Fixing a house and getting it ready for the market is not for the faint of heart. After paying for a home inspector and having the foundation and roof inspected you have an idea of what repairs are needed in order for a house to pass inspection. Next, decide on what upgrades such as floors, cabinets or granite the house needs in order for it to compete with other houses for sale. You will need to decide on the latest trends, textures, and color schemes that are currently in style. Remodeling some aspect of the house may be required, such as opening a kitchen into a living room. Once, you have decided on the scope of the repair, upgrade, or remodeling project, you need to meet with various contractors to get a bid for the labor and materials.
Texas does not require Remodeling Contractors to be licensed — almost anyone can be a contractor. There are a few GOOD Contractors but they usually cost more or are very busy. Not all contractors do it all; some do not do foundation repairs, or some do not do electrical or air conditioning. So most likely, you will have to meet/deal with a handful of contractors. This part of the process can be tricky because some contractors will tell you what you want to hear only to get started on the job to then be forced to ask for more money in order to complete the project. Many well-meaning homeowners have fallen into this trap only to face disgruntled contractors threatening to file a lien against the home they were supposed to repair, thereby hindering the sale of the property instead of expediting the sale of the property.
Many newbie investors who have tried their hand at fixing and flipping have lost nearly all their equity because of Rehab projects going over budget. Also what needs to be factored into the COST of rehabbing is the monthly ongoing payments to maintain the house such as (monthly mortgage payments, taxes, insurance, utilities, yard maintenance, pest control, security alarm, and HOA) which can add up to approx. $1500 – $2500 per month, so a 3-month Rehab project would have a Holding cost of $4,500 – $7,500
Let’s say you have successfully Rehabbed your property and now you are ready for the market. You sign a 6-month listing agreement with a local realtor who promises you can get high dollar for your house. For example, realtor promises to sell for $100k, after 6 months of additional holding costs (see above) you get an offer for $90k and you accept it. Buyer runs inspections and appraisal, price is almost all the time revisited and adjusted to a lower amount to maybe $85k. After you pay for 6% commissions, and 2% closing costs, 6% holding costs for total 14% of $85k which would amount to $11,900 of selling costs, resulting in a Net amount of only $73,100 to the seller after ALL actual selling expenses. Rehab expenses (if any) have not yet been deducted which would result in a lower amount to Seller. Not all transactions are typical to as mentioned above, results may vary for the better or worst.
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