Assembling Your Crew

January 15, 2013 By Leave a Comment

How to develop your own renovation crew 

Whether you’re flipping projects or remodeling rental properties, one of the most basic property investing tips is to develop a crew. A crew is a bunch of tradespeople that you want to call on over and over again for all your projects. You’ll need to trust them implicitly, and feel that you’re getting the best value from them. This doesn’t necessarily mean they will have the best price compared with any other local tradesperson. But it does mean you’re getting the best price from them. Consider it a most-favored-nation clause – that is, they are not offering any better deal to anyone else or to any of their other customers. 

You should be comfortable with everyone in your crew. You must have full confidence in their ability as a craftsperson – be it in plumbing, electrical, carpentry, floor refinishing, painting or landscaping, to name some of the most important crew personnel.  You’ll also need to feel confident about how they treat you, and the service they are providing for you. Another very important feature, is that everyone in your crew will need to interact properly with each other. If one of your crew doesn’t work well with one or more of the other tradespeople in your crew, then they can singlehandedly blow up your entire project, costing you more time, money and aggravation.  Your project timing will be delayed, and you can then expect more in the way of overages from other crew members. So each tradesperson in your crew needs to fit together properly with the others. Since all trades interact on some level to either repair and/or renovate your investment property, you’ll need to make sure that each member of your crew is a good fit to the whole project. 

In this way your crew can operate as a well-honed machine. Then they can come in for any given project that you have for them, and you know they’ll work well together. Each one of them can offer design ideas and suggestions to improve your product. And then perform the work on time and effortlessly with each one meshing well with the others. 

Doing your due diligence 

Just as when you’re looking for a contractor for a larger project, scoping out tradespeople for your crew involves the most amount of work. This early amount of work will pay off handsomely in time though. Interviewing each respective tradesperson for your crew is like a contractor search- multiplied by ten though. Solid property investing tips say that you’ll want to interview at least three people for any particular trade position. Of course, you’ll need to check references for each potential crew member, as well as view some of their past work. You’ll also need to make sure they have no negative reviews with your local Better Business Bureau.  And naturally, their prices should be in line for the area – though not necessarily the least expensive.

Ultimately, you’re looking for a combination of glowing reviews from past references, excellent workmanship, as well as work done in a very timely manner. And of course, you want all this for the least expensive price possible, if they’re going to become part of your crew.  After all, you’ll be providing them with a steady stream of work over many years.  So it makes good economic sense for them to want to be a member of your group. 

Tossing out the bad apples 

Always be on the lookout for bad apples in your crew.  Don’t ignore when one starts complaining about the other. Or worse, if more than one tradesperson is complaining about some other tradesperson in your crew.  If so, you’ll need to lend credence to what they’re saying and see where their concerns are. You’ll need to scope out and investigate these complaints. It may require you to be on-site for a period of time to see what they’re saying and if the complaints are true. You should always be looking for ways to streamline your crew to find the best fit for all your projects. Immediately replace any trouble makers, or those that just don’t get along well with the others in your crew. 

It will take time to develop your personalized group of tradespeople. Expect there to be a lot of trial and error early on as you go around choosing the different members of your crew.  You’ll see from project to project which ones work best with each other. You can then fine tune the crew until you are fully pleased with the whole group. This may take several projects before you get your full complement of crew that works well together. 

The end result: a well-oiled machine 

So once you finally have your personnel set, and you’re comfortable that they’ll all work together well with each other, then you should be hiring this group for every single project you do. It is in this way you will not only get the best product for the least money, creating incredible value, but you’ll also be saving yourself large chunks of time. No more looking for new tradespeople to fit the bill on every project.  Since you’ll be trusting them, you won’t have to be on-site as much during the renovation.  Lastly, these tradespeople in your crew will be offering you money-saving suggestions as to repairs to be made. For all these reasons, you’ll be saving yourself time, money and aggravation by utilizing your own personal crew of tradespeople. It’s a simple property investing tip that will yield increased savings, so you’ll realize a much greater profit when it comes time to sell your property.

