Inspecting the Property and Estimating Rehab Costs

Finding the Perfect Candidate for a Quick Makeover

When you’re flipping your first or second property, look for the easy score — a property that looks a lot worse than it is. These houses are typically sold below market value because nobody wants them and the owners aren’t motivated enough to do what’s necessary to make somebody want to buy them. In short, look for a good, solid house that requires no major repairs and looks ugly. The following sections help you spot the signs of an ideal candidate. For full details on quick-flip renovations, head to Chapter 15.

My team does a lot of white-boxing. We buy houses that are cosmetically challenged but in pretty good shape and give them a quick makeover. We paint the walls white, install new light-switch and electrical-outlet covers, lay new carpeting, spruce up the landscaping, and so on to give the property a nice, clean, well-manicured look.

Poor but promising curb appeal

If you go to look at a property and your first impulse is to drive past, that’s a good sign that curb appeal is lacking. Either the house looks ugly from the street or you simply don’t see it. The house has no pop. Assuming the shell of the house is sound — the roof, gutters, windows, and siding don’t need to be replaced — you can often improve the curbside appeal with a few quick and affordable do-it-yourself improvements.

Figure 11-2 shows a potentially perfect candidate, although a closer inspection could prove otherwise. The house appears to be in good shape, but it doesn’t really stand out from the street. However, some landscaping and light touches on the exterior can change all that!

Photo courtesy of Ralph Roberts Realty

FIGURE 11-2: This house is a potentially perfect candidate for a quick makeover.

Cosmetically challenged, inside and out

Often, homeowners’ poor taste is enough to turn away prospective buyers. The owners paint their house with colors that shouldn’t be legal. They install carpeting that clashes and tile that can turn your stomach. They install a pink bathtub and paint the walls yellow.

Fortunately for you, cosmetically challenged houses are often a good buy, assuming they’re in decent condition. Simply by decking out the house in a new, neutral color scheme, you can raise the resale price by thousands of dollars and attract a steady stream of house hunters who previously couldn’t stomach looking at the property.

A second-rate showing

Homeowners often lack the energy, motivation, and expertise required to properly stage their home for a showing. Staging, as I discuss in Chapter 21, is the process of beautifying your home for prospective buyers. Think of it as primping yourself for a hot date. A properly staged home draws more interested buyers and commands a higher sales price.

When looking for a property to quickly flip for a profit, keep an eye out for poorly staged homes. The poor staging reduces your competition as a buyer, enables you to make a low-ball offer, and provides you with the opportunity to raise the resale price just by doing a little cleanup and redecorating.

Assessing Potential Curbside Appeal

Poor curbside appeal isn’t necessarily a bad thing. It’s often one of the main reasons you can purchase a property below market value. What you’re looking for at this point is potential. When you pull up to the curb, don’t scramble out of the car and sprint to the front door. Linger for a few moments, observe the outside of the house, and ask yourself the following:

Is the house visible from the street? If it’s visible, good. If you can do something relatively easy and inexpensive to increase its visibility, that’s good, too. If the house is hopelessly hidden, that’s bad.
Is the house on a busy thoroughfare? If it is, that can be a good thing if the location provides convenient access to stores, schools, and work. It can also be a drawback because people may worry about the noise and traffic.
Is the house near a park, school, or golf course? Each of these places can be a big draw.
Is the exterior of the house inviting? Can you make it more inviting without spending too much money? A little landscaping, including trimming trees and shrubs, mowing, and edging, can do wonders and doesn’t cost a lot of money.
Are the sidewalks and driveway structurally sound? Sidewalks and driveways can be solid and still look awful. Pulling weeds, patching cracks, and resealing an asphalt drive are easy, inexpensive fixes. If you need to install a new concrete drive or sidewalks, that can get costly.
What’s the garage look like? If the house doesn’t have a garage, you may be able to add one, depending on how much land you have to work with. If the garage looks worse than it is, some minor improvements can give it the pop it needs.
How does this house stack up to neighboring homes? Can you make affordable adjustments to make it the prettiest peacock on the block?
Does the house look as though it requires a greater investment than you can afford, both in time and money? Bottom line: If the house strikes you as a money pit, walk away. Don’t play the hero and try to salvage a hopeless home.

Include the entryway in your curb-appeal assessment. A home’s entryway is the bridge to an oasis. When a visitor passes through the front door, he should feel as though he’s entering a new and better world. If the front porch is cluttered, the doors are ugly, and you enter feeling as though you’re getting shoved into a closet, consider options for making the entryway more inviting.

And don’t forget the backyard! Homeowners often treat the backyard like a pristine nature preserve. This undeveloped space often provides you with the pure potential you need to unleash your creativity, add living space, and significantly boost the property value. You may want to consider adding or improving a patio, deck, or attached garage.

Check out Chapter 16 for full details on perking up a house’s curb appeal.

