Renovating an Akron House to Resell? My Budget Rules

TV shows make renovating a house and reselling it look easy. Buy it, swing a hammer for 20 minutes of TV, collect a check. I bought my first investment property at 23 and have renovated more than 50 since, and I can tell you it's a business like any other, with plenty of ways to lose money. Akron has a lot of older housing that can work for this, which is exactly why the budget matters so much.

Figure out how you'll pay for it first

Cash is king, especially with houses that need a lot of work. Traditional lenders are cautious about homes that aren't livable, and hard money lenders tend to charge high rates and fees. Before you make an offer, talk to your lender and make sure the type of house you want can actually be financed. Finding out after you're under contract is expensive.

Write the budget before you write the offer

You should know what you're going to spend before you ever make an offer. If you're using a contractor, get their pricing up front, even if it's only an estimate. Then add at least a 10% contingency. Many repairs turn into bigger projects once the walls are open, and you don't want to run out of money halfway through.

Work backward from the sale, too. Start with what similar renovated houses on that street have actually sold for, subtract your selling costs, your holding costs, your renovation budget and the profit you need, and what's left is the most you can pay for the house. If the seller wants more than that, it isn't your deal.

Match the work to the street

Gauge your work and materials to the neighborhood and the price range. Over-improve and you won't get the return you expect. Under-improve and you get a lower price and a longer time on the market. Buyers recognize the cheapest stuff off the shelf at the home improvement store for what it is, and there are plenty of poorly renovated houses sitting on the market because of it.

Kitchens and baths usually get the attention, but don't skip the things buyers' inspectors look at first: the roof, the furnace, the water heater, the electrical panel and any signs of water in the basement. A beautiful kitchen won't save a deal if the inspection report comes back full of big-ticket problems.

Spend where it shows

There are ways to make a small amount of high-end material go a long way. One of my favorites is using expensive glass or mosaic tile as a border or accent band through an area of less expensive tile. I'll spend $12 a square foot on five feet of glass tile, and the whole tile job looks custom.

Hire pros for what you shouldn't do yourself

Unless you really know a trade, don't do it. Everybody thinks they can paint, but nothing ruins a renovation like a bad paint job. I once found myself yelling at the TV while a guy on one of those shows "fixed" a water problem by laying drainage pipe along the side of a house with the holes facing up. The holes face down. Find good contractors at fair prices and let them do their jobs.

Time is money

Every month the project runs, taxes, utilities and insurance eat into your profit. A vacant house under renovation is also a target for vandals and thieves. Plan the schedule as carefully as the budget, and check on the property often.

Pull the permits the City of Akron requires for the work you're doing and get the final inspections signed off. An open permit or unpermitted work can turn into a problem when your buyer's inspector or lender starts asking questions. If the property might qualify for one of Akron's residential tax abatement programs, find out before you price the finished house, because a lower tax bill can widen your buyer pool. Confirm the current rules with the city.

Sell it the right way

When it's time to sell, make sure the listing is entered with the right city and area. In my buyer class, I point out that MLS area lines around Akron aren't always clear, and a listing in the wrong area can miss buyers who are searching for exactly that neighborhood.

A good agent who understands renovation helps twice: first by finding a house with real upside, then by getting it sold quickly when the work is done. In this business, every month you hold the property comes out of your profit.

This article is general information. Talk to your lender, contractor and tax advisor before you buy. If you're looking at Akron investment property, schedule a time with me or someone on our team at 21mike.com.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
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