Properties purchased with intent to repair, update and re-sell are treated slightly different than “Tax Sale” properties.
From a rehabber’s perspective, the most time consuming and important part of the process is finding the right house and negotiating the right price.
It can easily take three to six hours to properly evaluate a property just to determine if it’s worth conducting additional pre-purchase inspections.
If the property looks promising, the preliminary work is just beginning. Before the final offer amount is established, we conduct two separate inspections. One to identify building code violations and required repairs, and the other to determine the extent of necessary cosmetic updates to add value and appeal. Not only are inspections time consuming, they’re expensive. Worst of all, the inspections must be performed before making the final offer and before knowing if the seller will accept our offer.
At this point in the process nine to twelve hours of time and about $700 in inspections fees will have been invested.
However, a thorough understanding of issues, challenges and costs aid in negotiating a price which will help insure a respectable profit.
After the inspections, we meet with the various tradesman to obtain work quotes.
Before making a final offer, we know the cost of repairs and updates. This step translates into an addition eight hours of time. Once we have a thorough understanding of the updates and repairs, along with the costs of materials and labor, we research the recently sold properties of comparable homes on the street and immediate area. At this point we know the likely future sale price and the cost of materials and labor. Our goal is to purchase the property at 42% to 65% of the after repaired value.