Rehabbing houses is the life blood of many real estate investors but the word “rehab”, the concept and even the definition has more meanings than a big ole Texas onion has layers. And rehabbers themselves come in almost as many varieties.
From the newbie investor, just getting their feet wet with “a shave and haircut” – industry speak for new paint and carpet – to the seasoned, gut rehabber with nerves of steel and a never ending pocketbook, rehabbers come in all permutations but most will fit in the following three categories.
Light cosmetic rehabs referred to as “shave and haircut” (interpreted as paint and carpet).
Cosmetic rehabs consisting of paint, carpet, and updating visible elements like paint, floors, exterior, cabinets, countertops, fixtures, tile, etc.
The gut rehab where everything is removed down to foundation and studs, (Sometimes even the studs go too).
What is a Gut Rehab?
The Gut Rehab is a complete and total rehab of a property and is ideal for older or more heavily damaged homes. But when rehabbing houses, this is the one format that seems to scare most investors away.
One of the biggest fears that investors often have when rehabbing houses, is the feeling they could be missing something; what problems lurk behind the walls and under the floors? When doing a gut rehab, everything that could possibly go wrong is already taken into consideration.
One group of folks who dislike nasty surprises even more than investors are contractors and a gut rehab eliminates the likelihood of surprises. Plumbers and electricians would much rather be rehabbing houses where the walls are out because they can get to the areas where they need to work, speeding up job time.
If you’re rehabbing houses older than 70 years, there are likely to be issues with the heating systems, and you’ll need to bring the electrical and plumbing up to the existing code. Easier for the contractor to do this with no walls and you’ll know if it’s a good job or not because you can see the work.
Just the process of rehabbing houses, revitalizes and upgrades communities but there are some unique perks that only a gut rehab can give the investor.
Easy Rehab Estimate
With a gut rehab, you know everything old is coming out and new is going in. Because you’re re-doing it all, estimating your rehabs becomes elementary. Once you’ve done one, assuming the properties are similar, you apply the expenses for the last home you did to the next one.
They are Easy to Sell
Because of the process of a gut rehab, everything in the house is new – except for the actual framed structure and therefore, the home looks brand new when finished. Brand new is very appealing to buyers and because of the newness; the home will sell easily and normally for top dollar.
Because rehabbing houses is such a competitive business and most investors seek out cosmetic rehab opportunities, there’s a lot less competition for gut rehabs. Gut rehab property means buying homes that others won’t touch. Most investors run from them.