AAOA Blog

Secrets to Profitable Income Property Rehabs

Choosing the Right Footprint for an Income Property is Crucial

“We don’t like to loan more than $50,000 for improvement on rehabs,” Paul Carrier of Brookview Financial confides. If an investor is going to spend more than that, the project is going to go beyond six months.  “Our general rule is to keep rehabs to a few weeks,” Paul continues. “Any longer than that and you have to question the soundness of the  investment.”

Investors need to be careful what they pick as a project. 

Here are some projects to avoid:

• 
  
  2 bedroom, 1 bath homes


• 
  
  900 square foot houses


• 
  
  urban homes next to businesses


• 
  
  high end homes

“These homes are just too tough to sell, no matter how hard you work to stage them.  Sure, they may appear as great deals, but you won’t make it back up when you sell. To make small homes marketable, you have to add space: bedrooms and bathrooms. You are going to get into a long wait for building permits, and big expenses that you may not recoup.  To make matters worse, right now we are experiencing material shortages, higher construction costs, and long lines for permits. With expensive homes, there just aren’t enough buyers for a quick sale.”

Which Upgrades Make Sense for an Income Property

“Don’t plan on changing the footprint,” Paul advises. Focus on these updates: 

• 
  
  the kitchen


• 
  
  bathrooms


• 
  
  the furnace, and


• 
  
  the roof. 

Which materials you use depends largely on:

• 
  
  How long you will hold the home.  If you will be selling the property, choose the 3-tab roof over the 40-year options.  You will still meet codes and get the bang you need from your buck without overimproving.


• 
  
  What is in the neighboring homes.  Give the buyer just a little more than they will find in the house for sale down the street. It doesn’t need to be a completely new kitchen, maybe just countertops. 

Aesthetics do count in kitchens and baths.  But these don’t have to be expensive.  “Many of our investors can make a huge impression with little money,” Paul says.  For example, install modern showerheads cost when you have open walls for other upgrades. That only costs about $300, but  buyers get excited about it.

Curb appeal is also important, but it doesn’t have to be expensive. ”A lot of times people just want clean, tidy landscaping. Cleaning the kickplate on the front door is a great impact, and having the windows clean,” Paul says.  And don’t forget to stage a property for buyers.  “It never hurts to have a little music in the background, or fresh-baked cookies,” Paul adds.

See Part Two,Credit Facility Program

See Part Three, Coaching the Rehab Investor

Brookview Financial is a national firm that offers start to finish services to investors, from prequalification to closing. See www.brookviewfinancial.com or call 877-734-2211.

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing.  Find out more at www.joinaaoa.org.

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