 

photos courtesy of soundonsight.org, m8property.com, alwardwoodworking.com, jbblog.flopro.taco-hvac.com, theromanbuildingcompany.co.uk, insurancedealer.co.uk

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The DIY Conundrum

August 23, 2012 By Leave a Comment

Is DIY right for you?

If you’re considering doing any do-it-yourself (DIY) renovation or maintenance work  on your investment property, conventional investment property advice says:   by all means, go ahead. However be aware there are some pitfalls to this method for saving on cash outlays…For starters, you probably aren’t used to working in the same field as someone you would normally hire to do the work.   For example if you’re going to do some carpentry work you’re going to go a lot slower than if a professional carpenter were doing the work.  Even  “unskilled” work such as painting will go much, much slower for you then it would for a professional painter. How much slower? That’s hard to say. It depends on your temperament and how much experience you’ve had painting.

To illustrate, I myself am currntly in the middle of doing painting on an investment project of mine that’s taking me forever to finish. Why? Because I’m not a painter. I think of past painters that I’ve hired on my projects. They always brought in  a veritable army of painters with them. So on any project where I hired the professional painters, there would be at least four or five painters painting all at once all over the place –  inside and out. But when it’s just you just you by yourself, things go really, really slowly.

Savings versus sanity

So while you may be saving many thousands of dollars, you’re definitely going to be earning it. Just be ready to do some hard work, and take your time doing it. Obviously your work is not going to be as neat, efficient and good-looking as a professional’s work. Still, you’ll need to live with the at least the bare minimum standard performance that you’re going to offer relative to a paid professional.

If you’re considering doing more serious finely tuned work like plumbing or electrical work, make sure that it’s work that does not require a license to do so,  for example, any new installation or new remodeling work.  It would have to be simple repair work. And you have to be comfortable doing work with the right amount of knowledge, accomplishing a passable job, and ensuring you don’t kill yourself in the process.

Think you have a green thumb and can do your own landscaping? Well maybe you can. Again, a professional landscaper is probably going to bring a whole lot of experience to the game. A lot more than you can. However they are expensive, and if you can find a nursery nearby,  you can solicit some fre advice on the best plantings for your investment property.  The nursery still wants to sell you the plantings, regardless if you do the work yourself.  Just know that sometimes you’re going to require some heavy-duty equipment you may you have to already own or rent it in order to accomplish some landscaping chores.

The bottom line:  can you live with the results?

Clearly if you have the time and the wherewithal to do it, then saving yourself money by doing some basic work is sound investment property advice. Just make sure that you’re okay living with the results.  After all,  you know yourself. Remember too, that the end product of your labors must appeal to either your prospective tenants, or your current tenants, or to buyers of your property.  If your work is so shoddy, you’ll be doing yourself an injustice whilst shooting yourself in the foot.

That said, and in this day and age, if you can save a buck doing it yourself, then it’s certainly worthwhile to try. And if all else fails, and you get so fed up you can’t take it anymore while you’re in the middle of trying to do the work yourself, you can always humbly call on a professional to bail you out. And then the project will look great.

And then, damned the expense.

And you’ll have learned a great deal about yourself in the process…

 

photos courtesy of doctormacro.com, funny-pictures-lol.com, colourbox.com, reclaimedhome.com

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Did You Hire A Contrarian As Your Contractor?

August 1, 2012 By Leave a Comment

Butting Heads With Your Contractor?

Proper investment property advice says that if you’ve used a contractor for any  property renovation, and you’ve butted heads with them, or if they worked very slowly, or did poor work, you know it’s time to look for another contractor.  Another way of telling if you need to make a switch is if your contractor uses one or all of the following infuriating statements or questions while on the job:

“Oh, that’ll never work!”

“You want what?”

“Can’t  be done”

“Oh, you can’t do THAT!”

