As a real estate investor, it is important to know that not every rehab will require the same amount of work. You can certainly have an idea of the materials you want to use, but before you do any work, you should know your end-game. Who is the property going to end up with? In other words: the type of work you do on a high-end rehab should not be the same as what you put into a rental unit. Most rehabbers take great pride in their work and always want to put their best foot forward, but sometimes this means doing the right work instead of spending the most money. An average house in a low-income neighborhood does not need a $50,000 kitchen. The work needs to match the particular home. Before you lift a hammer, you should know your target market and what you really want out of the rehab. Make sure the work you put in matches the end result and price point.
Anything you do to a property should increase either its value or livability. Doing work without these items in mind will cause you to waste money and possibly be left with the same problem before you started. Asking “what do I want out of this rehab” will help you to figure out what type of work you are going to do. The answer depends on what type of budget you are working with, but you should never make decisions solely based on available funds. You will find that if you cut corners and don’t put the right work in, you will end up costing yourself much more money down the road. That said, there are multiple levels of rehab work that can be addressed:
The first level is typically associated with rental units. You are still doing work and will need to spend money, but not to the level that you would if you are looking for a quick end-buyer. There are three goals for this type of rehab: practicality, affordability and quality. As much as a hot tub in the bathroom may seem like a nice touch, it would certainly be out of place in a small, two-bedroom house. Since you are renting the property and won’t get a huge return for several years, there is no need to try to make an impression with buyers that are looking to move in next month. It is best not to be overly flashy with your work and try to appeal to a mass number of people. You want quality that will stand up to excessive wear and tear over the years, but you also want to understand that it will eventually need to be replaced. Always review your market and know what’s out there, but keep in mind that tenants will be more geared towards price than any work you do in the property.
The second rehab level refers to a home that you are looking to flip but not in a high-end market. Similar to a rental property, you still need to focus on quality while keeping an eye on your immediate area. A common misconception is that if you spend money and make your house the nicest one on the block that offers will fly right in. In most cases this can actually have an adverse effect and you will end up wasting money. With these types of properties, you look to save money where you can but still deliver a desirable product. Doing the little things like restoring the cabinets or throwing a new backsplash in the kitchen can really make a big difference. On these types of rehabs, where you are looking to squeeze every last dollar. It is important to focus on the little things that aren’t overly expensive. Spending money on the exterior, updated light fixtures and a new door handle are seemingly small items, but they can make a house feel like a home. It is these little things that will help you get top dollar and your property sold as quickly as possible.
The final type of rehab involves high-end market flips. With these types of rehabs, everything you do is critical. They call not only for new appliances, but the right type of appliances for the kitchen. Tiles, colors, lighting and fixtures can make all the difference. If you are not an experienced rehabber, you should work your way up to these types of properties. Instead of trying to save money with high-end homes, you need to spend money to make money. You don’t want to have a property that only appears high-end. This won’t appeal to either the budget conscious or quality concerned buyers. High-end properties can offer a great upside, but you need to do the right work with the highest quality.
Before you do any type of work, you should have an idea of who the property is going to be marketed to. If you know what kind of person will be interested in your end product ,you can use these levels to guide you through the process. Not every rehab calls for the same amount of work or time. It is important that you know the difference with each type of rehab to maximize your time and your bottom line.