Real Estate Series: Rehabbing a Property

So, you just bought a fixer-upper (at least hypothetically).  You've heard that rehabbing properties is one of the quickest ways to make money in real estate.  You’re right; however, if this is your first time, you are probably not a hundred percent aware of how much work you just put ahead of yourself.  Even though you can make a lot of money this way, it is not a get-rich-quick scheme.  This can be a fantastic learning experience.  Don’t get discouraged if you are fixing it up by yourself and it takes longer than you originally anticipated.  It most likely will.  

Depending on what you bought the property for, you may want to hire a rehab crew to do the work for you quickly.  This article will help you weigh the pros and cons of you doing the rehab yourself verses hiring a rehab crew.

Do It Yourself

Good for you!  You are going to spend the next few weeks to months fixing up a house in your spare time.  If this is your first time, there are some things that you need to know; like how to caulk shower tile, or, for some of you, what is caulk.

There are so many things you may want to do to your house.  This information is ‘more what you'd call "guidelines" than actual rules.’  It will not cover all of your options thoroughly but it will give you some ideas and hints.  Do what you feel comfortable with.  And do what is in your skill level.

Always do rehab work on the interior before you do the exterior, unless you have to redo the roof.  You will want to fix that first to prevent leaks on the inside.

Ceilings:
Some older houses have asbestos in the ceiling or walls.  For example, some "popcorn" ceilings are made with asbestos.  Asbestos is a mineral that was commonly used in insulation materials.  If asbestos fibers are inhaled, the risk of lung cancer and mesothelioma is highly increased.

Asbestos is not harmful if it remains undisturbed, however, it is when asbestos is removed and fibers become airborne that asbestos becomes harmful.  The EPA (Environmental Protection Agency) recommends that when dealing with asbestos, you hire a professional to do the work for you.

If your property does have "popcorn" ceiling, you can either leave it that way or change it.  Have it checked for asbestos.  If it does contain asbestos, leave it or have a professional remove it.  If it is asbestos free, the "popcorn" can be removed, and must be removed before texturing and painting the ceiling.

This is very messy work and you need to cover all floor coverings with drop cloths to catch the water when you spray and to catch the material when you scrape it from the ceiling.

Walls:
It is necessary to remove all wallpaper before you texture and paint in order to prevent the paper from absorbing moisture and the compound and paint from bubbling.  Your rehab will look better if you remove all wallpaper first.

If you are painting your walls different colors, put painters tape where the colors will meet to keep the paint line straight.  Don’t use regular masking tape.  It is very adhesive and hard to remove.  You can use a paint sprayer or roller brush for most of the wall and a normal bristle paint brush for the corners.

Tile:
Tile looks great and is an upgrade that pays out when you sell.  Make sure you have a flat surface.  To do a tile job correctly on an existing sub floor it will be necessary to put down cement tile board or staple wire mesh over the area and float quickcrete over the mesh to create the flat and stable surface you need for the tile. For best results, you should remove the original flooring (i.e. linoleum, wood, etc.) and then put the tile board or mesh down. When using tile board you will have to use screws and mortar for it to adhere properly to the sub floor.  This gives the tile a stronger surface and prevents cracks in the tile.

Read the instructions on how to install tile. And don't forget to seal the grout.  Sealing the grout prevents stains in the grout.

For shower tile, you may not need a cement tile-backer, but you will do the rest the way you lay floor tile.  Start at the bottom and work your way to the top in sections to prevent the tile from sliding down.  Once everything is dry, you will caulk between the tub and tile to prevent moisture from getting where it would grow mold.  Buy caulk that is specific for the bathroom/shower.  It helps prevent mold.  Recommended caulks are GE Silicone II if it is for the tub or shower, or if it doesn’t need to be painted, and DAP DYNAFLEX 230 if it has to be painted.

Before you caulk the tub, fill the tub with water.  This pulls the tub away from the tile ever-so-slightly and gives you a larger space.  Caulk once the tub is full.  If you don’t do this, your caulk could pull away from the tub or tile when you take a bath, allowing moisture and mold into the crack.

Light Fixtures:
New light fixtures are relatively inexpensive for the aesthetic benefits they provide.  Buy items that are inexpensive but look nice.  Before you install or uninstall light fixtures, turn off the light and circuit breaker so you don’t electrocute yourself.  All fixtures are different in some way, so be sure to read the instructions before you start.  This could save you hours of frustration and starting over.

Carpet:
Unless it is brand new, replace the carpet.  Tan and beige colored carpet makes the room look more spacious.  They are neutral colors and easier to resell.

Check your state and city laws to see which permits are needed in your area.

