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Hidden costs could derail home rehab projects

Published: Tuesday, Dec. 10, 2013 11:36 a.m. CDT

By S.E. Slack

Ready to hone in on your first rehab and cash in for big bucks? The more familiar you are with the real estate market, the easier it will be for you to spot your diamond in the rough.

“First, ask yourself whether or not the home you’ve found is in an area you would want to live in,” said Carla Showalter, partner of Bulk Home Buyers and self-confessed rehab addict.

“You can buy houses in areas that may not be ideal for your specific needs, but when you are starting out be conservative,” Showalter said.

Whether you plan to rehabilitate a home in the Amateur Sports Capital of the World or down the road in Wrigleyville, she recommends that you narrow your choices down to a few houses and walk through each one, taking notes and calculating a rough estimate of repairs. Keep in mind that, when you sell, a home inspector will be hired to spot any repairs needed.

If you don’t have any experience in estimating or home repairs, network with an experienced home inspector or contractor to help point out repairs that are required as well as the timeframe to make those repairs. Resist the urge to make repairs on your own, too.

“Using professionals will almost always save you time, which can ultimately save money when rehabbing a home,” Showalter said.

“Double the time you think – or anyone tells you – it will take to do your rehab, especially for your first few rehabs. Underestimating the time to turn the property is a critical mistake, particularly if you have a hard money loan or have monthly payments of some sort,” Showalter said.

After your expenses have been calculated, you should have a house that costs no more than 75 percent of the home’s median home value. If you decide to hold onto the home, it should have a positive cash flow after your mortgage and insurance payments, taxes, interest, management fees, maintenance and repair fees and yard care.

“Include management fees in your calculations, even if you intend to self-manage,” Showalter said. “But remember, you do not have to be a landlord to own property. Most investors do not self-manage.”

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