You will learn something new on every deal you close. When you are just starting out, the process of evaluating a new property can be overwhelming. The more properties you look at, the more you will pick up different things that will help you in the future. In time, you will have a good grasp on what you want to do after just a few minutes in the property. Getting to this point will not happen overnight, and usually take some trial and error. Eventually you will be able to walk into a rehab property and know exactly what you want to do, and how much you will spend. Until you get to that point, here are a few tips to help you quickly evaluate your next rehab property.
1. First Impressions: Take note of your first impressions of the property. It is important that you view the property as an investor, instead of as an end buyer. If the house smells like cat urine and has debris piled up, you probably wouldn’t want to live in the house. As an investor, you know that this may be a rather easy fix. Instead of looking at what is wrong with the property, look at what is right. Is the house in a good location? Is the work that is needed cosmetic? Conversely, look to see if there are bigger problems that may be lurking. Is there mold or other issues that could be expensive, time consuming issues? Until you are fully comfortable that you know what you are doing, you should bring a checklist into every property with you. Take your time in the property, and don’t leave until you knock off every item on your list. Make special note of your first impression. In most cases, your initial instincts are the best.
2. Layout: After writing down your first impressions and some quick notes, you should move on to the layout of the property. In no particular order, walk the property and check out how it is laid out. Of course you can always make changes and modifications, but these will not be cheap. Additionally, you never know what you will find once you start knocking down walls. It is no secret that most of today’s buyers prefer open floor plans and plenty of space. There may be things you can do to make up for this, but if the layout is poor it can be difficult to find a buyer. In addition to your layout, you need to verify the bedroom and total room count. The longer you are in the business, the more you will learn never to trust a listing sheet. Even if it is accurate, a bedroom that is listed can actually be a 200 square foot closet. Look to see that all the rooms in the property are functional, and add some value. The layout is not the most important thing, but it is certainly critical in finding buyers.
3. Walls & Floors: Like most buyers, the first things you will notice about a property are the floors and the walls. This is no different as an investor. Walls and floors may not break the bank, but will certainly be a cost – regardless of what you want to do with the property. Hardwood floors are the most popular flooring trend. If the property is carpeted, you need to have it removed – almost as soon as you take ownership. For starters, it can be an eyesore. However, it can also hold any smells that are sunk in. As far as the walls are concerned, they probably haven’t been touched in years. To maximize your return, you need to hit the walls and trim with fresh paint. The cosmetic items won’t be the ones that break the bank, but they still need to be accounted for.
4. Kitchen: Today, more than ever, kitchens sell homes. You can include the kitchen floor when you evaluate the flooring. Old, outdated tile has to be immediately ripped out. The same is the case with the cabinets. You may be able to get away with giving them a fresh stain and changing the handles, but this is the exception. If you are going to rehab the house, you can’t do it halfway. This usually means replacing the cabinets and starting from scratch. You also need to account for the appliances. You don’t need to have stainless steel, but they can’t be ancient either.
5. Big Ticket Items: Making necessary upgrades and improvements is part of the deal. Not only will these cause delays, but they will almost surely break the budget. After you are done with the cosmetic stuff, you need to sink your teeth into the nuts and bolts of the property. These are the foundation, HVAC, plumbing and electrical items. You can also include the furnace, hot water heater and oil tank. These items will increase the useful life of the property, and add value. Even if you don’t plan on replacing them right away, you should have a good idea of how much longer they will last. You should know if they are on their last leg, of if you can squeeze a few more years out of them. You can’t leave the property without having a good idea of what condition these major items are in.