Proceed with Caution

By Tony Youngs

As I go to various states pursuing distressed property acquisitions, I am finding an uptick in the number of sellers willing to sell their off-market properties. These include probate situations, tired landlords, elderly moving to assisted living, vacants, bankruptcies, and pre-foreclosures. The problem is sellers still have the impression their homes are worth more than they are. They remember their neighbors getting multiple offers and selling above the norm, but that has changed somewhat. I live in a high-demand area, and houses can sit on the market for 30 days before they go under contract. It can be even longer around other parts of the nation that I visit. Although most of the country is still seeing lower-than-normal inventory, The higher interest rates and the uncertainty of government affairs have an effect.

The reason I say proceed but with caution, is because if you are going to rehab a property, the rehab costs are outrageous. The cost of materials has come down a little from the pandemic but they are still high and I think they are here to stay. Businesses know that people are willing to pay and consumers are spending like crazy. On the other hand, contractors are charging much higher labor costs. Sheetrockers, framers, painters, plumbers, electricians, and HVAC is much higher today. I was rehabbing houses all through the pandemic years and I am rehabbing a house right now and the costs are much higher than a year ago. We have used the same plumber, electrician, and heating and air guys for years and their prices are much different. When we sit down with them and go over the figures, comparing them to our last few jobs and ask them why the difference, they show us the difference in material costs and show that their labor is higher because of the cost of living, Higher groceries, gas, food, clothing, and shelter. Just to make sure, we get estimates from other companies and the prices are very comparable.

My point is, as you find property owners willing to sell, make a sensible offer and stick to it. I make offers every week and when a seller tells me it is too low, I say, if you are willing to fix some of the items I can go higher. After researching the costs and time involved, it doesn’t take long for them to see your way of thinking and then you can negotiate. Some sellers refuse to budge but it’s better to walk away than to lose money. Today, If you do buy a house and begin your rehab, if it seems to be costing more than you thought, nobody can force you to finish it. If a project looks like you may lose money or break even, stop work and sell it incomplete. There is always someone that will buy it in the condition it’s in and finish it themselves. Especially if they like the location. Homebuyers realize they are here for long term and don’t mind spending money for their long term home.  Even in the multiple offers days, I would fix up a house beautifully and sell for top price, and the homeowner would sink more money into it. Because they were so happy they got a home in the area they wanted.

As we rehab a house, we make a list of what we want to accomplish this week and I stay on top of it to get it done. I shop around for good prices, I use low cost labor to do the many things that need doing like, demolition, carrying trash to the dumpster constantly, keeping the grass cut, painting, replacing broken glass, applying fire retardant caulking to the holes where the new wiring was installed, digging drainage ditches etc.  There are plenty of little things like that. We also have a guy who has a full time job but wants to earn extra money after he gets off work. He is an excellent carpenter and installs new windows and doors, puts trim around the new windows, installs attic stairways etc. Thus saving us plenty of money. I personally still do some of the work that I can. It keeps the other workers busy when they see me working too. There are still many money saving things you must learn and use when doing a project. One thing I learned from my father when getting estimates, Don’t give the impression that you are rich and successful. Project costs can be higher.

The bottom line is this, proceed with caution and make your offers, but be aware of today’s renovation costs. Learn all you can on estimating repairs.

Tony Youngs is a trainer,  national speaker, active real estate investor and the author of The “Hidden Market” system of acquiring off market properties. He can be reached at his website at www.tonyyoungs.com