 Go for upbeat

What you really want is a contractor that is not a contrarian.  Basically, someone with a positive disposition.  Someone who is intelligent about his craft, upbeat, and has a real can-do attitude.  Basically, you’ll know you’ve got the right contractor when he uses one or all of the following soothing statements or questions while giving his all on your project: 

“Sure, we can do that!”

“Difficult,  but let me see what I can do…”

“Let me know if you think this will work for you”

“I have a few ideas you might like”

Learning through trial and error 

A really good contractor is one who brings his own experience melded with his creativity to your renovation.  It’s  not enough that he’s technically proficient.  There are plenty of ways to accomplish a look you desire, without breaking the bank either.  Solid investment property advice dictates thats you should look for the contractor that will be cognizant of both – and look out for your best interests – and not simply try to pad the job with work you don’t necessarily need or want.

Being held hostage

You’ll also want to be sure he can provide the number of laborers he promises when he bids on your job.  Otherwise, you may end up with just him and another guy doing all the work.  And if they are truly slow, you will definitely be held hostage as your job drags on.  And it will be impossible to cut him loose in the middle of a project if he already has a relationship going with the local building inspector, or electrical inspector, for example.  Switching out might be an indicator by inspectors of potential problems with your job, which could ultimately cost you more delays and money to fix.

Should you switch out or not?

Further, switching contractors in the middle of a project could actually delay you even more – and be even costlier.  Certainly, trying to obtain a new contractor “on the fly” will require some wait as they try to clear their schedule to fit your project in with their other ones already ongoing.  And at best, squeezing you in with their other projects means more delays for your project, as you will not get their full attention (as they split their time/days between their different projects and yours) until the completion of your renovation.

 The bottom line

So even if you do your homework and get a good referral and have checked his references, but he still turns out to be a real contrarian, you will be stuck with him until your project is completed.  The best property investment advice in this situation is to be sure to immediately start looking for a better, more positive-looking contractor when your project is done, well in advance of any future project.  And make sure to spread the word about his poor performance and contrary attitude to others who might ask you about his services.  In this way you can at least help prevent someone else from suffering the same fate – and hopefully drive him out of business.

 

photos courtesy of carwoo.blogspot.com, j2solutionsinc.com, inquiringhands.com, ehow.com, acanthusandacorn.blogspot.com

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How To Not Contract The Contractor Blues

July 4, 2012 By Leave a Comment

The Renovation Choice: Contract or T&M?

Unless you’re doing a major renovation, most contractors will offer a choice of options for their services. You can either set up a contract detailing all work to be completed, or you can pay as you go, also known as “time and materials,” or T&M. The best investment property advice says that both options have their good and bad points. Here are the most important ones to consider when hiring your particular contractor.

Contract for services

Contracts offer pricing protection for property investors. That is their number one feature. But in order to protect properly, they need to be spelled out in great detail. The vaguer the agreement, the greater chance your contractor can add overage amounts to the original contract. Even if you both had discussed the work to be done, and you thought it would be included in the original contract. All your contractor has to say is, “we had a misunderstanding.” And you’re screwed – stuck paying for overages you thought were part of the contract. My investment property advice is to be sure to add any necessary language to any contract you feel is not detailed enough…prior to signing it of course.

The biggest drawback to contracts is that contractors need to protect themselves from their own human error in estimating the time and materials necessary to get the job done. So they always build in an extra amount for this “fudge factor” to make sure they don’t get burned financially. That said, with contractors who estimate properly, you’re effectively overpaying on your project. In theory, if you get bids from several contractors, the competitive bidding process should help keep their fudge factor amounts relatively low. But be aware that in all cases, you may be overpaying to obtain the safety net a contract provides.

Time and materials (T&M)

The greatest feature of hiring your contractor using the T&M method is price. In theory, that is. In a perfect world, since there is no contract price, and no fudge factor built in, you should be saving on your contractor’s services. And the savings can be substantial – think 10 to 20 percent less than what a contract may cost you. And that may certainly be worth the riskiness of going this route versus signing a contract. In addition, you can set up an account at your local hardware/building supply house for your contractor to obtain his materials. So while you may be paying retail price on materials, it’s still less expensive than paying the contractor price of materials plus his mark-up on them (which is what you’d be paying built into a standard contract).