Inspecting the House for Big-Ticket Items

Almost every property that’s flippable can use a fresh coat of paint, new carpeting, and some tender loving care. You expect that, and you budget it into the cost of the property. Unexpected defects in big-ticket items, however, can quickly bust your budget and drastically cut into your potential profit. Many of these items are costly to repair or replace, and unfortunately, the repairs don’t increase the value of the property.

Although you should have the property professionally inspected before you close on the deal (see Chapter 13 for details about professional inspections), you can often save yourself the time and money by catching any major problems on your first visit. The following sections point out the most common and expensive problem areas.

Focusing on the foundation

Every house rests on a foundation, typically a basement or concrete slab. Inspect the foundation, inside and out, for any of the following symptoms of a sick foundation:

Cracked foundation or walls: Almost all foundations have cracks, but large cracks that run down the entire length of the basement wall or along the floor are symptoms of costly structural problems. Check inside the house for cracked walls that may also point to foundation problems.
Bowed walls: Check basement walls for any signs of bowing, indicating that water and dirt are pushing in the foundation.
Warped floors: Uneven floors may be a sign of underlying structural problems. If a floor is sinking, you may see the tops of the walls separating from the ceiling or cabinets pulling away from walls.
Spongy floors, particularly under wall-to-wall carpeting: Be mindful while you walk to discover any spongy areas that may point to trouble. If the house has a basement or crawlspace, check the joists and the condition of the floor from the underbelly of the house.
Mold/mildew: Mold and mildew on basement walls is often a sign of a leaky basement. The basement may appear to be dry now, but when the rain starts pouring down, you may have an indoor pool in your basement.
Recently installed paneling: Recently installed paneling or drywall may indicate a foundation problem that the owner is trying to cover up.

Dampness in a basement isn’t always a sign of a serious problem. Clogged gutters or downspouts that fail to direct the water away from the house are common causes of dampness too — problems that are much easier and cheaper to correct. Note the problem and be sure to mention it when you have the home inspected.

Checking out walls and floors

Walls and floors are particularly susceptible to water damage in bathrooms. To check for water damage in the floor, press your foot down near the base of the toilet or try rocking the toilet back and forth. The toilet moves if the sub-floor it’s anchored to is rotting.

If the bathroom is tiled, press lightly on the tiles around the bathtub, shower, and sink. In homes with drywall, moisture often softens the drywall and causes it to crumble. Note any serious damage you find, but don’t rule out the house just yet.

Examining the siding

Visually inspect the outside of the house and note the type of facing — brick, wood, vinyl, aluminum, or stucco. Compare it to the neighboring properties. Inspect the facing and note any damage or signs of aging:

Brick: Worn or missing mortar
Vinyl: Cracked, warped, or peeling siding
Aluminum: Dented or peeling siding
Wood: Rotted, cracked, or missing boards
Stucco: Cracked, bowed, or peeling stucco

Chapter 16 has information on retooling a house’s siding.

Giving the roof and gutters the once-over

As you inspect the home’s facing, let your eyes wander up a little higher to check out the roof and gutters. Note any of the following potential problems:

Bowed or damaged roof: Such a roof indicates a problem with the underlying structure of the roof.
Damaged or aging shingles: Shingles curling at the edges are often a sign that the house needs to be re-roofed.
Obvious patches: An obvious patch or an area with shingles that don’t match the color of surrounding shingles may indicate that the roof leaked in the past and may be damaged beneath the shingles.
Two or more layers of shingles: You can usually lay one layer of shingles over another, but if the home needs a new roof and it already has two or more layers of shingles, the roofers will need to strip off the old layers first, which can nearly double the cost of roofing the house.
Gutters pulling away from the house: You may be able to re-attach the gutters, unless the facing board they’re anchored to is rotten.

Listen to your contractors. My team once did a house that needed a new roof, to the tune of $8,500. The contractor noted that only the front side of the roof needed to be replaced; the back had about ten years left of life. We spent $4,400 on the front roof and saved a bunch of money.

Head to Chapter 16 for additional details about new roofs and gutters.

Glancing at the windows, inside and out

Windows are not only a functional part of every house — letting in light while insulating the house and acting as a barrier against the natural elements — but they also play an aesthetic role — accenting both the interior and exterior. Inspect windows for both function and appearance, and note the following:

Any broken panes
Torn or missing screens
Windows painted shut
Rotted wood, especially window sills

Chapter 18 has information about updating windows.

