The biggest question is how to estimate the cost of repairs to figure out what to sell the property for. When we do a walk through, we look at four things: roof, structure, plumbing and electrical. These are the biggest expense to add with all require permits.
Roof: Look at the fascia and soffit for signs for drooping, wood rot or termite damage. Look at the top of the roof for loose shingles & ridge caps. Look at the ceilings for water stains or discolorations or holes.
Structure: We walk around the property looking for cracks in the foundation. If you've got a structural problem, it's expensive ($7,500 - $30,000) to repair and could kill your deal.
Plumbing: Turn water on for at least 30 minutes. Look under the sinks in the kitchen and bathrooms. Look at the floor to see if there are any uneven spots and shower stalls for leaks. Most of all--look outside the property for any large trees with roots that are growing under the house. That could cause major plumbing headaches.
Electrical: Fuse box or breakers? How long since the electrical was updated? Check the air conditioning unit. Check for exposed wiring. Check for burned outlets. Check for discoloration or bubbling around drywall near outlets. If extra electrical has been done in the garage or home, check the breaker box for doubling up on circuits. (Always have an electrician look at electric).
Pool: One of the biggest risks are underground gas leaks if a heated pool. Make sure all utilities are ON and the gas company comes out before & after to inspect repairs done to pool equipment. Minor repairs can be done to the pool equipment, which can later cause more leaks underground. Check the basics like plaster for cracks and peeling. Many renovators try to get away with just an acid wash but replastering a pool can cost 10k to 30k so pools can really hurt the investors net return if not calculated properly. A demo can be tricky.
Tile or carpet? Depending on the area and demographics, buyers prefer one or the other. Best to know which one. If you're in an elderly community, many assets won't sell if they are afraid of falling, so tile or wood isn't always best.
Paint & Landscaping: Assume you will always have to paint inside and out and do some minor landscaping.
Neighborhood Review: Don't forget to take the pulse of the neighborhood. Pride of ownership or run down properties? Close to public transportation, shopping, and schools?
2. Handyman or Licensed Contractor
There are two ways to renovate: Do it yourself or hire someone. There are pros and cons to both. If you can do it, you save money on labor to spend on other repairs that need licensed contractors. The downside of trying to fix repairs that require a licensed contractor is if you don't repair according to code, you could end up with major problems and possible recourse from the buyers. Even with minor repairs, if you have a day job that only leaves you nights and weekends. Your repairs could drag on for months causing thousands to your bottom line. Time is money! The faster you get it done, the larger your net profits. All the more reason to get out and find your assets and let the professionals do the rest. With renovations, you have the cost of labor; and you have to make sure they do a good job; but they can do it in a lot less time than it would take you- that needs to be recognized. That means you sell it faster and move on to your next deal. Building your team properly is vital to becoming a successful renovator. If you try and find contractors on your own, be knowledgeable in the work you offering. Get several bids. Cheapest isn't always best. They will use cheaper materials and unlicensed labor and the recourse could be substantial to the investor. Your long term goal is to make money and reduce the risks of recourse. If contractors don't get paid, they have recourse against the investor, so make sure you get confirmation your GC is paying crews timely to avoid mechanics liens. You can manage the project yourself or have a professional real estate brokerage help. SoCal Superior Properties Inc. specializes in out of state investors and knows how to manage, pay crews and asset management.
3. Logistics, Supplies & Expenses
Pay contractors a bit extra to help you get the basic supplies. It's not uncommon to make four or five trips daily to get supplies. Most contractors expect all the supplies to be there for them, but make sure they bring their own tools for the job. Using gift cards is a good way to keep control of their purchases. Give your project manager a $500 gift card from Home Depot or Lowes. Once they give you all the receipts, you can get them another gift card. Only offer this to contractors your know. Otherwise, make the trips yourself, however, again, investors main focus should be acquiring more properties. Purchasing these materials is very labor intensive. SoCal Superior Properties Asset Manager is skilled in material outlines and orders to keep costs down, with the least fall off. Windows, Tile, or Carpet: DON'T buy those from Home Depot. Remember, you pay for the convenience and that is about double from what you'll pay from the "mom and pop" stores. For example: At Home Depot, the approx cost per window was $105 (double-hung). A smaller store: $56 per window. However buying a bunch of cleaning supplies at a "mom and pop" is twice the price. At Home Depot or Lowes those are half the cost. So, big ticket items find a "mom and pop," but for everything else, use Home Depot or Lowes. (On-line) The site stores have basics only.
4. Keep a Low Profile
When you are renovating, cover all the windows. Keep the doors closed. Take your signs off the car when you are there. Don't let your contractors show up in commercial vehicles. Keep the music to a minimum. Don't have more than two cars in the driveway. Always make sure they clean up at the end of the day. Why? Code enforcement. They're always looking for homes being renovated to make sure all the permits are in order. Neighbor will complain, especially if projects begin too early, end too late especially on the weekends. Lastly, avoiding vandalism. Buy solar lights to confuse vandals, to deter them from a vacant project. They will remove windows and search for materials.
5. Permit Issues
Speaking of permits, you really need them for structure, roof, electrical, plumbing, windows & large tear downs. You have to weigh your risks and code enforcement is another area not worth the risk. Each city will have their variances.
6. Dead lawn policy
If your assets are within certain counties, there are no dead lawn policies for the front, side and back lawns. Code enforcers can view the asset via satellite. Most liens are 10k - 16k for a notice of substandard. Make sure that landscaping is installed after purchase or doesn't die, while renovations are being done to avoid any clouds on title before it's sold. Many times, the notice of substandard filed, doesn't show up until after the property is sold. A BIG risk for the investor, when the buyer brings this lawsuit forward. In 2016 due to CA droughts these enforcements should be researched for updates, so this is a current generalization. In 2017, the drought risk was removed, so always check current laws for each city & county.
7. Sign on the yard
Don't start advertising until you are 95% done with the house. Some people will say advertise the moment you buy the property. The problem is having potential buyers on the property where they can get hurt. Also most buyers don't have the proper vision to imagine the finished product. Most won't make an offer until the work is finished. And, they are a distraction and liability to the investor & crews.
8. Negotiating with Homeowners
SoCal Superior Properties will sell your home at a discounted rate. If there isn't enough room in the deal, we will still help the investor with contracts & negotiations for drastically discounted rates. This allows you our errors & omission insurance and the relief that your contracts are done correctly. Buyers have a few years they can come back with a lawsuit for many reasons, so it's really not worth the risk, not to use Department of Real Estate contracts and trained experts that knows how to negotiate properly. SoCal Superior Properties Inc. has trained professionals with trained knowledge to work with investors that look at your long term goals, different from traditional sales agents looking for that fast retail commission split, that won't negotiate commissions. Our agents don't pay franchise fees and have the authority to reduce their commissions to suit their clients needs without broker approval because they are experts in their field.
When receiving real estate advice, individuals should always seek their own legal and tax advice pertaining to each persons financial portfolio. We are a real estate solutions and investment brokerage, that specialize in helping homeowners in many ways.
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