Real Estate Report Repair or Not for Investment Return or Residents

To repair or not to repair, that is the question.  

Fannie Mae and Freddie Mac are tackling that question with a panel of illustrious professionals.  

Investors and resident home buyers are eager for answers as well, for differing reasons.

The institutions are equally split in their directions, leaning toward repair for the sake of habitability.  A move-in condition house is more likely to garner families or permanent residents than a house that requires repairs that prevent immediate occupancy.  The move-in house for sale also has a positive effect on the value of the neighborhood as it brings in families that will mesh with the people already living there, as opposed to investors that may have dozens of contractors bidding and delaying occupancy for many months more than essential to residency.  To wit:

“To repair, or not to repair.” That was the question posed to a number of panelists Thursday morning at the Five Star Conference and Expo.  The panel featured a discussion between Brett Ory (representing Cyprexx Services), Jason Chapman (Fannie Mae), Rhonda Montgomery (Freddie Mac/HomeSteps), Dale McPherson (Field Asset Services, Inc.), and moderator Lisa Shepherd (JPMorgan Chase) as they tried to help brokers and servicers tackle a common issue: Whether or not it’s worth the investment to repair a home not in showcase condition.

For Freddie Mac, repairing is usually the best choice.  “Repair is number one on the list if at all possible,” Montgomery said.  She explained that while many investors may be willing to take a home as-is if the opportunity is right, the GSE’s main focus is split between maximizing value and getting owners into homes.  

While Fannie Mae erred on the same side, Chapman recommended a more studious approach, encouraging servicers and agents to do their due diligence before deciding on a repair. There are a number of factors that should influence the decision, he said, including the type of neighborhood, the type of buyer, the chances of vandalism, and the spread of value between an as-is home and a rehabbed home.  “If the difference [between a repaired home price and non-repaired home price] is $20,000, and the repair costs $10,000, that’s an obvious choice,” Chapman said.

Moving away from the topic of structural and safety repairs, the panel also discussed the advantages of cosmetic repairs-those that are intended to showcase a home’s beauty.

Montgomery said she believes that no matter what state the housing market is in, buyers will always gravitate toward homes that are pleasing to the eye.

“I don’t think the impact [of curb appeal] has changed,” she said. “Wanting your house to look like other houses in the neighborhood - that has changed.”  

All the panelists agreed on the importance of maintaining the home’s exterior and emphasized the importance of making a good “walk-up impression.” They also offered advice on smaller details that may be overlooked when rehabbing a home-for example, replacing used appliances with fresh machines instead of simply cleaning hard-used appliances.

More than anything, all panelists agreed that rehab goes beyond a few fresh coats of paint.

“Don’t go in and recommend just carpet and paint. You’re really not getting anywhere with a partial repair like that,” Montgomery said. “You’re making decisions that impact the neighbors in these communities.”

As the repair decisions will impact the community beyond the block it’s equally important to have rental properties up to the standard of the neighborhood.  It will not only affect the valuation of other homes but will affect the fabric of the people living there - if there is a continual change of tenants that can create an imbalance among tenured residents.  Families generally seek neighborhoods their children can grow up in with others that have children.  Mixed-use venues attract more transitory populations that may or may not be amenable to child-friendly facilities and norms.

Yet this economy has reduced the number of homeowners in the U.S. dramatically.  And we are on the cusp of another transition.  One that will likely increase the number of homeowners rather than the number of renters over the course of the next couple years.

So, as you can see, there’s more to the “repair or not” question than just an ROI of currency - it’s also about an ROI of national culture.  So let’s not use the chinese drywall, okay?

content and seo/smo by James Locklear for Phil Leng Team
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