each room. We don't want to see any dark brown carpet or funky wallpaper in an investor's house. Stay neutral!
Interior Paint: We use white interior paint because it brightens the walls and makes rooms look bigger. The customary way to paint is to use flat paint throughout the interior and semi-gloss on the trim. Bathrooms and kitchens should be painted with semi-gloss, also. Consider either removing dark paneling or wood covering walls, or painting over those walls.
Ceilings: Depending on the type of ceiling texture, decide whether white paint, new popcorn, or textured finish would give the best results for the cost. If the ceilings are smooth, consider “knockdown" (see Walls for an explanation). If popcorn is already there, consider painting it to for a fresh appearance.
Walls: If you are leaving the walls smooth, make sure they are patched and free of rough spots. In some areas, “knockdown" is used on walls and ceilings. Knockdown is sprayed on dry wall mud that has been leveled off with a trowel to give ceilings and walls a textured finish. It is often used in expensive model homes. You can do it yourself and rent a sprayer machine, spray it on the walls and ceilings, then smooth it with a trowel. It may take some practice. If you don't blend the mixture smoothly, you will get rocks that drag down along the whole wall. Then, you have to start over. We know because it happened to us! The beauty of knockdown is that you can paint right over it and it looks expensive.
Adding Rooms: If your house has a room that could be used as a bedroom, add a closet using inexpensive dry wall and you will increase the value of the house, making it easier to sell. Also, if you purchase a two-bedroom, two-bath house with a one-car garage, consider turning the garage into a third bedroom. Before you take that step, research which is selling better and for more money: a three bedroom, two-bath home with no garage or a two bed, two-bath home with garage. You may also want to remove a wall to enlarge a living area. Both remodeling jobs are inexpensive and can dramatically change the appearance of the house. You must add a closet [and, in some states, a window] to a room before it can be considered a bedroom.
Kitchen: We find the kitchen to be a major selling point so we always replace our kitchens. You might try painting old, unattractive cabinets before you replace them. If you don't like the result, replace the cabinets with light colored cabinets. If necessary, change the layout of the kitchen to a more modern, useable floor plan. A white walls and cabinets with an open layout make a small kitchen appear larger. Also, consider the color of the appliances and keep in mind that you do not have to replace appliances with brand new ones. A local refinishing company can resurface used appliances to match your color scheme. We have had this done many times. It can cost as little as $75 to resurface a stove as opposed to buying a new stove for $500. If it will help the sale, offer a used washer and dryer to the prospective buyer.
Bathrooms: We recommend totally white bathrooms. Older houses may have out-of-date colors and fixtures. Replace the toilets, sinks, and vanities with modern white ones. Also, modernize the mirrors and fixtures. We often replace an older, odd-sized mirrored cabinet with a flat piece of wall mirror that simply covers the old hole and looks modern. Paint the walls and ceilings white and replace the flooring with white tiles. If the tub and wall tiles look outdated have the same refinisher, you used for the appliances to have them resurfaced white. The cost is minimal and the result is great (make sure they guarantee their work. )
Flooring: It is worth the expense to replace linoleum or vinyl tile flooring with ceramic tile, especially in the kitchen. Consider using tile instead of carpet in smaller living or dining rooms to make the room appear larger. If you use carpet, use a medium grade carpet with good padding. The better the pad, the more expensive the carpet will feel when your prospective buyers walk on it. The cheaper carpet will not wear well and the expensive carpet is not worth the expense. Be sure your carpet is F. H. A. approved so you will not have any problems when you have a buyer who goes for F. H. A. financing.
Air Conditioning and Heating: Central air and heat might be nonexistent in older homes. Instead, you will have window or wall a/c and heating units that plug into outlets in each room. Be sure to allow for installation of new central air conditioning and heating in your rehab budget. It doesn't matter where you live in the United States; everyone wants to be warm in winter and cool in summer. There are many companies who sell rebuilt units for a fraction of the cost of new and will guarantee the used units as well.
