THE BIG PICTURE
REHAB PITFALLS
Let’s take a look at The Big Five:
1. ROOF Ask yourself these questions:
1 How old is it? 2 What is the remaining life expectancy? 3 Are there multiple layers, loose shingles or visible leaks, includ- ing from the vents, chimney and gutter system? Roof replacement costs can range from $5,000 - $10,000 or more, not including other related repairs to chimneys, gutters, soffits, decking, and more. 2. HVAC HVAC includes the air conditioning, heating, and ductwork/venting. A full inspection by a licensed HVAC com- pany can inform you about the age and functionality of all related systems and components. Proper cleaning and com- ponent replacement by a technician can often extend the life of the system, which is good news for a rehabber. Installing a new HVAC system and/or furnace can hit your budget another $6,000 - $15,000 or more, especially if both are needed. 3. PLUMBING A plumbing inspection will identify the type and age of the pipes, whether you have any leaks, the location of the shut-off valve (always a good thing to know!), and the state of your drain system. Inspect the water heater to determine condition, age and remaining life. An inspector will alert you to impending failures and poten- tially costly repairs, which could include replumbing the entire house. 4. ELECTRICAL Inspecting the electrical system will help you identify any potential hazards associ- ated with amperage, service cables, panels, circuits, wiring, and fixtures. Some older
1. ROOF
2. HVAC
3. PLUMBING
4. ELECTRICAL
The Five Biggest Threats to Your Rehab Budget AN EXPERT CONTRACTOR REVEALS THE WORST THINGS YOU COULD POSSIBLY OVERLOOK.
"Underestimating the costs of these five rehab threats will eat your returns for lunch." - Susan Dupont
5. FOUNDATION/ STRUCTURAL SYSTEM
homes have “knob and tube” wiring that dates back to 1920s or 30s. This wiring cannot be grounded and is a common cause of shorting and fires. Many insur- ance companies will not issue coverage if knob-and-tube is part of the electrical distribution system, which can mean a complete re-wire of the property. 5. FOUNDATION/STRUCTURAL SYSTEM A qualified inspector should identify any signs of movement or cracks in the foundation, sloping floors, water pene- tration into the basement, crawlspace, and attic, as well as any issues with beams, joists, and posts.
Be aware that once a contractor pulls a permit and starts making repairs, inspec- tors will visit the property regularly to ensure all work is being performed to cur- rent code requirements. Often, if they see anything else that is out of code during one of those visits, they won’t close the permit until additional repairs are made.
by Susan Dupont
O
modeling, overlooked the rehabbing, and are about to be out some serious cash. While you should always have a contin- gency fund for unexpected change orders during a full rehab project, your goal is to avoid enormous cost overruns and as many surprises as possible. Get inspec- tions performed by qualified contractors or a licensed home inspector on “The Big Five” items at the very least. A few hun- dred dollars spent up front on inspections allows for informed buying decisions and a reduced probability of uncovering a major unbudgeted expense during rehab.
focus on remodeling instead of rehabbing. This can cause you to overlook major ex- penses that are not obvious or pretty, but that are essential. Remodeling should be viewed as the icing on the cake. You may want to create an open floorplan or up- grade to the latest kitchen and bath styles to competitively market the property. That’s all fine and good until a prospective buyer’s inspector comes through and tells you the roof is bad, the electrical wiring isn’t to code, and, by the way, there’s some water leaking into your crawlspace. Now you spent all your money on re-
ne of the biggest pitfalls real estate investors encounter with rehab
properties is that they underestimate the cost of remedying major issues with the property. There are five particularly serious issues, what my company refers to as “The Big Five,” that are particularly troublesome. Although a property may look like a fantastic deal at first, you must understand the full scope of the rehab costs up front , because underes- timating your rehab costs will eat your returns for lunch. A Dangerous Mistake: Many investors
> Continued on :: PG 112
Susan Dupont is the president of SGF Con- tracting Services. SGF provides renovation,
rehab and repair services in 15 states and expanding. She may be reached at www.sgfcontracting.com for more information or service@sgfcontracting.com.
40 | think realty magazine :: january 2018
thinkrealty . com | 41
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