Property Rehabbing

Continuing our series on RE Passive Income,  I am going to show you my approach to property rehabbing. Rehabbing properties is probably the hardest (manual, if you do it yourself) labor portion of acquiring passive real estate income. However, to me, rehabilitating investment properties is probably the easiest (mental) labor step to passive RE income. In the handful of properties that I have fixed up for investment so far, I have done some of the work myself. I think it is important that an investor do some of the work himself, just to have an appreciation for the process, and the pitfalls to home repair. I have learned much about methods and styles to utilize, and what works with a potential buyer / renter. So let’s get into the guts of property rehabbing:

Other Articles in this series: 

  1. Spend as Little Money as Possible
    DUH! This is a no brain-er. But I wanted to point this out, because many investors allow themselves to get emotional, or “fall in love” with the property, and the go to far more expense than is necessary to get the property into selling / renting shape. People are concerned with aesthetics, and most want to see basic interior finishes, with a brick or stone exterior (not that I have had any problems with wood siding exteriors, they work well in older homes). My first partner was a poster child for this kind of behavior, and preceded to waste precious time and money on our first property rehab, and thus contributed to the train wreck that was my first deal.
  2. Start Property Rehabbing Day 1 after Closing
    Start lining up your repair services and crews to begin work the day you close on the home. Time is of the essence when fixing up a property, because every day you waste, is a day you are not making money on the property, and thus losing money in mortgage payments and opportunity costs.
  3. Paint is the Number 1 Best Fix for a Property
    Ever heard of paint covering a multitude of sins? A fresh coat of paint on the interior and exterior of the house is the single most cost effective, aesthetically appealing way to increase the perception of the home. Paint is cheap, and easy to apply, anyone can do it. If you are just starting out in real estate investing, do the painting yourself can save a lot of money, and no prior skills are required. Today’s standards are to use an off white color on the interior walls of the house with a flat or semi gloss paint, with the trim being a semi gloss white. I prefer to paint soffits a darker color of a long laster exterior paint, to cut prolong the need for future painting.
  4. Floor Coverings (or Flooring)
    I have found that what most people want to see is ceramic tile or wood (you could use pergo, or some other kind of laminated flooring, people do like it) in the main living areas, kitchen, and bathrooms of the house, with carpet in the bedroom areas. Stick with modest colors – white, tan, or natural in the case of wood flooring. Adding a little accent tile in the main living room of the house can greatly increase the “wow” effect for a potential renter / buyer.
  5. The “Essentials”
    Other than paint and flooring, just make sure the major appliances, HVAC, and plumbing are all in good working order. These usually do not sell the house, but people expect them to work. Consider including a home warranty if you will be selling the house, as most people want some assurance that there won’t be any need for major repair the first year of owning the home. Again, spend as little money as possible, just make sure things work, don’t put in a new AC system, or all new plumbing, etc unless you absolutely have to! Ask the professionals you are hiring if there are any alternate solutions than the ones they are proposing (some of these guys just push the most expensive fix).

Sounds too easy huh? Well, you’ll find that if you do some of the work yourself, that it will not be easy. But the theory of it is very simple – focus on paint and flooring, and make sure all the major essentials work. I have had great success pushing properties that are modest, have basic color schemes, nothing outlandish. Unless you go into high priced homes (which I will discourage you from doing), most people will be fine with basic colors, or they will change them on their own. Don’t don’t don’t waste time picking colors, etc. Stick to the basics!

If any of this seems confusing, or you have any questions or comments, please leave them below. Stay tuned for the next article in the series on Renting Properties.

5 thoughts on “Property Rehabbing

  1. Pingback: Passive Income in Real Estate

  2. In regards to property rehabbing,
    I have found a house on pre-forclosure and am looking at purchasing it. Can I apply for government grants for rehabbing it after the home is purchased or before it is purchased.

    Also, where does one find these grants without paying an agency to find them for you.

    If they are hard to find what would be a good agency to go threw that is reputable and does not charge a arm and leg.

    Kara

  3. Good question Kara. My wife and I are are new to rehabbing and I would be interested to know what your thoughts were on this too Jeffry.

    Also, we are currently living in our 1st home and we heard about doing a 1039 exchange into investment properties tax-free. I recall A&E’s Flip this House Armando Montelongo said he used this to buy into a property house tax free and live in it for 2 yr’s afterwards selling it 1039 and moving into a higher worth dwelling over and over for the eventual house of their dreams totally paid for. Sounds like a good plan if one doesn’t mind moving every 2 years. What are your thoughts good and bad about this I was wondering?

    Thanks!

    • I am not sure about the 1039 exchange, but you can live in a house for 2 years, sell it and move on, and escape the short term capital gains tax.

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