As a real estate broker in my area of northern New York state, I come across some rather interesting…OK, questionable, investor-renovated properties. Thinking they had the knowledge, foresight and taste to capitalize on purchasing a “fixer-upper,” and rehabbing it, then placing it on the market for a quick sale, these property investors are nothing if not fearless. I would say that any property investor burning to rip-it-up and find a great rehab project to invest in and redo, must be prepared to go in with as much fear and trepidation as possible. Self-preservation of your own capital is of the utmost importance. And too often I see botched rehab jobs up close and terrifyingly personal…
A fun, yet instructional horror story
The latest horror story I ran across was this past weekend. I was showing properties to a young professional woman looking to purchase her first home. One of the local homes we toured was a property investor-rehab job. Neat, clean and presentable? You bet! And that was about it. The nice first impression the property investor so desperately tried to make – and did very well, I might add – soon came crashing to the ground as my potential buyer started to tick off the drawbacks of the renovation. The investor scored high marks for painting every room a different, subtle earth color, but then things fell apart quickly…
Functionality, functionality, functionality
Oh, did I mention functionality was severely lacking in this particular redo? It started with a kitchen that was completely redone, but lacked much sense of design thought. From a serious lack of cabinetry, to installing ceramic wall tiles on an area between sets of wall cabinets. But the tiles were above the kitchen sink. WTF??? What were the tiles supposed to protect? Why wasn’t the range top moved to this section (or more aptly, vice-versa? And for heaven’s sake, why have a portable, tiny island? Ludicrous. If you’re going to be investing in a total kitchen renovation, make sure you get some expert advice. At the very least, design and plan it out with the help of your cabinet supplier. (Yes, Home Depot and Lowes have excellent, experienced pros who can assist admirably in this endeavor.)
If you’re going to redo an entire house, make sure basic amenities are there – or at the very least, provide the essentials to allow a potential buyer to not be left in the dark. Most buyers don’t have foresight and practice in renovating. You supposedly do. In this particular home, there was no washer/dryer. That’s not a deal killer per see – though having basic necessities is still pretty important. But this home did not even have a washer/dryer hook-up. That boys and girls, is a major sin. And one that the property investors for this property will end up regretting not having addressed.
Psychological effects on buyers
In addition, simple items left out can have a major downward psychological effect on any potential buyer. In the house in this example (a Cape Cod style home), the second floor access stairs to the bedrooms was missing a railing. Now, that’s a simple fix. But it left my buyers wondering how the property could have gotten a Certificate Of Occupancy (C/O) from the local building department after all the renovations, if something as basic and required as a handrail up stairs to habitable space was not there. (Answer – there’s no way they could have gotten their C/O. That begs the next question – was a building permit for all the renovations ever applied for by the property investors? If not, any deal with a potential buyer will get hung up before closing – creating a major problem for all concerned.)
So you may have a sense of knowing what the current mass of buyers desires and likes, you may have good design sense, and you may understand basic functionality. But unless you have all three, or can at the very least rely on the help of other pros who do have what you lack, be very wary of entering the rehab arena. Of course, the most obvious of all these disciplines – the cost structure of the entire project best be something that you can afford, and that will return – easily – two to three times the amount you’re investing. Otherwise, skip the project, and keep looking for some other investment property in need of work that will produce the returns you need.
photos courtesy of kristinandcory.com, home.howstuffworks.com, brokersbestmtg.com, home.howstuffworks.com, aglasgowskeptic.blogspot.com, brokersbestmtg.com, buildingmoxie.com