Evaluating the plumbing

As you walk through a house, turn the faucets on and off, flush the toilets, and check for the following common plumbing problems:

Clogged drains: Leave the faucets running for several seconds to see whether the water backs up.
Leaking drains or pipes: Check under the cabinets for any signs of leaking drains or pipes. Water stains on the ceilings and walls are often a sign of leaking pipes that could sink your flip if gone unchecked.
Dripping faucets: Drips are relatively easy and inexpensive to fix, but note them.
Leaking toilets: Try rocking the toilet or press your foot down near its base to make sure that the floor isn’t rotted.
Low water pressure: Water should flow faster than a trickle, especially if the house has an upstairs bathroom.
Broken water heater: Make sure that you’re getting hot water and visually inspect the water heater for rust, leaks, and other signs of damage.

Exploring the electrical system

A home’s electrical system delivers power to every light, appliance, and gadget in the house. Fortunately, most homes built in the last 30 years or so have reliable electrical systems built to code. If the outlets function, the lights don’t flicker, and the home was built in the last 30 years, you can be fairly confident that the electrical system is acceptable. Even so, you should always check for the following:

The condition of the electrical box: An old electrical box with fuses rather than breaker switches may need to be replaced.
The type of wiring used: The best wiring is installed in conduit (metal tubes that completely insulate the wire). Many homes use flexible cables insulated in white plastic, which are also acceptable. Older knob-and-tube wiring strings the wires around porcelain knobs and usually doesn’t meet modern building codes. Aluminum wire (silver rather than copper) may also be a problem in some areas.
The use of lots of extension cords: This indicates that the house has too few outlets or outlets that aren’t working.
The functionality of the outlets inside and out: Use your handy-dandy circuit tester, described earlier in this chapter, to determine whether the outlets work and whether they’re properly grounded.
The functionality of the lights: Turn on all the lights to make sure that they work. (Of course, non-functioning lights typically just need new lightbulbs, a cheap and easy fix.)

Checking out the furnace and air conditioner

When examining a house for investment purposes, compare what the house has to what it needs to bring it up to neighborhood standards. If most homes in the area have forced-air heat and central air conditioning, and the house you’re looking at has radiant heat with no ductwork, adding central air conditioning can be costly, but it can also add real value to the property.

Visually inspect the furnace and air-conditioning unit to determine their approximate age and any obvious damage. You may not be able to test the air conditioning if you’re looking at a house in the winter, but you can check the furnace year-round by turning it on and cranking up the thermostat.

Check the seller’s disclosure for the approximate age and condition of the furnace and air-conditioning system. (Ten years is considered old, but I’ve seen furnaces last up to 30 years if they’re good and well-maintained.) Also, turn on the furnace fan at the thermostat and check the vents around the house to make sure the furnace fan is working.

Adjusting your eyes to the lighting

Some houses feel more like caves than homes. Even on a bright, sunny day, little light penetrates, and the house has insufficient lighting to compensate. As your eyes adjust to the lighting in various houses, observe what well-lit houses have that ill-illuminated houses lack. Focus on the following items:

Windows: Compare the number, size, and positions of the windows.
Window dressings: Some drapes and blinds are more translucent than others. What styles of window dressings are used in well-lit houses?
Colors: Dark walls, trim, carpet, and furnishings absorb light, often making a house seem darker than it really is.
Floor plan: A house that’s chopped into tiny rooms often prevents outside light from penetrating into the inner recesses.
Landscaping: Trees and shrubs can filter out just enough light while shading the house and improving privacy, or they can blanket the house in gloomy darkness.
Skylights: Modern homes often incorporate skylights to draw daytime lighting into a room and make it appear more open. Skylights don’t necessarily add value to a home; if you’re inspecting a home that has skylights, look for signs of leaks around the skylights, such as a patched or discolored ceiling. Skylights may also be a source of heat loss in the winter.
Light fixtures: Well-lit homes typically have plenty of overhead light fixtures, track lighting, or recessed lights. Poorly lit homes rely on lamps, which tend to cast shadows and consume living space.

Discovering Some Promising Features

Some houses are like army barracks. They’re neat and clean and well suited for sheltering a family, but they’re no work of art. A handful of homes are more inspired. They have a couple of features that take your breath away … in a good way — perhaps a lush garden in the backyard, a master bedroom with a fireplace and built-in entertainment system, or a huge kitchen that opens into a living and dining room area complete with a fireplace. Keep an eye out for the following special features:

Rooms with character and class: Real estate agents often use the word “character” to mean “old,” and they’re typically justified in doing so. Older homes tend to have more character — interior walls of brick, tin ceilings, hardwood floors, sculpted plaster ceilings ten feet high, and so on. But some newer homes have their own classy features as well, such as fine woodwork, an open-concept floor plan, or built-in shelves. Look for features that have marketing potential — that will draw prospective buyers to see the home.