Windows: Older homes often have out-of-date windows such as jalousie style windows, which allow passage of air/heat resulting in higher electric bills. They make it easier for burglars to break in because of their poor construction. Unless the other neighborhood homes are selling with this type window, plan to do a change out. It is sometimes costly, but the alternative is to reduce your asking price.
Roof: Most roofs are either shingle or tile. Both can be pressure-cleaned by a professional, but the results are better on tile. Tile roofs are much more costly to replace and can be painted with a coat of special paint that will seal cracks. Tile roofs also can be spot repaired. Unless a tile roof is falling in, consider spot repairs. Shingle roofs are much less costly to replace than tile, but don't last as long; with age, shingles may peel up and leak. Occasionally, if a shingle roof is beginning to peel but is not leaking, we will replace it. Buyers love to know they are getting a new roof because from a buyer's point of view, a roof is very costly. Make certain when replacing a roof you get a warranty that can be transferred to the new owners. This is a good selling point.
Cleaning: Once the repairs are completed, bring in the cleaning crew. Our crew cleans the entire house from top to bottom, including the windows and screens, giving it a real sparkle! We feel that a spotless home makes the best first impression. Everyone loves a house that smells clean with that new carpet and paint smell.
As-Is: Once we have completed our remodeling and repaired any damage, we sell our homes as-is. Buyers are still entitled to inspections, but it is your decision whether to fix or change any items. Keep in mind that your decision could make or break the deal.
Overall: The home needs to appeal to all five senses. It must have visual appeal starting with the exterior. It must smell nice from new paint or carpet. The buyers must feel like they are at home and want this house so badly that they can taste it. They need to hear how wonderful the neighborhood is, how many new items have been added to the home, and how reasonable the sale price is. It doesn't hurt to have as sense of humor when you're showing the house, either! The better the potential buyer feels about being in the house, the more likely it is they will want to purchase it.
Tip: If you want to see how to modernize with less expensive products, visit new communities and look at the model homes. Check out the kitchen cabinets, fixtures, and the bathrooms. You'll notice ceramic tiles (or vinyl) in the foyer and kitchen with inexpensive carpet elsewhere. If you've done a good remodeling job, your house will be a better deal than the models.
Homes always appear larger and nicer when they are empty. Buyers can envision their belongings in the home more easily. It is more difficult to sell and occupied home, especially if the occupants cook with an unpleasant spice, smoke, have pets that use the carpet for a bathroom, are untidy, or have ugly furnishings. Basically, if the house is empty, there is nothing to turn-off your prospective buyer.
We suggest you keep a light or two on inside the house as well as any outdoor lighting. This will enable prospective buyers to view the home at night as well as make it appear lived-in.
Your house is finished and you are ready to sell!
Here are some sample ads to run once the property is ready to show:
Newly remodeled 3/2. New everything! Seller will pay closing costs.
Below market! 555-5555.
Beautiful 3/1. Newly remodeled. Like new! Must see to believe!
Won't last! 555-5555. Seller will help.
The reason we say things like, “Seller will help" is because we find if we offer to help with closing costs, our properties sell faster. Most homeowners struggle trying to save a 10% down payment. If you can pay 5% or so, you'll move your properties. This is where your investor friendly mortgage brokers come in. They can assist you in finding the right buying program for each homeowner.
There are many creative buyers programs out there. Some allow the seller to give gift money, pay closing costs, hold back a small second mortgage, and more. Take the time to learn about these programs, as it will help you to become a more successful rehabber.
Once you are ready to close, your title company will again do the rest.
Dwan Bent-Twyford is the Co-Founder and Faculty Head of The Investors Edge University , a company that specializes in training new and seasoned investors in a wide range of real-estate investing techniques through live workshops and seminars
Dwan is President of Financial Freedom Through Foreclosures. Her company specializes in educating new as well as seasoned investors through a series of home study courses and boot camps.