If you want to rehab a house, what size and price house would you choose? Have you watched the TV show about real estate agents who sell to the rich and famous? Well, do you have contacts to the rich and famous? Do you have the money to fix up a house that size? The larger and the higher end the house, the more money you need to put in to make money on the back side when you sell.
Traditionally, you don’t want to even buy the largest house in the neighborhood even if it isn’t a mansion. Why? Because the average price of the other houses will hold down the price of the larger house. If that same house were in a neighborhood with larger houses the same size as it, it would sell for more.
In addition, there is a limited market for the large homes. Just not that many people can afford them. By going for the average price home you have a much larger market of people who will be interested in buying. That also means you can probably sell faster which is important because there are holding costs involved. The faster you sell, the lower the holding costs and the more profit you make.
What you want to do is find out what the average home price is an area and look for a house that would be worth that fixed up but you can get for a discount because of some problem, whether that is repairs needed or foreclosure or something else. You want an average house with other average houses nearby. Below is just one example.
If you are in a trade and doing a rehab then you probably know the prices pretty well already. However, if you are fairly new to rehabs, you need to get an idea of what repairs will cost. That is important for you to know before you bid on a property.
Find 2 or 3 contractors. When you are trying to figure out your bid, have them come in and give you an estimate. This will help prevent you from losing money by bidding too high on a property and then finding out that by the time you have finished rehabbing you have spent more than what you can sell it for. Not good. A saying in the rehab business is that you make your money when you buy not when you sell. In other words, you have to buy right.
On your first rehab, ask the contractors what they would do to fix it up. Make sure you walk through the house with the contractors and talk to them and ask questions. Each will have different ideas which you can pick and choose from. The only problem is that you will get estimates that are hard to compare because they contain different tasks.
After you have done one or two and know what repairs you want done, you can give them a list of repairs to be made and each will have the same list so you can compare one to the other more easily. Still be open to suggestions they may have for you. They could save you money with an idea or suggest something that will increase the attractiveness of the house and therefore the sale price.