Welcome to “Tarl's Weekly Insights," my take on real estate today.
Hey there,
Welcome to Tarl’s Weekly Insights, my take on real estate today.
In these newsletters, we'll dive deep into the real estate world, share valuable investment strategies, and explore the craziness that life has thrown my way. Whether it's my struggle and journey of overcoming flipping, deciphering the insanity of the market, successful strategies being used in REI, or just me making fun of social media real estate investors.
I can't wait to share it all with you...
What level of rehab do I do on my properties right now?
I just bought a property in Savannah GA that needs a down to the studs remodel, but can also be changed from a 2bed/1bath to a 3bed/1bath during the remodel. Do I do the extra work to make it a 3/1 or do I leave it a 2/1?
This sort of challenge has plagued house flippers throughout the years and will continue to pester us so long as we remain in this business. To dive even deeper into the question, the root challenge is "What level of rehab do I do to this property?!"
For many many years, my answer was always "Do the rehab to the highest and best use of the property...without adding an addition..." I always seemed to want to push for the highest After Repair Value (ARV), which meant doing the most amount of rehab...so long as we didn't add an addition. Despite my desire to do the most, and push the ARV, I still had a limit to how far I'd go on a remodel. Why? Simple, my business systems did not support submitting architectural plans for permits and then sourcing a contractor that could handle the plans. It just was not in our processes, and we had no desire to change it. In my market, additions could take 3-6 months for permitting...yuck!
Despite the fact that I did many, many projects at their highest and best use (max the ARV and rehab), I found that this is not always the answer...in fact, sometimes doing less is more.
So what is the answer to the question about "what level of rehab should I do?" Well, the answer totally depends on YOU! Here are some things to consider when determining the level of rehab.
- What is your experience level? Most of us can higher a GC to do a $20k cosmetic scope of work on a 1990 suburban 3bed/2bath house. However, does your skill allow for a $200k studs out remodel on a 1910 craftsman home where you plan to dig out the basement to add sqft and fully upgrade the entire house infrastructure while subbing most of the work out in order to stay on budget? Probably not...Look in the mirror and ask yourself if YOU are the right person for this project based on experience. If not, find a partner for the deal who is...or pass on the deal. Learning construction with your family's retirement is not ideal.
- What is your timeline? Do you have a ticking clock in order to complete this project? Perhaps your area has major weather concerns in the winter, and it's almost impossible to get work done? Perhaps you have a short window of time due to a hard money loan? Maybe you want to turn your money quickly? Time is a major factor when determining the level of rehab. Why? Not only due to the size of the project, but also the requirements for permits. Typically a interior cosmetic remodeling is a very simple (if even required) permit process, yet a studs-out remodel or addition can take months to get a permit (depending on the city). Be realistic with your timelines and plan ahead.
- What do the comps say? This is probably the most important question. Making a house have the most sq ft and highest levels of finish in a neighborhood doesn't always mean you will get the highest price. Many times I have seen newer investors make this mistake. Is the house an 'outlier' for that neighborhood? Are all the houses 3bed/2bath 1500 sq ft ranch style homes, and yours is a 5bed/4bath 3000 sq ft house with two additions? Does that mean your house is worth double due to double sq ft? The answer is...pretty much NEVER! There is almost always a CAP to what a house is worth in a neighborhood. If the top-level price of a neighborhood is $300k, then that usually means that someone with $400k+ is going to look in a different/better neighborhood...Bottom line, be sure you don't overdo your rehab and check comps...
- What is your current pipeline? This question is more for you experienced full-time addicted investors like myself. It's so easy to overlook your current pipeline because you found another shiny deal! Be sure to always be aware of the number of jobs you have currently, plus coming up. Can your contractors handle another job, or do you need to source more? Do you have the bandwidth to handle this? Do you have the capital to take on another project and still meet your expenses? So many variables on this one based on your business model and current setup, so be aware, please! Many many house flippers have met their doom because they kept going bigger and going for more...
These are some of the most important questions to ask when determining how far to take a rehab on a project. There are more, but these are the ones I ask constantly. So...what about this 2 bed/1 bath in Savannah I just bought? Do I make it a 3 bed/1 bath? My answer...nope! Why? Because I live in Austin TX and don't want to deal with that crap from afar at the moment. Sometimes, the level of rehab you need to do is determined by your level of desire for the work involved, not just the amount of money you can make.
Did you know that I lend money to awesome real estate investors like yourself? Have a project coming up? Want to refinance out of your hard money? Hit my team up at Fixated Funding LLC. You can go to FixatedFunding.com or email my sales manager Julian Perry directly at [email protected] and he will take care of you. We close fast, and keep things simple.
I will also be hosting a FREE webinar on the Future of House Flipping in 2024, including the fundamentals of what you need to succeed in your business today!
Let's stay connected! Find me on social media at @tarlyarber and stay updated with additional videos and content.
That's it for this edition of Tarl's Weekly Insights! Stay tuned for more each week!
Talk Soon,
Tarl Yarber
