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Rehabbing Florida Real Estate

Rehabbing Florida real estate

Rehabbing Florida Homes for Profit

Making minor repairs to a home might sound like nothing but headaches, and lots of investors want to keep this myth alive. There is enough competition for "fixer-up ers" as it is. They do not want it to get out how profitable these homes can be.

There are many homes that do not need extensive repairs but can be bought for well under their actual value. Often times, the owner cannot afford the repairs or has already moved out without making them. The bank or a financially troubled owner is forced to sell substantially below fair market value.

Keep in mind that some of these home just need cosmetic work and replacement of cabinets, appliances or carpets.

There are many ways you can take advantage of these situations. You can:

Do the work yourself if it isn't too extensive and/or you have the skills. I am not talking about rewiring the house. It might involve painting, landscaping or just cleaning the place up.
Contract the work out as long as you know the extent of the needed repairs. You can get estimates before you make an offer. We have contractors who will do that for you. Some of our properties already have repair estimates prepared.
Resell the home to another investor who is looking for a house to rehab (very common). We have investors who simply "flip" the house for a profit to someone else looking to do the work.
Partner with the owner by providing the capital to make the repairs and then sharing in the profits after the home is sold. As long as the contract is properly prepared, you will be protected. A lot of owners do not want to entertain low ball offers and resent the fact that you will be making money off of their misfortune. This is a way to make money and grab properties without much competition.

How Do I Find These Homes?

Sometimes you come across them when looking at properties. You walk into a home and see that the cabinets are missing, there is no air conditioner and the plumbing fixtures have been removed. Or perhaps on inspection you find a bad roof.

More often, these homes are presented to us by wholesalers that want to take a fast profit. There is still a lot of room to make money with them.

For example, we recently saw a duplex (two apartments in one common building) with an asking price of $59,000. It needed about $10,000 of work (a contractor had already submitted the estimates to us). The two apartments will rent for about $800 a month each.

I will not even bother to do the math for you. You already know this is a potential cash cow.

Cosmetic Rehabbing

If you are handy or want to have a contractor do repairs, there is certainly an opportunity for you. However, many of you will be more comfortable with superficial changes.

You have to be careful when upgrading or modernizing a home. You want to be sure you bought it cheap enough so that the added costs will not eliminate your profits.

I have seen many homes that were in general good repair. But, just needed to be brought up to date.

I realize that you could sell a house for less and make the upgrades someone else's problem. But, you could be leaving money on the table with that approach.

For example, I came across a home in a nice neighborhood with an asking price of $275,000. My client ran comps for the area and found that there were plenty of homes for sale that have been completely updated at this price, and they were not selling.

To make a long story a bit shorter, he ended up buying the home for $210,000. Afterward, he:

Painted the house (interior and exterior). At a cost of $2,500 (he did the interior himself).

Next, he refaced the cabinets, put in granite tile and had all the grout cleaned. The cost was $5,000. He also put in new appliances for $3,500.

The pool was resurfaced for $1,200 and the roof and all decks were power washed.

The landscaping was freshened and the lawn quickly came back after regular watering.

All in all he spent about $15,000 on the house. But it was clean and inviting - ready to move in condition.

The house was sold for $245,000. He held the house for two months and made a profit of $20,000.

Creating an Income Property

Keep in mind that rehabbing a property does not mean you need to or even should sell it afterwards. Putting a renter into it afterwards is a sound strategy. I have loads of investors who want a solid property with a tenant in place. When you are ready, we will sell it for you.

Partnering

You have numerous homeowners that can no longer stay in their homes. In many instances they are victims of the economy and not a greedy speculator that got caught when the market dropped.

This homeowner is bitter and resents the "low ball" offers he has been getting. But, his home needs work and he cannot afford to do it and does not have the credit to get a loan. He knows you are going to make some minor repairs and sell the home for a nice profit. This just makes him angrier.

You could continue to work on him and hope that he finally sells the house to you at a great price or you could decide to make him an offer he will probably not refuse.

Partnering would entail you doing the repairs (all or part) and then splitting the profit on the sale of the home (after you deduct expenses) with the owner.

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The information on this web site is provided as a guide for general informational purposes only and is not intended to be tax or legal advice. It is deemed reliable but not guaranteed. Please consult with your own attorney, tax advisor and/or accountant for specific advice. Martin Unger is a licensed sales associate in the state of Florida and works with Royal Florida Realty.