Rehab (the fun kind)

Rehab

     This represents the first “R” of “BRRRR”.  Now that you own the house you will want to do the repairs quickly. You have to do the right repairs for your strategy.  For flips, you may need to be trendy and updated throughout, depending on the neighborhood.  For lower end rentals you may just need some paint touch-ups.  For our type of BRRRR investing we are balancing several things when we pick what we will update or improve: the appeal to potential renters, the durability to last years with minimal maintenance, the appraisal value we hope to get for our refinance, and items that may reduce our insurance expenses.

The Appeal to Potential Renters 

    There is a temptation to over-improve a BRRRR deal at times but maybe that old brass chandelier can stay if it’s cleanable and safe.  We love stick down vinyl plank floors throughout that can handle some moisture.  They last and can be repaired in sections if needed.  Generally we are going to forgo granite counter-tops, although they are trendy, for a nice formica.  We’ve even re-painted countertops with a paint specifically for this purpose.  If we were flipping the house, many of these choices would be different.  Just these changes and a coat of paint will likely make our house stand out to a prospective renter.  Then they will hopefully want our house more than the house down the street and will fill out an application.  The more applicants we get; the more selective we can be.  And the selecting the best tenants make this business easy. 

The Durability to Last for Years

     We pick surfaces that don’t need a lot of maintenance and will look nice for years with moderate care.  We love our tenants but we don’t expect them to care for a delicate counter-top like we might in our home.  Therefore we use the materials I mentioned and a satin or even glossier paint for easy cleaning.  We try to use the same color on most of our house interiors.  This way we collect paint from multiple jobs and can paint a later job with the excess or use it for future touch-ups. 

The Appraisal

     Appraisals are still a mystery to me.  We’ve had them come in above what we had hoped for and well below what we had hoped for.  In one house, with a rear detached apartment, I am pretty sure they added no value to the appraisal for the apartment.  I have listened to appraisers present on what they do and I am still lost.  It does seem that kitchens and bathrooms matter; therefore if we are going to spend a little extra it will likely be in these rooms.  It seems that the number of bedrooms add value more than square feet.  Some investors make a point to look for houses that they can add a bedroom to, in some area of wasted square footage, to get a boost in rental value and appraisal value.  This is a great technique to consider.  According to one appraiser, paver patios add no value but poured concrete patios do.  These are the quirky things to consider when balancing the cost of an improvement with the appraisal value it may add.

Items That May Reduce our Insurance Expense

     Having a great insurance agent is very helpful.  Our agent will advise us as to what may help us get better rates.  For instance, in one house, the window unit air conditioners with heaters raised the insurance rate but if we added baseboard heaters, we could save some money.  Ultimately we found that after wiring for baseboard heaters we could spend a little more and put in central AC and heat.  This change cost a little more on the front end but I have to believe it improved the appeal to renters—particularty in a neighborhood that is mixed window units vs. central ACs.  It can be a monthly cost savings for the prospective tenant and is quieter and easier to control temperatures.  I hope it was accounted for on the appraisal as a value-add.  I know that it reduced our insurance rates; which increases cash-flow.  We were able to use one of the window units in another project and were able to give two to contractors to use in their homes.  We plan on keeping our homes for years so we take that into account as well.  This system should be trouble-free for a long time.

Wrap Up

     I hope that these points have gotten you thinking about which repairs and renovations to choose for a BRRRR deal.  There are no simple choices–every project takes some thought as to how much to rehab.  The pictures look cool when the whole kitchen is remodeled but sometimes some paint is all that is needed.  Let me know your thoughts.  And as always, “Keep the main thing the main thing”.

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4 responses to “Rehab (the fun kind)

  1. I love your blog. I live in Houston and currently have 4 homes and hope to closely follow you to figure out some of the humps I’ve run into. Keep up the good work.

    1. Thank you so much for reading along! I hope that this is helpful to you. I have a few posts coming up that I am particularly excited about.

  2. From some of the Real Estate Agents I’ve talked to here in town, appraisals are a mystery. I did hear from one that you could appeal an appraisal if you think it’s not correct. So if you did your due diligence with comps and have a lot of other properties that are priced higher than what the appraiser gave, it might be a good choice to appeal!

    I just learned about this 2 days ago, so thought I’d share.

    1. I appreciate that info for myself and those who read this! I have heard of people being successful with appeals but I haven’t tried it personally.

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