Here’s what you should think about if you want to rehab and flip a home.
Today I want to talk about different investment opportunities and estimate rehab costs for city and suburb homes.
It can be very beneficial to either knock a home down and build new construction, rehab and flip the home, or hold onto the property and rent it out. When you’re deciding what to do, you need to look at the different costs: plumbing, electrical, flooring, labor, and materials.
Over the last year and a half, we’ve seen the labor and material costs shoot up. You want to buy your materials in bulk so that you get a good price, but a lot of places just don’t have the inventory to allow that. It’s also important to work with a general contractor that you can trust. You’re risking a lot when you work with someone you don’t know. They might be able to do most of the job, but if they can’t finish it, you could end up with a lot of sunk costs.
You also need to know what the market looks like in the home’s area. If four out of five houses on a block are new construction and the last one hasn’t been touched for a while, you know that you can get a good deal. The price point for that home is definitely low, and you can put some money into it to increase that value.
You can probably find a large margin of increase for that home, especially if you’re an agent who is familiar with the area. South Philadelphia, for example, has boomed in the last four years as a lot of development companies have been knocking down old properties and building new ones.
Keep in mind that we are in a seller’s market right now. Rehabbing or building a new home is still considered selling, so if you’re bringing inventory to a high-demand area, you can raise the price. We’ve seen development companies do the same with hundred-unit, multi-zone complexes, but the same still applies to the small-scale development we’re talking about here..
A good book to look at is “The Book on Estimating Rehab Costs” by J. Scott. It breaks down the experiences he has had with different types of homes and talks about what might need to go into them. It can also help you get into an interior designer mindset and consider what you can put in that will give you the most value. If you want to get started, look at examples like this, and start small by flipping one home.
If you’re in a down market, it may not be the best time to flip a home. It might be more like how it is in South Jersey, where you want to hold onto the property and rent it out to tenants. You can get monthly income, and when the market is back up, you can sell the home for a profit.
These examples are important for young investors or even real estate agents to think about. If you are an agent, you probably have some experience with contractors, but you might not have worked with them. Get some referrals from people you know so that you can be sure that the contractors are trustworthy.
If you’re interested in rehabbing, check out J. Scott’s book and look at homes around town that are being rehabbed. If you have any questions about this topic, I’d be happy to answer them. Just call or email me.