You Found a Deal... Now What?
We’ve cleared what some say is the most significant hurdle and found a deal but correctly estimating the rehab budget is key to determining if the property is indeed a good deal. The following three monthly articles will detail how to determine a rehab budget best. Our goal is to inspect a property in 60 minutes on average and be within 95% accuracy when determining the budget so you can decide on the spot if moving forward makes sense for your investment guidelines.
The ELEVATION Rehab budget estimator is a two-sheet document that helps investors take a systematic approach to rehab estimation. Your #1 step in determining a proper rehab budget is to focus on the six major property systems as they can total 60%+ of your budget. These systems are:
• Structural Components – Are there cracks in the foundation wall(s) on the exterior or interior of the home? Does the property have sloping/uneven/heaving floors or bowing walls? An excellent structural engineer is well worth the $300-$500 for a professional opinion and
recommendations on how your experienced contractor can repair the potential problems.
• Sewer Line – Always hire a plumber or sewer scope company to camera the line and provide a video and written report. Repairs can range from simple spot repairs to a whole line replacement. The property sewer line can also be an independent repair from the connection to the City mainline via a tap connection.
• Roof – Only one layer of shingles is permitted on a property, and you want to look for sagging roof lines, significant shingle damage, old vents, and flashing problems, along with possible skylight leaking evidence.
• Windows – Older aluminum single pane windows typically need to be replaced to achieve maximum After Repair Value (ARV). Installing new double pane windows, which are white (or color for higher-end properties) vinyl in construction with new screens, are ideal for helping with energy efficiency and curb appeal. Adding a window of egress to a basement bedroom adds a tremendous amount of value.
• HVAC – A new furnace, boiler, AC unit, and water heater are also major systems contributing to the best sales price after replacement. When finishing a basement, you’ll also want to include new ductwork, electrical, and plumbing in your budget. Tankless water heaters can be a great way to save space in smaller properties and help push resale value.
• Electrical Panel – Two dangerous brands of panels are Federal Pacific and Stab-Loc, which are fire hazards and can crush a sale. Installing a new panel benefits buyers from a safety and utility perspective.
It’s tempting to start your property inspection when you walk in the door or envisioning your buyer’s dream kitchen. Still, when systems can make or break a deal, it’s key to properly budget for the best ROI and address the more expensive areas for potential buyers.