However, the main potential problem with T&M is that it’s ripe for abuse by an unscrupulous contractor. Or maybe even worse, a decent, well-meaning, but slow contractor. Both can kill your budget in…some time. Obviously, this method of paying for services requires trust on your part. And usually, trust needs to be earned. If you’ve worked with a contractor on many projects and trust them implicitly, then T&M is a great way to go. If you feel you have a great referral from someone you trust, then this too can work well. But overall, T&M should be avoided if you’re using a contractor for the first time. Or if you’re using someone without any referral at all. Some good investment property advice is that you need to be careful, because a slow contractor can bleed you dry by taking forever to complete a project.  In effect, you become the hostage of the contractor.

 

photos courtesy of  renovation-headquarters.com, the smarter wallet.com, nahbmonday.com, latesthomeandgarden.com, bobsbestlist.com

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Is Staging Your Investment Property Necessary?

May 22, 2012 By Leave a Comment

What staging can do for your investment

Staging dresses up an investment property for sale. It will help show off the property‘s best features, and display it in the most advantageous way possible. I used to have a very pronounced anti-staging stance, favoring a much larger, open feeling to be experienced when walking into a fully renovated house that you are placing on the market for sale. This was especially true when the investment property I was putting up for sale was on the small side. I always felt that the renovations should come front and center, not the furniture.

However, I’ve changed my thinking over time on the matter. Now I feel that a wide open space without furniture can come off as feeling eerily ghost-like, creating negative connotations as prospective buyers walk through the front door for the first time. So my best investment property advice is to definitely use the services of a stager.  Ultimately, staging can help potential buyers visualize actually living in your property. This is a key factor that will give you a major advantage over your competition of similar houses currently on the market. It will also translate into a quicker sale, for a greater price.

What a stager does

A professional stager can transform a tiny room into a very open and airy space with just a few simple tricks. The stager views a property’s appeal through the eye of a potential buyer. They will typically recommend ways to make the house more inviting to buyers. For investment properties that have just been totally renovated, there is no need to “de-clutter” or move furniture around. Rather, the stager looks to turn the house into a model home you might see in magazines, thus helping buyers visualize themselves living in the home. Staging helps to broaden an investment property’s market appeal to a wider range of potential buyers.

The benefits of staging

I think that staging can give a stark house a warm and fuzzy quality that will yield an advantage over non-staged properties on the market. As basic investment property advice, it’s simply a good way to have your newly renovated property look very lived in.  In order to obtain top dollar for your investment when it comes time to sell it, you really want to make your house look exceedingly neat, warm and inviting.

I have to reiterate, I used to think that staging was a waste of time. Whenever rehabbing a house, I felt it was good to show off all the renovations and the open space the house afforded. I believed buyers could envision where there furniture would best fit while looking at an open space., as opposed to seeing a set of rooms with furniture already neatly arranged in them. However, houses can look very empty and cold even after all your wonderful renovations are done.

Part of your overall marketing strategy

So I do feel now that hiring a stager, even just for their professional input on how best to improve the overall look and feel of your particular property, should be part of the overall strategy prior to placing your investment property on the market. Staging can become quite elaborate for the more expansive property. Or it can be quite simple on small houses.  A staging company will tell you their ideas for how to best show off the existing space. Obviously, in an older home, the stager may want to bring in furnishings that are more in line with antique properties. However, in a newer home, they may decide to go with more modern furniture as a way to make the house look more comfortable.

Costs to stage a property

Staging costs depend on the type of services you’re looking for. A stager will walk through your house and note specific items for improvement. The cost for the analysis and report can range from $100 to $400, depending on your locale. Then, if you decide to go to the next step, you’ll pay rental fees for furniture and accessories that will be brought in and set up, or “staged.“ On average though, figure it will cost between $3,000 to $10,000 to properly stage a vacant property, depending on the size of the house and the length of the contract.

