While not all distressed or abandoned properties will need extensive rehabbing, most properties will benefit from being touched up. The question many of you may have is: What makes the most sense and will do the most to help my bottom line?
Before answering that question, I think it's critical that I point out that rehabbing for maximum profit and rehabbing for maximum savings are two very different things. While you want to save as much money as possible when rehabbing a property, the specific decisions you make can have a massive impact on your bottom line.
In real estate investing, the difference between mediocrity and greatness often depends on your understanding of human psychology as it relates to your prospective tenants or purchasers. In other words, you might be able to get it done cheaper, but by doing so, could very well needlessly cost yourself extra profits!
Let me give you a prime example:
Pretend that you're in the market for a home in which to live. In this case, it doesn't much matter whether you're interested in buying or renting. Assume that you have two properties that are equal in every way – with one glaring exception: The kitchen in one property has a cheap, rather ordinary laminate countertop, while the second property has ceramic tile – nothing fancy, but ceramic just the same.
Which property do you think you would prefer?
If you're at all like most people, the average person would much prefer ceramic over laminate. The reason? It just looks better, it lasts longer, and it isn't nearly as susceptible to cuts, nicks, scratches, and stains as laminate.
Buying and renting decisions do involve cost, but they are also emotional decisions. People tend to appreciate things that play to their emotions and nicer-looking things do. So, while it might be more cost-effective to go cheap on certain items, because of the emotions involved in the home-selection process, the minor difference in price between the two types of countertops can be more than offset by the increased value that your prospective tenant or buyer will place on properties with desirable amenities.
I'm going to give you some solid advice based upon my real-world investing experiences about what rehab items are the most profitable based on psychological evidence. I'll tell you the best rooms to rehab and – more importantly – the reasons that you might want to consider slightly more expensive options.
Best Rehab Returns
First, there are two primary rooms of the home that absolutely must be winners if you are going to be a successful real estate investor. Do you know what they are? Is the The Living Room and Master Bedroom? While it doesn't hurt for these rooms to look nice, it won't necessarily be a deal breaker if they are rather ordinary, because these rooms can largely be enhanced by the appearance of your personal property and some minor decorating skills.
However, the Kitchen and the Master Bathroom are the two rooms that appeal most to the emotions and are the real profit centers of any real estate rehab. There are several reasons for this, but the primary reasons are because so much family time takes place around the kitchen table.
Think about it for the minute…
The kitchen is in many ways the heart and soul of a house. Husbands and wives make key financial decisions while seated at the kitchen table, birthdays are celebrated, holidays are enjoyed, and politics are debated.
In short, life – and all of the emotions involved in it – plays out at the kitchen table. As a result, it's imperative that families feel comfortable when seated at the table while they iron out some of the most compelling issues that could possibly come up in the course of a lifetime.
Because the kitchen is the emotional pulse of the family unit, you want to make this room warm and inviting. It won't cost nearly as much as you might think, and the return on investment can stagger the imagination.
While it will probably be overkill to spring for brand new, custom-built cabinets, there are still a few cost-effective solutions available that can increase the appeal of a kitchen without breaking the bank. New handles and some fresh, light-colored stain or paint (if you're dealing with “paint grade” cabinets) can give the appearance of newness and can do wonders for the overall appearance of the kitchen. If the cabinets truly appear old, you can have cabinets re-faced for a fraction of the cost of new ones.
At a bare minimum, you should consider a good quality linoleum floor. To go the extra mile, tile is better – and can frequently be purchased at steep discounts at a major chain home improvement stores. A durable floor can really do wonders for the perceived value of a property because chairs can cause unintended damage to linoleum as a result of being pushed or scraped across the surface.
While tile countertops can be a real enhancement to the appeal of a kitchen, making the counter the focal point of the room can be the room enhancement that puts the decision to buy or rent your house over the top.
The importance of good lighting can't be overstressed. If you're showing a house, a simple thing like using higher wattage light bulbs might be helpful. If you do this, don't exceed the manufacturers wattage suggestions. If you're rehabbing, make sure you install plenty of lighting because it tends to make the room warmer and more inviting.
Some things old, some things new…when moving into a new home, Americans like to start out with a clean slate by getting new appliances. If your property has new appliances, even if they're not top-of-the line, it will be much more desirable to a potential buyer or renter than one with old appliances – or none at all. If your plans involve keeping the property as a rental, you might opt not to spend the cash on new appliances.
While men are considered macho creatures who couldn't care less about whether they shower in a bathroom with a garden tub or outside in the yard with a garden hose and a handheld mirror, the truth of the matter is that they are just as appreciative of a nice bathroom as their female counterparts.
Fortunately, bathroom renovations don't have to cost a fortune to have a major impact over the appeal of this very important room. Some examples of cost-effective repairs and installations are things like double-welled sinks, tile floors and countertops – along with plenty of bright light to enable women to “put their face on” in comfort.
I do want to point out a creature comfort consistent with the rapidly-changing health of America. In case you haven't noticed, people are generally much larger than they used to be, so it will be to your benefit to consider “wide-body” shower stalls and toilet stools that aren't built overly close to walls or tucked into extremely tight corners. While smaller shower stalls or corner stools can give average-sized people temporary feelings of claustrophobia, it can be a deal-breaker for plus-sized men and women.
No effective rehab strategy is complete without ensuring that the rest of the house is clean, appealing, and ready for occupancy. You don't have to deficit spend for these modifications, and you would be amazed at the improvement you'll see with a few well-placed superficial repairs.
A fresh coat of paint in other areas of the home – along with clean carpet, new light and electric covers, and other minor repairs will enhance the appearance of the property and increase its visual appeal.
Once you've made these repairs, don't be surprised if demand for your property skyrockets – and the price you're able to command from potential buyers goes through the roof. You might opt to make these repairs yourself or hire a contractor to do them for you. Regardless of what you do, ensure that you rehab smart by following this simple guide.
You'll also want to ensure that you purchase your rehabbing materials from a vendor who can enable you to save money and increase your profitability. This is a common practice that we instill in all our students.
Take the time learn more about real estate investing rehabbing best practices that can enable you to build a fat investing portfolio – today!