By startingpoint August 9, 2014

How Much Should You Spend on a Pre-hab?

There are several factors that can come into play to determine the amount of money you should spend on a Pre-hab. You need to ask yourself, “If I did X, how much more could I get for this property?” Obviously that dollar amount needs to be higher than what you put in. If it’s higher, how much higher, and is that amount worth your time? Here’s a scenario: If you purchase a house for $20k and put $5k to $10k in it and you can sell it for $42k, as opposed to $25k. This would be worth it, not only because you drastically increase your asking price, but also because it takes a lot of ‘if’ factors out for the end buyer. So, the buyer will then have a much better understanding of what they are getting by taking away the ‘you never know what is behind those walls’ kind of thing. Also, you could more easily sell to a potential owner occupant because the $203k renovation loan would be easier to figure out, AND the homeowner is more comfortable with the process and can limit overages because all of the ‘what-if’ factors are taken out of the equation. 

 

How much to pay workers…

  • Cleaning crew $300 to $500
  • Light vegetation removal and cutting the grass $50 to $200
  • Mold remediation $1,500 to $3,000
  • Roof. This all depends on each individual situation but I would say a good range is between $2,500 to $6,000 depending on the size of roof and materials needed
  • Trash clean out, this is dependent on how bad the situation and how big the house is, but a good estimate is between $200 to $1,000
  • Landscaping. Figure mulch at around $100 to $1,000, weeding is usually part of grass cutting and clearing (listed above), and if you need to purchase shrubs then try to select the Home Depot special for a low cost spruce up!

The ultimate goal for a pre-hab is to take it from an “eye sore” to an “eye catcher”. It’s the increase in the perceived value of the property that is going to make you money in a pre-hab scenario. Yes, you could probably wholesale “as is” but you wouldn’t make as much as if you took a few days to pre-hab it. Just remember, by pre-habbing you are only ‘cleaning-up’ rather than rehabbing and ‘fixing-up’. Another thing you should keep in mind is that If you get into the pre-hab, and realize there isn’t much left to bring it to full retail, then you might as well take it to the finish line!

If you want to learn more about purchasing a pre-hab rental, commercial, or residential property contact us today! Be sure to follow us on Twitter, Facebook, Pinterest, and Google+.