Choosing the right stager

It’s best to look for stagers in your area who are familiar with area homes and interior styles that are right for your particular house, renovation and locale. They need to be reputable, and my best property investment advice is that it’s always a good idea to check out their prior work. Be sure to ask your local realtor for referrals of stagers. Most realtors have forged relationships with at least one or two stagers in their area, and tend to recommend them over and over again.

 

photos courtesy of  blogs.starbulletin.com,  orlando-mortgage.org, homestagingquote.org, grandrapidsrealestatetrends.com, peoples1.com, cutcaster.com, rmhomestaging.com

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A New Type Of Investment Property Loan

April 10, 2012 By Leave a Comment

A unique wraparound loan

For many years now investors have had only one choice when it comes to investment property loans that allowed for renovation cost wraparound financing. These types of loans are used so you can incorporate the fix up costs to renovate the property into the total mortgage for the house. This type of loan is called the FHA 203K renovation loan. The problem in the past with this form of loan is that you had to occupy at least one of the units in the building you were purchasing.

Homestyle Renovation Loan

Therefore, for most investors, if you were not going to live in the investment property, this type of loan would not be available to you. In addition even if you were purchasing a multi-family house under five units, and if you were not going to live there, this type of loan would not be for you. It would only work if you’re going to live in one of the units. Now Fannie Mae has come out with their Homestyle Renovation loan. This loan is a sign of the times, as the federal government tries to help banks lessen their inventory of foreclosed properties. Now as an investor, you can purchase a property and wrap the renovation costs in with the total mortgage. And you don’t have to live there.

Increasing your leverage

This type of loan is great news for investors who really want to leverage properties. Instead of sinking a great deal of your available cash into renovation costs, you can now wrap a large portion of those renovation costs into the mortgage. This frees up your other capital for purchasing other properties. This Fannie Mae Homestyle Renovation loan can be used to purchase basically any house, condo or townhome, or multifamily property,. And the property can be in any condition, and loans will typically carry loan to value ratios in the 50 to 75% range, depending on the property.

Licensed contractors

Like the FHA 203K type of renovation and purchase loan, you’ll need to use a licensed contractor. The contractor will have to be familiar with what Fannie Mae requires, It will be helpful to use a contractor who has had a great deal of experience dealing with the FHA and its paperwork requirements. Ultimately the contractor is responsible for generating all the paperwork as to the renovation work to be performed, in order to get the loan approved.  Just like the 203K, you’ll need to use a contractor that’s been approved by Fannie Mae.

Nevertheless, this is still an exciting proposition for property investors. Now you’ll be able to truly leverage multiple properties at a time using this type of loan. Again the only caveat is that you will ultimately have to bring a tenant to the table in order to get the loan. As with the 203K type loan, you’ll have a window of time in which to get the unit occupied, after the renovation work has been completed.

Types of repairs

Some of the repairs usually done in loans like these include major work like roof repairs or replacements, new heating units, new air-conditioning , as well as complete kitchen and bath remodeling. Unlike the old FHA 203K loan however, where only one property could be financed at a time. This new Homestyle Renovation loan can be used to finance multiple properties.  This makes it a gold mine for investors looking for new investment property loans.

Create a team

Before looking for more investment properties, you really want to create a team to help you buy these kinds of distressed properties. You want to find real estate professionals with experience dealing with foreclosures and short sales. You’ll also want to get recommendations for mortgage loan people who are familiar with this new style of loan from Fannie Mae. It’s very important that these mortgage people can close on a loan like this in the shortest time possible.

You want to find mortgage loan officers who can put you at ease that a loan can close within 30 to 45 days, much like the time it takes for most average non-FHA loans to close. Otherwise you’re going to have a big problem on your hands if the loan takes forever to get approved, and you can’t close on time. It’s also a good idea to have your contractor on board as you look at properties that need a lot of work. If your contractor has done work with the FHA 203K type loan before, all the better.

