Don't Let the New Looks Fool You-- Do a "Gut Check" on Rehabs. Sometimes what's lurking underneath the fresh paint can cost you a bundle!
There are a lot of investors out there buying at auction or using their cash to scoop up distressed properties and then rehabbing them quickly and flipping. Some literally toss on a few cans of paint and add new carpet and a granite countertop, then add a hefty price tag, leaving buyers to wonder about the real value (and some secretly wising they could have done the same thing).
With these homes, although they may sparkle like new and feel refreshingly clean, you must do a very thorough inspection of the guts-- particularly the roof, electric and plumbing, which probably have not been updated, as these are the high ticket items. If your first general inspection uncovers older electric and plumbing, it would be well worth it to bring in a specialist to thoroughly check the condition and evaluate the lifespan and possible upcoming repairs.
Then... there are other investors who spend months re-crafting a home to perfection. Time is money and they don't make nearly the profit, but they love their work, and simply couldn't imagine delivering an inferior product to the next buyer.
Here's a great example of a total transformation of an ugly 2 bedroom 1 bath flat roof, boarded-up house into an almost brand new from the ground up totally permitted renovation, with superb craftsmanship throughout, and every last detail re-done to perfection, from the completely updated electric and plumbing, to the brand new roof and windows, to the meticulously crafted baseboards and cabinetry. Another full bath, another bedroom, a walk-in closet, a built in laundry , new landscaping and sprinklers, and a brand new 2 car garage with a turnaround driveway were all added... and fully permitted and compliant.
Bottom line is, when purchasing a home, you either do the repairs yourself and pay less upfront, or you pay someone else to do the work for you. Your choice all depends on how much time, money and interest you have in doing extensive, potentially expensive repairs.Many buyers in this market are so focused on "getting a deal" that they forget the important things-- like quality. And quality never goes out of style, and if you're looking for a solid long term investment, don't get swayed by all the fluff. Take a good look at what's behind the walls, and make your decision from there.
P.S. You'll also be interested in knowing that even though the FHA recently temporarily waived the 90-day flip rule, lenders have guidelines which prevent buyers from purchasing a home where the value has recently increased more than 20%. With flips now, 3rd party appraisals (2 appraisals instead of 1) and 1 3rd party inspection is required; all at more cost to the consumer/buyer.
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