You Found a Deal... Now What?

Posted By: Derek Marlin ICOR Blog & News ,

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.

MAJOR SYSTEMS:

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.

KEY TAKEAWAYS
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.