Don’t get caught up buying the most expensive items.  Buy items that look nice but don’t cost a lot.  If the new owner wants to replace them with something specific, he may.  If you rehab with expensive items, the value of the house will be about the same as if you rehabbed with inexpensive, nice looking items.  Save yourself money.

Again, only do what is within your skill level.  Don't become the electrician if you have no idea what you are doing.  That is dangerous (if not illegal -- I don't know).  And that leads me to hiring a rehab crew.


Rehab Crew

If you’re not up to doing it all yourself, or don’t have the time, hire a rehab crew.  With a rehab crew, you will be able to get the rehab done in a timely manner.  Your rehab crew should be experienced, so they know how to do the work the right way.

Your rehab crew is the group of specialized people you will hire to fix up your property.  It is very important to get a rehab crew that is licensed (plumber, electrician, etc.).  This way you make sure you are dealing with a crew that is legal to work in your country and that the crew is obligated to do the work at the standards set by correct authorities.

The best way to find a qualified rehab crew is through your friends, family, and fellow investors.  Be sure you do thorough research on the rehab crew that you choose.  After all, you will be paying them quite a bit to do the work.  They better do it correctly.

You will benefit by asking them some specific questions, such as:

• How long have you been in business? (You want someone that has had experience with the work you need done).
• Do you work in the city that I do business?
• What kind of rehab do you do? – They must do the right rehab for your area and property (if the house is in a low income neighborhood it doesn't need expensive countertops, etc).
• How many people are on the rehab crew? – This is for time efficiency.  The more people they have, the faster.  
• Who is the supervisor?  Find out who to talk to about the progress and concerns of the project.  
• What type of insurance do you have?  Usually they have at least general liability insurance to protect their property from damage.  Depending on their area of specialty (i.e. architect, engineer, etc.), they may have professional liability insurance, as a physician would have malpractice insurance.  
• Do you warranty your work?  The contractors warranty is for the materials and labor provided.  It is standard to warranty the project for a year.  
• Are you bonded? – Get a copy of the certificate.
• Do you have your own vehicle and tools? – Only use people that have the necessary things in order to get the job done.
• How are you billed?  You have to decide and write in the contract how you want to be billed before the actual work begins.  Also, if you want to know, have your rehab crew notify you if they go over budget.  Get an itemized bill for your documents.

Ask for references – If they have done a good job in the past they will be happy to give them to you.  If not, they are not good enough for you

You will also benefit by getting a copy of their driver's license.  You don’t want to be the victim of a scam.  If you have their driver's license you will have information for any legal recourse, in the event of a theft or anything they might do that could hurt your business.

Before you give your rehab crew a key to your property, you should make sure you have them sign a contractor’s agreement.  The contractor’s agreement should include:

• A list of everything you want done to the property (including the little things such as light switch covers)
• Payment phases – commit to paying your rehab crew in 2 or 3 phases. Pay at the end of the phase, but don’t pay until 100% of the phase is complete
• Completion date – set a reasonable date by which the rehab crew should have everything finished.  Give them a week cushion if you’d like.  

Hint: some people put in an incentive such as: “if the job is not completed by DATE, a $50 fee will be deducted per day.  If the job is completed early, a $50 bonus will be paid for each day.”  This ensures that it will be completed on time, if not early.

Carefully watch for red flags or warning signs such as:

• Refusal of the contractor to sign a contract
• Requirement of more than 20% for the down payment
• Inability to contact the references provided
• Cannot verify licenses
• Cannot verify insurance
• Pressure from them for you to sign a contract
• Refusal to give you a quote
• This is their first job

Once you have found the rehab crew you want, don’t think that your part is finished.  Keep an eye on them.  Make sure they are doing a good job.  You can do this without looking like you are suspicious.  Bring them doughnuts once a week as a “thank you” for doing their best.  This will help you build a good relationship with them while checking on their progress.  If you treat them well, they will usually treat you well (and by them treating you well, you will have fewer problems and make more money in the end).

You now know some of the options that you have for rehabbing your fixer-upper.  As with all things in real estate, don’t make hasty decisions.  Contemplate the method which is best for you - whether it is to do it yourself or hire a rehab crew - and make an educated decision.  Use this article as a guide.  Remember, this is your project and you can do it however you want.  The guidelines laid out in this article will help direct you along your path to a successfully ‘fixed-up’ property.

Personal Experience

The first house I bought was a fixer-upper.  I had a friend who knew what he was doing help me out and it took us for-flipping-ever to finish.  What we did looked great and the value increased by 25% when it was done.  Unfortunately the market crashed before I sold (because I was greedy and didn't want to settle for less than I thought was worth -- another lesson in itself) so it became a hassle rental when we moved out of state.  And we finally sold it.  Yay!