Sunday, March 8, 2015


Most people have seen, or at least know about, those TV shows where real estate investors buy those houses in horrible condition and fix them up for huge profit. They show houses in Massachusetts, Nevada, Texas and California, amongst other places. What viewers don’t often realize is that these shows really just tell stories that are dramatic and are meant to entertain the audience.

The stories revolve around the purchase, rehab and sale of a beautiful home that was once a rundown shack. In most cases, these houses are filled with surprise disasters and are completely redone in record time to end the show with a spectacular result.

WELL…THAT IS TV. It’s fiction or at the very least, extremely edited “FACT.”

Back to reality…

If a house is severely distressed, like the ones on TV, meaning that there is some major problem like a structural defect, mold, severe damage, missing plumbing or fire damage, conventional lenders are not going to take a mortgage on it if it is not habitable. This would mean that a buyer would have to pay all cash for the property. For most buyers who want to live there and work on the repairs over time this may not be possible – or even practical. It is currently unlivable and it will cost too much money to get the house in a habitable state right away.

The Truth About Rehabs

This is where the big issue with those TV shows rears its ugly head. If a person is watching these shows and thinking that they are being educated on renovations, they may be in for a surprise. They may not realize that planning the work, finding contractors, getting permits and having the work done in the proper order to get an inspection on these damaged properties is NOT as easy as it seems on TV.

TV likes to give the impression that the work can be done in a few weeks. In reality, these shows are typically filmed over several months. There are often delays in construction, hidden problems or mistakes and cost over runs when projects get bigger or mistakes are made. Sometimes it really takes weeks to get a permit or inspection from the city.

Episodes are “cast” and planned in advance. It is unlikely the shows team hasn't seen the property before “buying” it. It's just more dramatic to seem surprised. All the “workers” have agreed to do the show.

Sometimes when they show the “costs” and “profits” at the end, they don’t explain that products or services were free or rebated in exchange for mentioning company names, or advertising materials that were used.

For the average person watching clever editing, it may seem like this is a fast and relatively easy process. This is rarely true.

Good Fast Cheap!

There is an old saying when it comes to the trades: “Good, fast, cheap. Pick any two!”

Meaning that if it is good quality and done quickly, it will be expensive. If it is fast and cheap, it probably won’t be good. If it is good and cheap, it won’t be fast (probably because they are in great demand!)

Everyone that has ever had work done on a home knows that good trade’s people are busy. The ones you probably won’t want to hire are the ones that are easily available! If you would like to try this out to test my theory, pick three painters, cabinet fitters, tile installers – or whatever trade-  and ask them come to do an estimate on work in your home! Find out how much, when and how long, and look at examples of their previous work.

I would love to know your results!

What is a severely distressed home owner to do?

So, if rehabbing is costly and complicated and takes time, what is an owner to do if they have a severely distressed property?

It is possible to fix it – without question. The big question is...

Should you be the one to do it?

It takes a lot of time, effort and money. If you are a trade’s person or professional rehabber, this may be the project for you! However, if you have another career, or are responsible for your family, or have some other obligation, then a project like this may be unwelcome or even overwhelming.

If a house has such a great problem -or several problems- that it can’t be lived in, the best solution might be to turn to a real estate investor.

When a real life property owner is approached by one of these investors, because of these TV shows, the owner suspects that the investor/ buyer is going to make a huge profit. As a result, owners are sometimes offended by the offers that these investors put forward.

When rehabbers make an offer on this type of property, they first look at the real estate market to see how much houses in good condition are selling for. Then they subtract the labor and materials of the necessary repair work. They remove holding costs (loan payments, utilities and insurance) and realtor's commission.

Then they make their offer.

This rehab cost is what makes the offer seem so low.

Often the distressed property owner does not have a good understanding of this process. They see how much a neighbor’s nice house sold for and think they are being cheated. Because of this, a lot of people have a distrust of real estate investors.

The Truth about Real Estate Investors

Most investors are just regular people that have a different type of profession.

When a rehabber (or “fix and flipper”) buys a distressed property, they are taking a chance that they have seen everything that is wrong with the property. Sometimes when they start the work, they find hidden problems. Damage may be hidden behind walls or flooring. Something may not have previously been repaired in a professional way and may not have the proper city permits. An old leak may mean that a lot of wood in the walls or floor is rotten, or there may be hidden mold. Carpeting may hide a foundation problem. There may be undiscovered pest problems like termites.

The professional rehabber is willing to take on these risks and costs of a severely distressed house. Their experience guides them to determine how long the project will take and how much money will be needed. They tend to borrow money from private sources to pay the cost of buying, fixing and utilities and they pay interest on the loan.

Their “job” for the next few months will be to see the project through. The longer it takes, the more they have to pay. Once the property is sold, the contractors, materials and utilities are paid, the real estate agent gets their fee, and the private lender gets their principal and interest.
Whatever is left goes to the rehabber. If they were successful, it will be a good amount. If there were a lot of problems, they may break even or possibly take a loss. Because they get paid last.

Now THAT you won’t see on TV!

I hope this gives you a bit of a better understanding about rehabbing and a little perspective about those shows on TV.

Next week we will take a look at Home Renovations to Invest In and Avoid In 2015.

So thanks for reading my post. I'm so glad you're here! And I’ll look forward to getting into more good stuff in future posts so that you can Turn Your House To $OLD!

Feel free to ask me any questions through the contact info below. I would be very happy to help.

Linda  623-335-2662

Turn My House To Sold

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Lynda Bathory