2016 is set to be another major year for the real estate industry. What smart practices can real estate investors apply to maximize the results of their next rehab?
The last few years of recovery have seen intense revitalization efforts take hold. For the most part, they have been great for investors, neighborhoods, and the national economy. However, there have been many major rehab blunders too. Some new investors have rushed in without any real estate education, and have fumbled badly. Others have sunk money into projects that haven’t panned out. Some are still trying to salvage poor remodels. We are set to see millions of properties redeveloped, rebuilt, and renovated in the coming year. So how can buyers and investors better navigate this process, and be more profitable in their investments?
1. Home Inspections: The most common reason for issues in rehabbing is failing to accurately assess needs upfront. It’s hard to know what repairs and improvements are really required unless thorough property inspections are completed. Remember, looks can be very deceiving. Even condo buyers and new construction buyers may want to do home inspections. Get multiple quotes on issues in order to get the most accurate total costs.
2. Perceived Value: What makes or breaks the investment for most is the knowledge of what really adds value to a property, and even what doesn’t. We all know about curb appeal, but it may not add any perceived value at all. Nor do many other major remodeling items, from kitchens to bedroom makeovers, and more. You could literally coat your entire master-suite in gold, and may not add a dollar in resale value. Advance your knowledge in this area, and really learn what helps boost resell value. Do your homework, and find out which work will help your homes the most.
3. Timelines: Your timeline can make or break the bank. Obviously, the longer it takes to remodel an investment property, the more holding costs that deplete profits. A poorly structured timeline can also cause work to have to be redone, at potentially crippling costs. What if you didn’t do an inspection, and only find out that you need to rip out all the walls to rewire the entire property or redo the plumbing after you spent $30,000 remodeling the kitchen and bathrooms? Do you plan to do the ceilings, walls, or flooring first? How will this impact the preservation of the work that is done first? What incentives do you have in place in order to get contractors to finish their work on schedule?
4. Green Elements: Green homes are now recognized as a hot commodity, and they are now becoming the standard. Now, more than ever, is the time to opt for greener materials and items when remodeling homes. Everything from energy production to appliances can be made greener. It can be a great marketing feature and reduce operating costs, while simultaneously helping the environment and providing healthier living experiences.
5. Smart Home Features: Just as green has become standard, smart home technology is becoming standard too. Don’t roll out a remodel that is already outdated by the time you are finished. Pre-wired homes for the fastest internet connection, smart locks, smart thermostats, vents and irrigation, better lighting, and security all make a difference. These may not add much to appraised value, but they are great selling features.
6. Repair Funds: Find lenders that will include funds for impending repairs. There are purchase and investment property loans that will include money for repairs and improvements, as well as local grants and loans for making energy efficient improvements. Seek these out so that you don’t run out of capital. Just watch the fine print, and know when you can access it cash. Will you receive these funds at closing, or will they be held in escrow to reimburse you after each phase is complete?