Also note any rooms that fall short of the standard. These are the rooms that you can improve to make the house more attractive to potential buyers.
Hardwood floors: Valuable hardwood floors are often concealed beneath wall-to-wall carpeting, especially in older homes. You may be able to peel up a corner of the carpet in a closet to see what’s underneath without damaging the carpet. If you find a hardwood floor, you’re in luck. Hardwood flooring costs two to three times as much as carpeting laid over plywood, so it’s definitely a bonus in terms of the property’s value.
Large, open kitchen: A large, open kitchen is better than a cramped one. A large, open kitchen that opens to a living room and dining room is even better. Best, perhaps, is a large kitchen that’s closed off from the rest of the house but has the potential of being opened up with the removal of one or two walls. If you can buy the house at a bargain price, removing those walls could significantly improve its marketability.
Large bathroom: People don’t generally hang out in the bathroom as much as they do in the kitchen, but they like to have at least one large bathroom to relax in. The minimum size for a bathroom is about 5 feet by 7 feet, and no matter how you arrange the toilet, shower, and sink, that feels a little cramped. An extra foot (5-by-8) significantly increases your choice of tub or shower. Any additional space makes the bathroom a more marketable feature.
Two or more bathrooms: An extra bathroom or even a half bath is a big bonus, making the home more attractive to more people.
Room to add a bathroom: If a home has only one bathroom, look for possible spaces you can convert into a bathroom or half bath — for example, one corner of the basement.

You can usually improve the marketability of a home by cleaning the bathrooms. A thorough cleaning, some fresh caulk, and a coat of paint may be enough to transform a vile health hazard into a sparkling, nearly new bathroom. With a little extra money, you can retile the floor and walls, resurface the tub, or install a new shower stall.
At least one large bedroom: Consider a 10-by-10-foot bedroom the bare minimum. When you consider that a queen-sized bed hogs about 35 square feet of floor space and a small dresser consumes another 5 or 6 square feet, a 100-square-foot bedroom quickly fills up. Of course, the larger the better.

A master suite, complete with a walk-in closet and an attached bathroom, is a big plus because it appeals to married couples who have or are planning to have children. In homes that don’t include a master suite, consider ways of converting existing spaces into a master suite; for example, you may be able to combine two neighboring bedrooms and a bathroom. However, you need to weigh the tradeoffs of having more bedrooms versus more room in a master bedroom.
At least two bedrooms: A two- or three-bedroom house is much more marketable than a one-bedroom house. Even if a prospective buyer doesn’t need the second bedroom, most will appreciate having an extra room for a home office or study or for overnight guests.
Lots of closet space: Although some people barely notice the closet space (or lack thereof) in a home until they move in, others quickly rule out homes that are lacking in closet space. Some buyers won’t even consider a home that doesn’t contain at least one walk-in closet. When checking out homes to buy, opt for homes with plenty of closet space.

Hallway closets are also a big plus for storing linens, cleaning supplies, and other stuff. Again, the bigger, the better.
Laundry room: A main-floor laundry room is a big plus. Most buyers don’t want to have to run up and down the stairs to do their laundry. In some cases, converting an extra small room on the main floor into a laundry room is a smart move. The room should be large enough to hold a washer, a dryer, a shelf for storing clothes, and one or two people to fold the laundry.

Step into the laundry room and perform the usual inspections of the ceiling, walls, and floor to look for any damage or water stains that could indicate plumbing problems. Make sure that the water pipe connections for the washing machine are present and that the threads on the connectors aren’t stripped. If the room has a laundry tub, note its condition and whether it needs to be replaced. Also note the size of the room.
Attic: If the house has an accessible attic, climb up there and note whether it has a floor (yes or no), adequate insulation (which you may not see if the attic has a floor), and sufficient venting for the roof. Is the attic large enough to convert into another room? Also inspect the underside of the roof for any damage and note it on the roof section of your inspection sheet.
Basement: Head to the cellar to inspect the stairway and handrail. Carefully check the outside walls for water or structural damage (walls bowed in or covered with mold or mildew). Is the basement finished or partially finished? Note the types of improvements you could make to the basement to enhance its appearance and functionality.
Bonus rooms: Bonus rooms include family rooms and dens — any attractive, spacious, and comfortable area that’s conducive for friends and family members to hang out and enjoy one another’s company or some peace and quiet. A fireplace is a big bonus, as long as it’s in working order. Be sure to have the chimney inspected and get an estimate of any required repairs before you close on the house.

A single overpowering feature can often sell a home, so as you tour homes, look for these hidden gems. When comparing houses, give more weight to a house with character than a house that’s simply neat and tidy.

Some houses are begging for reconstruction. They’re either too chopped up to allow smooth movement or they have too few rooms to make them marketable. Always look for houses with great floor plans so you don’t have to invest in any major surgery, but if you can’t find a house with a good floor plan, look for one that has a floor plan you can reconfigure affordably. If you’re debating between two houses — one with three bedrooms and one with two bedrooms that you can convert into a three-bedroom house — all other things being equal, go with the three-bedroom house. See Chapter 19 for details on reconfiguring spaces and other structural renovations.