Searching for distressed properties using investment property loans

So if you go out searching for investment properties these days, and if you look at a lot of distressed and or foreclosed properties or short sales, make sure you have your team all set to go: your contractor, your mortgage person, as well as your real estate agent. Make sure they’re all familiar with this new Fannie Mae Homestyle Renovation loan. Because once you see something you like, you’ll really want to jump on it as quickly as possible and put in a bid on it immediately.

And after a bid has been accepted and a contract executed, you want to get the paperwork rolling as quickly as possible for this type of investment property loan. That way the whole process will run smoothly, and you can then concentrate on your next project.

 

photos courtesy of 203konline.com,  lendersoup.com, 203krehabnow.com, moneypress.com, workaway.info, brokersbestmtg.com, buildingmoxie.com

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Falling In Love With A Victorian – A Fatal Flaw For Property Investors

March 13, 2012 By Leave a Comment

A trap for new investors

If you’re new to the  investment property search process, beware of getting sucked into the notion of rehabbing a gracious Victorian…or Colonial, Carriage House, Farmhouse or any period property exuding tremendous charm. The property may have fallen on hard times, and you may feel you’re just the person to bring it back to its former splendor. And then turn a profit on it when you rent it out and /or sell it.

Unfortunately, older, period houses usually come equipped with renovation costs that can skyrocket out of control very easily. Costs that the average property does not share, and that you may not properly account for when you crunch your numbers, and come up with your overall rehab budget. It would be sad indeed to purchase an older house at a great price, only to discover you’re sinking in red ink as your fix-up costs spiral out of control, and way beyond what you originally planned on.

Remain emotionally detached

Remember, this is not your home you’re considering purchasing. Always keep in mind as you go about your investment property search, that this is an investment property that requires you to be emotionally detached from it in order to become, and remain, profitable. Otherwise, you might as well consider investing in some other emotionally-laden investments…like a Broadway show for example.

Consider what an older house brings to the table: sash windows that are paper-thin by today’s standards, and also are quite leaky – producing many drafts, thereby increasing your heating costs. Also think about the costs of rewiring hundred-year-old electrical wires and circuits throughout the house. And how about replacing antiquated plumbing lines and fixtures as well. On the whole, your repair costs could run 25% to 50% higher on an older property than on a newer one.

According to a 20/20 Research report, 38% of Victorian property owners felt that their property had not been a good investment. And these were actual homeowners – not simply property investors. Clearly there is a disconnect between “falling in love” with a property, and actually fixing it up and maintaining it.

Look for newer properties first

The best investment property search results, and therefore yields, can usually be found through investing in newer houses that need less repair work to begin with, and which will cost less to maintain in the long run. So as you begin your investment property search, always be wary of your own emotional tugs to older homes. And be sure to check them at the door.

 

 

photos courtesy of davidtripp.wordpress.com,  yourdailyrealestatefix.com, workaway.info, users.rcn.com, danzafamily.com

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The Most Cost-Effective Projects When Property Investing

February 1, 2012 By Leave a Comment

The top ten projects for property investing…

When evaluating any investment property that requires work to realize it’s full market value, consider these proven cost-effective investment property projects. They’ll return the most on every dollar spent.

According to Remodeling Magazine’s 2011-2012 Cost vs. Value Report, here are the top ten projects that will yield you the most bang for your buck in your property investment. These are mainly basic projects, most of which are exterior-related. But all have the highest return on investment, relative to all renovation projects.

1 - Exterior siding replacement with high-end fiber cement. This type of siding is one of the most cost-effective measures you can do for your property.

2 - Replacing an entry door with a mid-level steel door. It’s a relatively inexpensive upgrade that really helps improve the exterior look of your investment property.

3 - Adding an attic bedroom. An attic remodel is the least expensive way of adding space and/or a bathroom inside the four walls of an existing house. (A basement remodel would be the next most cost-effective way to add living space.) In both scenarios, make sure you check with your local building department for feasibility.

