A Gut Rehab Comes With Big Risks and Big Potential Rewards

When done right, a gut rehab can put a tidy profit in your pocket. It has more potential upside than a more superficial fixer job. But it also has more potential downside, so it’s important to make sure you do things right.

A gut rehab involves extensive work. Some of that will be structural, such as removing internal walls to create more space. However, some structural jobs are far more expensive than others, such as foundation issues.

So it is imperative that you have a good inspector on your side. The property needs to be inspected before purchase. You don’t want any major surprises after closing on the property. One major structural issue can be the difference between profit and loss, even when the potential profit is in the tens of thousands of dollars.

Ideally, before you buy, you should know roughly what the potential resale price for the property will be. You can determine this by finding prices for properties in the same neighborhood that are in good shape and similar in size.

You will need to develop a budget. Always pad the budget a little to allow for unexpected expenses. Rehab jobs always involve some surprises. Make sure your rehab budget leaves plenty of room for profit at resale.

The price you pay for the house is going to be a big line item in your budget. If you do some of this research and number crunching before making a bid, it can help you determine an appropriate price for the property.

You will likely need a construction loan to cover the costs of doing the work until you can turn the property around for a tidy profit. Knowing your expected budget before applying will help with getting the right loan amount for your needs.

Kitchens and baths are both potentially expensive to upgrade. They also are both a big part of what sells a property. Keep in mind that new kitchen cabinets can be more than half the cost of a kitchen remodel. If you can freshen the kitchen up without having to replace the cabinets, this can be a budget-friendly means to plump up the resale price.

You will need to assess whether or not the property needs plumbing, electrical or other basic upgrades. These would need to be done before cosmetic work. You don’t want to put in wallpaper, then put holes in to do other work.

A good construction company will know the proper order of work. If you are doing it yourself, especially if it is your first time, you will want to make sure to do some research and write down your intended order of work. Then ask yourself if that makes sense or double check if there is a conflict there.

It can help to create a Gantt Chart showing the order of the work. This is a commonly used tool in the construction industry.

You will also want to make sure it’s attractive to buyers. You will want to spend a little time looking at what’s trendy. A good approach is to go with a lot of solid classics topped off with a few trendy touches to keep it current. This may be relatively superficial touches, such as paint color or wallpaper, or it may impact bigger ticket items, such as the type of flooring or appliances chosen.

If you buy the worst house in a decent neighborhood or in an up-and-coming neighborhood, it is possible to make tens of thousands of dollars of profit in a fairly short period of time. A house bought for $50,000, rehabbed for $30,000 and sold for $120,000 adds up to $40,000 in profit.