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No matter how seasoned a real estate investor you are, you’ll have to go through the same process as everyone else. Every investment opportunity means doing the math to balance the condition of the home now with your budget to make the home the best it could be later.
Is there a way to streamline the process? Yes! I’ve created what I feel is the Ultimate Property Condition Assessment Checklist below for this very reason; to help real estate investors understand the major factors that go into a rehab project.
This article covers not just the things you need to keep an eye out for now, but the top profit-generating rehab projects you can do to generate revenue and ensure your investment pays off. Let’s dive in.
Considerations for Determining the Condition of Your Investment Property
Despite what the seller may tell you, it won’t matter how hot the market is if the investment property is a disaster waiting to happen. It’s important that you go into any potential real estate deal with a sharp eye and without emotion. When you’re able to see the property in an objective light instead of wishful thinking, you’re able to better assess what your potential ROI will be.
Since every home is different there are no set standards when it comes to determining the potential profit of an investment, but here are some things you should pay attention to when doing your initial walkthrough:
- Check the foundation and trusses – Make sure there’s no bowing, cracks, or dry rot.
- Check the condition of the roof – Do the shingles look to be in good condition, or are they started to get jagged edges? Check the apex in particular for this, as the shingles there will get the most damage.
- Check for signs of leaks – Water rings on ceilings are a terrible sign and another clue that the roof is ready to be replaced.
- What condition are the big appliances in? – Check the electrical, water heater, furnace, septic/sump, central air conditioner, and thermostat to make sure they’re in working order and have been properly maintained. Replacing these can get expensive, especially if the parts around them (ducts, pipes, panels) need to be brought up to code.
- What about the other appliances? – Will the fridge, stove, dishwasher, washer, or dryer need to be replaced? You may be able to sell the home without these, but expect to go through negotiations with potential buyers even if you feel the original asking price reflects the lack of these features.
- What does the exterior look like? – Check the façade for cracks (if stucco) or holes (if siding). Critters can get into these and cause severe damage so take note of anything looking damaged and have your Inspector do a more thorough check before continuing on.
- Is there pet damage? – Cat or dog urine can soak through carpets and destroy the hardwood flooring underneath them, so bring someone with a good sense of smell. Also, be sure to check things like trim and doors for claw marks as these will need to be repaired.
So let’s say you’ve made it through the initial walkthrough without noticing anything that makes you run out of the house screaming. Great! Now that you have a baseline for what the home is like now let’s talk about what the home can be once you’re ready to sell it.
The 10 Most Valuable Things to Rehab in a Home (with Estimated ROI)
Luckily for all of us, some companies focus on finding out just what the best investments are for rehabbing properties. I went through the 2021 Cost vs. Value Report from Remodeling Magazine to find ten of the most valuable parts of a home that can increase your profitability. The best part? Some of them are only a few thousand dollars!
(*Note: these values under the “costs recouped” may appear like you’re losing money. That may be the case when doing a remodel on your primary residence. On a fix & flip rehab project, where something may be completely rotted out or destroyed, the value recouped is much, much higher. Also remember you’ve gotten a deal on this property, meaning that it’s much easier to increase resale value)
Replacing the Garage Door
Average cost: $3,907
Resale value: $3,663
Costs recouped: 93.8%
Keep in mind this isn’t “replace the garage” or “replace the whole garage door system.” This is about only replacing the garage door. Not only is it relatively cheap as compared to the others, but it has the highest ROI! It just goes to show you how important the aesthetics of a home can be to your potential buyers and how little effort really needs to be made to increase profitability.
Adding or Updating Manufactured Stone Veneer
Average cost: $10,386
Resale value: $9,571
Costs recouped: 92.1%
If you’re unaware, manufactured stone veneers are faux stone panels put onto the outside of a home. Like garage doors, this is entirely aesthetic and has nothing to do with the functionality of a home. For this ROI, Remodeling Magazine focused on properties where the front of the home had at least 1/3rd stone veneer coverage on the front side of the house.
Minor Kitchen Remodel
Average cost: $26,214
Resale value: $18,987
Costs recouped: 72.2%
In case you’re curious, I dug into exactly what “minor” means in this situation. Minor remodels include things like replacing cabinet fronts and their hardware, replacing appliances with newer energy-efficient models, replacing laminate countertops, and repainting the walls, ceiling, and trim. Kitchens are often a critical part of getting a home sold, so it’s great to see these minor touch-ups go a long way towards getting a property sold for a profit.
Replacing the Siding
Average cost: $18,101
Resale value: $12,466.50
Costs recouped: 68.85%
This was initially broken up into a few different siding styles, so I’ve just taken the average of all siding projects. Replacing siding can be a tougher job for real estate investors who aren’t handy, but the investment is well worth the effort (or the fee to have it done by a professional). If you’ve got faded, discolored, or broken pieces of siding, don’t let them diminish your potential return on your investment. Like kitchens, the outside aesthetic of the home can make or break a real estate deal.
Average cost: $21,302
Resale value: $14,470.50
Costs recouped: 68%
This was also originally broken up into a few different subcategories depending on the window type, so for simplicity’s sake, I’ve just taken the average of all types of window replacement projects. Windows with broken seals should be replaced before putting the home back on the market. Otherwise, your buyers may end up negotiating down the price to take care of it themselves.
Adding a Deck
Average cost: $19,596
Resale value: $12,603.50
Costs recouped: 64.5%
This, too, was originally broken up into a few different decks based on the materials, so I’ve taken the average of all types of new deck build projects. Adding a deck is a big project for sure, but like the siding, including a new, pristine deck can be the difference between a home that sits on the market until it’s marked down and one that sells quickly with significant profits.
Replacing the Front Door
Average cost: $2,082
Resale value: $1,353
Costs recouped: 65%
For this project, Remodeling Magazine specified that this was for replacing the current door (no matter the material) with a steel door. Replacing the front door is the cheapest rehab here and is so easy to do. Consider adding this to your list of remodeling projects if you want to push that potential profit up higher.
Remodeling the Front Entrance
Average cost: $10,044
Resale value: $6,116
Costs recouped: 60.9%
Remodeling Magazine specifically mentioned using fiberglass materials for this rehab. The front entrance is considered the area around the front door and not the porch or foyer. If you plan to replace the door, consider seeing if your budget can also handle updating the entrance area around it too.
Average cost: $31,618.50
Resale value: $18,573
Costs recouped: 59%
This was originally broken up into a few different projects based on the materials used, so I’ve taken the average of all bath remodeling projects. Remodeling the bathroom is a serious undertaking for sure, so this rehab isn’t for the faint of heart. But like kitchens, an ugly, outdated bathroom can be the dealbreaker that keeps your investment property on the market longer than you’d like. While you might be able to find a buyer who loves a vintage, kitschy look, it’s best to hedge your bets and invest the money to get all bathrooms up to modern tastes.
Replacing the Roof
Average cost: $37,143.50
Resale value: $21,481.50
Costs recouped: 58.4%
Lastly, and certainly not least-ly (in terms of scope), replacing a bad roof can be one of the best investments you make. This was originally broken up into a few different categories based on materials used, so I’ve taken the average of all new roof installations. Not only will a new roof add to the aesthetic appeal of the home, but it can also be the thing that saves you from getting a lousy inspection report with a potential buyer.
If you need some help getting started, I’ve got a great Do Hard Money Motivated Seller Appointment Sheet that you can download for free. This appointment sheet is used every time the team or I go out to assess a potential real estate investment, so I know it will help you, too. The next time you go into a possible real estate deal, keep this article handy so that you have a better idea of whether you’re able to flip it for a profit or are instead looking at a money pit.