Think-Realty-Magazine-January-2018

THE BIG PICTURE

GOOD DEALS IN HOT MARKETS

Good Deals in Hot Markets are Getting Old, Literally THE KEY TO GETTING SOLID RETURNS IN HOT MARKETS IS BUYING CENTURY-OLD HOUSES.

to finish. That means you need to know exactly what you are going to be dealing with when you tackle a home that has not been updated in at least half a century, if not more. Furthermore, your budget had better have some room for the major undertaking you’ve just assigned yourself. In DFW, investors are having to go for the older stuff on the market because that is just all that is out there. We are con- stantly going out into older, nice neigh- borhoods built in the 1950s and earlier, to meet the kids of the folks who lived in those homes. These people’s parents lived in the homes their entire lives, and they have either moved out into active or assisted living or have recently passed. When you go into the home, you see a

house that was last updated in the 1950s or 1960s. That means foil wallpaper, popcorn on the ceilings, and gold or brass fixtures everywhere. You step on green shag carpet. You step back in time, except that you also step into a house worth $450,000 to $500,000 after repairs and you know you are about to sink $120,000 into it to bring it up to date. A COMPLETE OVERHAUL The important thing to remember when you are dealing with an older home is that you are about to go big on this project. Rehabbing a home built before 1950 basically means you are going to have to redo everything in the home because nothing in there is going to be up to current, modern standards. This means new electric. This means replumbing. You probably need to ex- pect to reconfigure the bathrooms and usually the entire layout of the home. Bathrooms and plumbing are partic- ularly troublesome in houses from this era because the pipes are made of cast iron, which often just crumbles in your hands when you try to join it with PVC pipe. Never assume you will be able to “tie” old and new pipes together. If you do, you will usually find yourself woefully over budget because your cast iron plumbing will give out and you will have to jackhammer the floors throughout the house and replace the entire system. Do not fool yourself into thinking that I’m describing a worst-case sce- nario when I’m talking about jackham- mering, either. This is the kind of work that we are doing every day in most of the older rehabs that we handle in our market. Even if the plumbing is sound, there is a test called a hydrostatic test that many cities require properties to pass before they are considered up to code. A home with cast iron plumbing will very, very seldom pass this test even if the pipes are still sound.

These days, I have an entire crew dedicated specifically to jackhammering floors and replacing sewer lines. This is not a one-off kind of thing. BE PREPARED TO GO “ALL IN” If you want to get a good deal in a hot market, then being willing to go the extra mile to renovate an older home may be the way to do so successfully. However, when you add years to the age of the property, you need to add zeros to the cost of your rehab. Just to address the probable plumbing issues I described here, we recommend clients put in an ex- tra $9,000 or, if the home is a large one, even more, into their budget up front. If some of that money doesn’t get spent, that’s great, but if you don’t allocate it in advance then you will probably find yourself short in most old-home rehabs. TIMING IS EVERYTHING Finally, when you get that great deal on an older home, take a moment to evaluate how long your rehab will take and what it will cost you to “carry” that property during the renovation and while it is listed. Just because a market is hot does not mean that every home will sell overnight. In fact, in the DFW market and other thriving housing markets across the country, higher-end homes ($500,000 or higher, depending on the market) are starting to sit a little longer on the market than they have been. This is due to several factors, including: •  It’s getting harder to get appraisals where sellers want them for high- end homes

by Blake Johnson

E

homes built as far back as the 1920s.

starting to see wherein a lot of investors were buying up homes built in the 1950s and updating them. Then, they would either hold them as long-term rentals or sell them to retail buyers. Now, things are getting even more extreme. I’m watch- ing investors undertake major rehabs on

arlier this year, I predicted real estate investors in hot housing

markets like Dallas-Fort Worth (DFW) would start having to rehab older homes to keep making the returns they wanted in our ever-appreciating market. At the time, I based that prediction on a trend we were

THE DEVIL IS IN THE DETAILS Can this type of extreme old-home fix-and-flip yield returns? Sure, but only if you know what you’re doing from start

CARRYING COSTS: Also known as holding costs. These are the costs associated with owning a piece of real estate during a rehab. These costs may include monthly mortgage payments, insurance, utilities, and security.

> Continued on :: PG 112

With the right updates inside and out, an older home will often attract just as many buyers (and come with just as high a price tag) as a brand-new one.

Blake Johnson owner of Finishing Touches, as seen on HGTV Flip or Flop FortWorth.

He may be reached at contactus@ finishingtouchesremodeling.com.

38 | think realty magazine :: january 2018

thinkrealty . com | 39

Made with FlippingBook - Online catalogs