That is the question.

Many investors have asked me how to determine whether or not you should rehab a property that needs more than cosmetic rehab. Since the most costly repairs are often not going to put money in your pocket, there are many questions you need to ask yourself before taking the plunge into the deep ocean of rehab.

Good investors know that you make your money when you buy a property; you realize your profit when you sell.  So doing your homework first will create a fantastic opportunity or save you from a financial fiasco.

So if you’re new to the game or are not knowledgeable about foundations, roofs, electrical systems, plumbing systems and heating and air conditioning systems, bring in the experts. Call in a good licensed home inspector, not a handyman. They usually will be able to point out noticeable foundation issues, such as bowed or cracked foundation walls, uneven floors, low water pressure, roof issues and more. Establish relationships with a good plumber, HVAC (heating, ventilation and air conditioning company), and electrician.  Let them know that you rehab homes and will have many future opportunities for them and you would like them to come out and inspect those systems when you have a possible property. Many smaller companies will do it for a minimal service charge or no charge after you start doing business with them.

I recommend having a roofer, HVAC, plumber and electrician come out and check out those systems if they are older than 15 years old. Regardless of the “conditions” of the sale, it is well worth a few hundred dollars to have specialists come in and give you their professional opinions of the state of those systems. It is less costly than any legal action you would have to take after closing if something was not disclosed prior by the seller.

Finished basements make it difficult to see many structural issues. Musty basements, visible mold, water lines around the basement walls, furnace, or washer and dryer, are telltale signs of water issues and other problems. Uneven floors on the main or second floor and cracks in the walls are indications of potentially costly structural issues that you may need to address.

If you or your inspector notices structural issues you need to bring in a structural engineer. They can give you a much more detailed opinion of what is going on structurally than a house inspector. Though they are more costly than home inspectors, their knowledge and expertise in this area will help you make an informed decision.

With all the “do it yourself” plumbers, electricians and a myriad of other projects the average homeowner tackles to save money, you don’t want to miss some of the nightmarish handiwork these do-it-yourselfers leave behind. Your local trades people will know the local codes and point out what needs to be done to bring things up to code. 

SHOULD I BUY IT? It all comes down to the bottom line. How much will it cost to repair the identified issues? What can you sell the house for if these issues are repaired and the house is brought up to at least the neighborhood standards? What is the profit that you want or need to make? Most of the issues I have been discussing are not things that new homeowners are going to notice. Fixing structural issues, flooding problems, electrical, plumbing, and roof problems do not generally add to the resale value of the home. It will be the cosmetic enhancements that will add value to your investment.

TO REHAB OR NOT TO REHAB…

So here we are again, back where we started. You need to make your money when you buy. By doing your homework before you buy, you will be able to make an informed decision as to what you can pay for the property. If the profit is still there and you are ready to take on the project…REHAB! If not, keep on looking. You will sleep better at night knowing you made a wise decision either way.

Written by: Scott Rubin, 5 Star Properties, www.a5starproperty.com

With permission by www.InvestWithPassion.com