Transcript:
Hey guys, it’s Casey Denman here from Tax Sale Academy.com
Thanks so much for joining me on today’s livestream here on Facebook.
To fix or not to fix . . . that is the question for today’s livestream.
So, you researched your tax sale auction list, went to the auction and were able to purchase a home. Now what?
You know it needs work. In fact, it needs a lot of work. But you’re afraid that your time and money investment into a remodel might not pay for itself. What do you do?
This is a dilemma that many investors find themselves in. Their relatively small investment now needs to double in size to cover the remodel costs. But is it worth it? Will they get their entire investment our and then some or should they just take what they can get and move on?
I actually answered this question the other day for one of our academy members.
The deal is that there is no perfect answer. Every situation and every property is different.
You have two options: You can resell the property at an as-is wholesale type price, take your profits and move on. Or you can remodel the property and sell it for more money.
Let’s look at both options
When you decide to sell the property as-is, you’re going to get less money. A property in bad condition, is just worth less.
You’re also going to limit your buyer audience. A property is bad condition will likely only attract investors. Those investors will need margin in the deal to make them money as well.
With that said, there are many benefits. First off, you can get in and out of the deal quickly allowing you to roll your money over to the next property. You don’t have to wait for a remodel to be completed.
Another benefit is that it’s cheaper. You don’t have the additional expense of the remodel. Whatever you paid for the property is going to be your total investment.
Another benefit is that you don’t have to deal with all the unknowns. What if you have to end up replacing the roof and you didn’t budget for it. What if the property has termites or other issues you didn’t account for?
So those apply to selling a property as-is.
When it comes to fixing the property or remodeling it prior to flipping, there are also a number of pros and cons.
One of the negatives is what we just mentioned for not fixing the property. Every single remodel is going to have some sort of unexpected costs. It could be fairly minor or it could be extreme. But at some point in every project something is going to pop up that’ll cost you money you hadn’t counted on.
Another negative is that you must invest both time and money into a remodel. Remodels aren’t cheap and they usually aren’t fast, especially if you’re not experienced in remodeling homes. Typically, your first few deals will always go over budget and over the anticipated time. You see the guys in TV flipping a house in 10 days, which sounds cool, but the likelihood is that your first few projects are going to take months.
You’ll also have the stress of dealing with a remodel. Contractors that don’t show up, projects that are done incorrectly, supplies stolen, rain delays, permitting delays and all sort of other fun stuff.
Along with those negatives come just as many positives. The first is the most obvious and the primary reason for remodels, in that you’ll get more money for the property. The increase in value will ideally, cover your remodel and then at least 20-30% more for your time.
Another great benefit is that you aren’t just limiting yourself to investors. After a remodel you’ll be opening up the door to end users who will hopefully fall in love with your remodel and will buy the property.
And lastly a great benefit is the feeling it gives you. There isn’t much that is as satisfying as a successful remodel and improving the value of your property as well as improving the area.
So, as you can see there are definitely pros and cons to selling the property as-is and remodeling the property prior to selling it.
Here’s my suggestion on what to do:
If there are squatters or tenants, go through the legal methods to evict them. Then clean out the property as quickly as possible. Don’t do anything besides a very basic cleanout.
Then contact at least 2-3 area Realtors who specialize in dealing with distressed properties in that specific area. And that’s important, they must be from that specific area. You want Realtors who have seen homes like this before in that area. Get their current suggested value in it’s as-is state – some areas called them BPOs for broker price opinions and other call them CMA or comparable market analysis. But get their value as it currently sits. Tell them you want a price where it’ll move very quickly in it’s as-is condition. If they frequently deal with properties that are distressed, they will have an idea of what their investors will pay.
Then ask the same Realtor to provide comps in an as remodeled condition. Provide a list of what you’re thinking about doing to the property to them, but DO NOT tell them how much you are planning to invest or how long it’ll take – this will skew their valuation. They can then compare the age, location, size and your improvements to comparable sold properties and can provide a value based on that.
So now you have two values. The low value in it’s as-is condition, and a high value in its’ remodeled condition. What you’ll want to do is add your anticipated remodel cost plus a 10% buffer to your purchase price and make sure it’s well under the value as remodeled.
If your cost plus remodel plus 10% is beyond what the value shows a remodeled house will sell for them obviously you will NOT want to remodel the property. If your anticipated total investment is well under the remodeled value with plenty of room for a buffer AND your profit is sufficient, then it’s time to compare that profit potential of the remodeled home to the profit potential if you were to sell it in it’s as-is condition.
Ask yourself is it worth the time investment? Is it worth the money investment? Is it worth the stress of the remodel and dealing with the unknowns?
At times it will definitely be worth a remodel. Other times, it won’t be.
Again, every situation is different, but these are the steps that I take before I venture into a new remodeling project. And hopefully, of course, you know many of these answers prior to even buying that property in the first place.
That’s it for today folks – I hope you’ve enjoyed our livestream. If you are enjoying my life streams, be sure to subscribe to our channel and go ahead and click on that like button for us – by doing so you help us to know that you are enjoying the livestream and you’ll motivate us to continue to produce them for you.
If you’re looking to learn more about investing in tax defaulted real estate, be sure to check out my new book The Tax Sale Playbook – which is the ultimate guide to buying and selling tax defaulted real estate and it can be yours for free at Tax Sale Academy.com. That’s taxsaleacademy.com, we bought the book for you, all we ask is that you help with shipping.
That’s it for today guys. Make it a successful day.
Take care. Bye bye!