The Five Most Important Qualities Of A Rehab Property

Not every property is a great rehab property. As a rehabber there is often a thin line between success and disappointment. Your success starts with choosing the right property to work on.  You can have a great property but if the location is poor you won’t get the most out of it. The right property has a mix of desirable location, affordability, layout and potential profit. If the property is lacking in one of these areas it may sit on the market for a very long time.  Here are the five most important qualities of a rehab property.

  • Location. The importance of a good location with your rehab property cannot be understated. Anyone associated with real estate has probably heard about the expression regarding the three most important factors when buying. The location of the property is that important. If you have the opportunity to acquire a property in the middle of nowhere at a severe discount it may not be as good of a deal as you think. When rehabbing you need to think about the big picture. You are looking to add value and sell for a profit. The best way to do this is by buying in locations that are in demand. Look for properties located near good schools, access to retail and close to major highways. It is always better to buy the worst house on the best block than the other way around. End buyers will always gravitate towards properties in better locations. As a rehabber you should have the same mentality.
  • Specific Markets. Inside of the location you choose you should also focus on the specific market. A lot can change within a zip code in just a couple of miles. You need to avoid areas of high crime and sagging demographics. Getting a good deal on a property in a market with rising foreclosures and low unemployment is a recipe for disaster. It is important to do your homework and look for specific markets that are on the rise. Take a look at the number of new housing permits or if there are any major employers slated to hit the market. You should also drive the street of the property and see what types of homes surround the subject property. Your work can be perfect but if there are train tracks in the back yard it may not make a difference. Properties located closely to your subject property will be the ones that buyers compare to your property. If they are rundown and beat up it will have a definite impact on your end sales price. Never make any assumptions about a property based solely on the zip code. Do your homework and always know what market you are buying in.
  • Consider Demand. One of the biggest mistakes that rehabbers make is thinking about their personal preferences when buying. Generally speaking you are looking to buy and rehab properties that create the largest demand possible. A unique box house may seem cool to you but this severely limits your end buyer pool. While it is true that you can change almost anything with a property there are some things that are out of your control. Bad floor plans, unique property structure and poor back yard space are often unfixable. Buying the same type of cookie cutter homes as everyone else in the market may be boring to you but if those are selling on your market you need to listen to it. You can think about adding your personal flair to the interior of the property but even then you should err on the side of caution. What you look for in your personal property can be much different than what you look for with a rehab property.
  • Think Profit. As simple as it sounds you are looking for properties where you can add value. Getting a property at a discount is only part of your rehabbing success. When buying a rehab you need to always think about the numbers. There are three major areas where you can realize a profit. The first is with your acquisition price. Obviously you need to get the property at a price that makes sense for you. The second is with the work you do and the improvements you make. Doing the right work makes all the difference. The third piece is the end sales price. You need to be able to get your rehab sold quickly and at the price you desire. If the numbers are weak in any one of these areas you should consider looking elsewhere. The name of the game is to scratch out a profit and not just close a deal.
  • Timeframe. How quickly you can turn the property around is almost as important as the price. There will be times when a potential deal comes your way that will take a while to close. The numbers may make sense but you are looking at three months just for the acquisition. There is nothing saying you shouldn’t pursue this but think about what you may be giving up. In the same time it takes to buy, rehab and sell that deal you may be able to close two other properties. You need to look at some of the sales in the market over the last 90 days. Look at the time on the market for these listings. Time really is money in the rehab world and has to be a consideration when buying.

There is a lot more to consider with rehabs than just the purchase price. Take a look at these five factors before you make your next rehab purchase.