4 - A minor kitchen remodel job. This may involve simply adding new laminate countertops, new sink, faucets and appliances. Cabinets are usually resurfaced, not necessarily ripped out and replaced. And the floor remains untouched.

5 – A mid-range garage door replacement. New garage doors really add to the overall first impression when prospective tenants drive up for the first time.

6 –  Next best is a high-end garage door replacement, for the same reason as above.

7 –  Adding a new wood deck, since the space and openness is so highly valued  by tenants.

8 –  Foam-backed vinyl siding replacement improves the look of the house, and saves in heating costs, allowing you to attract more potential tenants, especially if they are paying for their own heat.

9 –  Adding mid-range vinyl siding replacement. While not as expensive as foam-backed, and yielding less in terms of heat savings, the overall exterior look is improved greatly.

10 –  Replacing old windows with new vinyl replacement windows that have low-emissive glass and high insulation values.

The bottom line for property investors…

Remember to spend your renovation dollars on the most desirable features for tenants, as well as those items that are standard maintenance items. Whenever you improve the look and feel of the exterior of your investment property, you’re naturally going to attract better qualified, and increasingly more potential tenants.

photos courtesy of brokersbestmtg.com, lifestylingsells.com, housebeautiful.com, eliteconstructionva.com, massrealestatelawblog.com

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Investment Property Information Series – How Best To Tackle A Kitchen Remodel

November 30, 2011 By Leave a Comment

In search of the highest quality tenant

When considering a kitchen remodeling project for your investment property, always keep in mind the overall benefit of the undertaking: attracting a higher-quality tenant. A tenant who will not only be a regular, on-time payment maker of their rent, but also one that can afford and appreciate the newer, higher market rent you’ll be charging for the right to live in an updated unit.  Obviously, these types of tenants are golden to any landlord.   And tenants like these help to lower your vacancy rate, while minimizing your time and overall risk per unit. In addition, you should take into consideration that the renovation must be kept as simple and economical as possible – after all, it’s not your own home kitchen you’re remodeling here.

Swapping out

Once you’ve decided it makes economic sense to renovate a kitchen in an investment property, look for the easiest, most basic ways to do so. One of the most cost-effective and intelligent ways to rehab a kitchen is to simply “swap out” existing components of the existing kitchen that need replacement. Again, remember this is not your home you’re remodeling. You’re not interested in oversupplying tenants with amenities that don’t provide for proper payback in increased rent. Also keep in mind that a kitchen rehab of a unit in Trump Towers is a far cry from a rehab of an average 4-unit multifamily house in Everytown, USA. In addition, keep the project look on the blander side – nothing flashy, and make sure it appeals to most everyone, and that there’s nothing uniquely objectionable about the renovation. Basically, try to keep your own personal tastes at bay.

The simplest kitchen swap outs involve only replacement of existing appliances – oven, refrigerator, dishwasher and microwave traditionally. However, if the cabinets haven’t been replaced in over 25 to 30 years, it would be wise to replace them as well. As long as you are strictly replacing cabinets in the exact positions they were in before, there will be no need to update kitchen electrical wiring to today’s electrical code requirements. Likewise, as long as you are replacing the existing sink in the exact position as the old one, no new plumbing requirements will be triggered.

The building permit triggers

However, once you try to add a dishwasher line, or change the position of the sink, or add an island, or reconfigure the cabinets in any way other than what already exists – you’re going to need a building permit from your local municipality. And your electrical outlets may need to be either updated and/or more outlets added to bring the kitchen up to today’s codes. In addition, any plumbing change will also require a separate licensed plumber to come in and make those changes/additions as well. Obviously, if you’re adding anything (like said dishwasher, or a line for a refrigerator with an icemaker, or switching from an electric to gas-fired oven), you’ll be required to get a permit for the plumber’s work as well, as part of the overall building permit on the renovation.

Automatic assessment increases

And it’s that building permit that will certainly trigger an automatic increase in your property assessment, yielding an increase in taxes for you. So make sure any changes/additions you make to your kitchen are absolutely necessary, and try to go with the swap out approach first. If you feel you must change the kitchen more radically, then you must be sure you know you’ll be able to offset the increases of rehab expense, building permit time and cost, and concomitant tax increase on the property with much higher rents over the long run.

