Doing Your Due Diligence: Renovation for Real!

You are pre-qualified and know what you can afford.  After scouring the listings and looking at properties, you have found the perfect house!  When you write an offer on the desired property, be sure to include a period of due diligence of two weeks or so.  This will give you the opportunity to take care of several necessary steps to ensure you want to move forward with the purchase.  Due diligence is important whether you are buying a property to rehab or one that is move-in ready.

The first two things you need to address are getting a home inspection and a termite inspection.  In a hot market, inspectors are extremely busy, and availability is limited.  You have to get the inspection completed during the due diligence, so start calling inspectors immediately.  The home inspection is a great way to find out what NEEDS to be done as well as providing a “punch list” of things that SHOULD be done, but could possibly wait until later.  The termite inspection will determine if there is any recent or active termite infestation, and if there is a need to address those concerns. A termite inspector can also determine if there is a presence of mold that needs to be further evaluation for potential remediation.  Mold can be a deal-killer if it is extensive, as it can be costly to remove.  And since the property is being sold "AS IS", the seller is not likely to step in to pay for any repairs or removal.  

Soon after the inspection, you need to meet with a contractor to get estimates.  And just as the home inspectors are slammed right now, so are the contractors.  If you haven’t already found a contractor, you need to get busy finding one now!  Ideally, you should have a contractor at the ready before you even start the home search.

After you get your inspection report, you need to go through it and prioritize the items.  We listed our items in 5 Phases:  “HAVE to HAVES”, “NEED to HAVE” (but could wait a bit, if necessary) “Would LIKE to Have”, “ENHANCEMENTS”, and “ICING THE CAKE!” 

Once you have an itemized list of what you need/want to have done, schedule a meeting with the contractor to get estimates for the work.  It is a good idea to get a couple estimates so you can make sure you are getting the best value and quality of work you can afford.  The best way to find a good contractor is word of mouth/referral!

 For our project, our phases looked something like this: 

“HAVE TO HAVES” are things such as electrical, plumbing, roof, HVAC, structural, basic flooring, systems and environmental/hazardous conditions.  If you are getting FHA 203(K) financing, these are items that will be required by the lender. 

“NEED to HAVES” are things such as re-finishing the floors, upgrade to tile shower, new tub, vanities, painting interior, replacing door hardware, replacing light fixtures, gutters, etc.

“Would LIKE to Have” would be things such as a second oven/microwave combo, upgraded appliances, adding laundry cabinets and mud sink, butler’s pantry, bathroom additions, crown molding, painting exterior, exterior lighting upgrades, gas line to outside lights, etc.

“ENHANCEMENTS” would be crown molding, custom window treatments, room additions, adding gas to replace current stove with gas range, landscape improvements,etc.

“THE ICING ON THE CAKE!” would be room additions, wet-bar, extensive landscape improvements, etc.

IMPORTANT TO NOTE:  Not only do you need the contractor to give you estimates for cost, you need timeline estimates, as well.  What is their anticipated date of completion?  Are you planning for the entire project to be completed right away, or are you doing it in phases over time?  If the renovation is for a home that you will be moving into, what is your target move-in date and does it mesh with the contractor’s estimated date of completion?   Always allow extra time for completion, as delays are inevitable.

Based on the estimates as compared to your renovation budget, you can determine how much of the itemized list the contractors can complete up-front, and which items need to wait until a later date.  

Tomorrow, we will cover estimates, comps, value and re-negotiation:  Is it worth the investment?

Lovin' Life in the Low Country,

Janie

My mission statement:  To live each day to the fullest, with excitement, enthusiasm and a strong desire to build a successful and highly respected real estate business, earned by developing relationships through consistent and predictably high work ethic of always going above and beyond, and always doing so with a creative surprise up my sleeve.