If you do decide to do a larger-scale remodeling, try to keep your costs in check by utilizing the free services of the kitchen planning departments associated with the big box stores like Home Depot or Lowes. In addition, the discounted cabinetry from these stores will also help in keeping the overall project cost down.

Choosing the contractor

Finally, another useful bit of investment property information when doing a kitchen remodeling job, is to make sure you choose your contractor carefully – there can be a glut of them available due to the current housing market malaise.

Make sure they are licensed. Also, make sure you set up a written contractual payment schedule with them. The schedule should include a small down payment (usually only 25% to 33% down before work starts, to allow them to purchase materials for the project).

The schedule should also reflect future payments tied directly to completed stages of work. In this way, you won’t allow the contractor to get too far ahead of you in receiving his payments. Whenever possible, see if he can offer you his contractor discount on materials he purchases from supply houses. You can also offer to purchase materials (like cabinetry, countertops and appliances) strictly by yourself, and have them waiting on site for the contractor when he starts the project.

 

photos courtesy of  archzine.org,  pm.tayki.com, kitchenremodelingdesign.net, rivertoncity.com, interiordesignperth.com, c9insurance.com

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Assembling Your Property Investment Team – The Contractor, Part 1

May 30, 2011 By Leave a Comment

An essential team member…

Most contractors will agree that their greatest asset is their reputation. Any contractor who’s been around awhile has that all-important reputation to protect.

In selecting the right contractor, check out all references your potential contractor supplies you with. Make sure your questions to his previous customers deal with the quality of the work performed, and whether past projects were completed in a timely fashion, and on budget. Any payment problems or cost overruns the prior customer may have incurred with a particular contractor should be discussed to see if they were reasonable cost overruns.

It’s also a good idea to visit some of the houses your potential contractor has renovated as well, to check out first-hand the quality of construction. And you may want to check with some other sources, too.

Your local building department as well as the Better Business Bureau are good places to start to see what sort of track record a particular contractor has had. You’ll be looking for any financial or legal problems they may have encountered in the past.

Fully licensed?

In addition, you’ll want to make sure your contractor is not only fully licensed with your local county, thus ensuring his reputability, but you’ll also want to make sure he carries his own workers compensation insurance for himself and his own workers.

For small projects, you’ll want to be sure your contractor is a good “fit” for your personality. You’ll be working with him extensively on a daily basis, so you must be able to communicate ideas well with him. Make sure he’s a good listener, and understands the scope of renovations you’d like to accomplish within a set budget. Also check to see that he’s being proactively creative – coming up with his own ideas that you hadn’t thought of that will either save you money, or increase the desirability of your house.

Contracts

When your property investment renovation is going to be a large one, make sure everything is in writing. A contract is only as good as the contractor. Any renovation project must be implemented in the spirit in which it was negotiated.

Contracts for extensive renovations should contain detailed specs and drawings on a room by room basis, including the exact materials to be used. (With major rehab projects, it’s the architect’s responsibility to come up with the specs so that there’s little open to interpretation.)  A contract should also be very specific as to how to deal with any changes an investor would want during the renovation.

Change orders…

Customarily these “change orders” should be acknowledged and signed for by the purchaser at the time of the change in plans or materials. In order to avoid problems during rehab, there must be a symbiotic relationship between the contractor and the investor.

The contractor has his job to do, and any reputable one will follow the contract explicitly – including finishing the project in a timely fashion. And contractors expect to be in constant contact with investors through the entire renovation process.

Renovating investment property is a two-way street, and contractors should not be abused by investors either. As long as the project is progressing on time as per the contract, investors should refrain from overusing that well-known quote from “The Agony and The Ecstasy,” “when will you make an end?”

photos courtesy of  local.ctpost.com, make-my-own-house.com, local.yahoo.com

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