Nine Steps Needed to Declare Repairs

This blog is written by Jen Josey, Real Estate Investor, and REIGN Coach. She is not a professional writer and writes as she talks so put your red pen away.  Jen is extremely opinionated but reserves the right to change her opinion at any time because, well, that's the way she rolls.  She may also use colorful language so don't be offended.  Jen does not claim to be an expert, she is just sharing her personal thoughts and adding a perspective on investor topics that may benefit her readers.  Jen also finds it strange to write in the third person.  Enjoy!


Right after I graduated college and moved back home, I suckered this poor manager to hire me as a server at Applebees while I was waiting for a teaching gig to open up. I had never waited tables before and thought, really now, how hard could it be? I was quite familiar with the food menu because I frequented the Applebees near my college. I immediately discovered that I had zero education in alcoholic beverages. Now...I'm sure you find this hard to believe from all my social media posts wearing my "Day Drinker" trucker hat or "This Be Me Drinkin Shirt."


But, there was a dark time in my life when I thought all wine was made by Boones Farm and that all beer should taste like Bud Light. Hashtag shameful.


I remember my first night when I was shadowing an experienced Apple Buddy. A couple had asked which was our dryest red wine. Ummmm, what? Then later, someone asked if we had any IPAs. I thought that sounds fancy...they must want a Zima. Boy, was I wrong. During my short three-month stint as a server, I became the Annoying Apple by bugging other servers to help me with my drink orders. I ended up at the library and found a book on wines. Then I started tasting different beers and expanded my tastebuds past just the King of Beer. The more I practiced, the easier it got. Just in time for my resume to be accepted at my first professional teaching job.


I am grateful for this experience because it taught me not only to tip my servers well, but I learned that practice makes (almost) perfect. The same was true when I learned to evaluate repairs needed for prospective flips.


1. Desktop Evaluation


Before you ever set foot in a property, you need to do a desktop evaluation. This is where you want to learn as much as you can about the property. You can go to the tax records on your county website to find out the square footage, beds/baths, lot size, year built, the owner's name, how much they paid for it, and when they bought it. The last three items will help you to determine their emotional and financial attachment to the house. If you see that the deed changed owners but they all have the same last name, this may be a probate situation where someone passed away and left this property to a son or daughter. If they have owned the property for 30+ years, then there may be an opportunity for updating. If they bought it 10 years ago for $300,000, then you can guestimate that they have paid a large chunk of that down unless they refinanced or have a HELOC.


2. Pull Comps


Once you have the square footage, beds/baths, year built, and lot size, you can start pulling comps. Comps are the recent comparable sales in the last six months that are located within a mile of the property. You want comps that have the same beds and baths, built around the same time, with the approximate same size lot and square footage. If the property was built in 1975, you cannot compare it to a new build. You also cannot use active or contingent properties as comps, only sold properties. When you have three of four good comps, you will use the sale price to determine the price per square foot for each.


If you do not have access to the MLS, you can pull comps on Realtor.com, Redfin, and Zillow. I actually really like the search tool on Zillow (however, their Zestimates can suck it). I type in the address of the property I'm evaluating and then click over to the map feature. I change the search from "Fore Sale" to "Sold" properties and once I zoom in enough, Boom, there are my comps. I also like this map feature because I can see if there are any unicorns in that neighborhood that sold for way more or way less.


3. Determine After Repair Value


Once you have your list of comps and price per square foot, check the listing photos to familiarize yourself with the interiors. See what trends are going on in that neighborhood as far as open floor plans, popcorn ceiling, wood paneling, kitchen updates, etc. If one of your comps has been updated, you will be using that price per square foot to determine the ARV for your possible flip. By seeing interior photos of the comps, it will help you to determine what repairs you will need for your property. Probably, more importantly, you will see what repairs or updates you DON'T need to do. You never want to over-renovate!


4. Check Out The 'Hood


As you are driving to the property to do your evaluation, you need to take time to check out the rest of the neighborhood. Are the lawns well-maintained? Are there kids' toys or bikes in the yards of every other house? Do they have chainlink fences? Are there other homes being renovated in the neighborhood? You need to pay attention to what's expected of homeowners to also help you determine what repairs will be necessary. If all the houses have gravel driveways, then there's no need to pay for a concrete parking pad. If all the houses have a one-car garage and your property only has a carport, you may need to add a garage to your repair estimator.


5. Don't Annoy Your Contractor Friends


When my husband, Vance, and I started out in real estate, our coach told us we would be determining the repairs needed when evaluating properties. I was like, "Does this guy know who he's talking to? If something breaks in our house, duct tape was our only solution." During the first few weeks, we bugged our dear friend Richard the Electrician to accompany us to our appointments to do a more educated evaluation. This happened about three or four times and then he stopped answering our calls. Do NOT annoy all the current contractors in your life. They do not work for free, people. You only call them to do bids and then pay them their much-deserved labor costs to do the job.


When you evaluate properties for possible repairs needed, you must learn to take on this responsibility yourself. It will not only build your confidence but will save you money in the long run.


6. Repair Estimator


If you have invested in a proper education, the superior programs should provide several tools including a repair estimator. If you have not joined an education program, you should ask The Google for a downloadable version. It may cost a little but having a good repair estimator is vital so you don't miss any big-ticket items.


A standard repair estimator will cover everything from the exterior to the mechanicals and provide an estimated cost for labor and materials. It will tell you specifically how to measure certain items either by linear feet, square feet, lump sum, etc. Most are in Excel format so the calculations can be done on the spot with a tablet or laptop.


7. Walk The Property


We like to start on the exterior and make a complete circle around the property. I am looking for cracks in the foundation, windows, wood rot, windows, gutters, windows, roof, windows, deck, and landscaping. Did I mention windows? Since I forget to count windows all the time, I've gotten in a habit of taking a photo of each side of the property so I can reference it later. And on that note, don't take videos. Take photos so you can zoom in on a problem area and share with contractors for bids. It's a much smaller file to share than a video.


When I have completed my lap around the exterior, I enter the front door and walk thru the house. If the homeowner is there, ask permission to take photos. We look for water stains, broken fixtures, check the outlets if they are 2 prongs or 3, check if there are hardwoods under the carpet, and more. I like to walk the perimeter of the rooms to feel for any possible foundation issues. Besides counting windows, when the repair estimator is in your hand, you will miss fewer items. Also, take this time to determine if you will make any floor plan changes to increase the value of a home. If it's a three-bedroom, one-bath house and all the comps have two baths, you may want to find a space where you can add a second bath.


8. Contingency


Once you have completed your walk-thru and added all items to the repair estimator, the most important line item is the contingency. This will provide a buffer for any unforeseen expenses during the renovation. If you are less experienced, I would add at least 20% of the repair costs. If you are experienced, we still do a minimum of 10% contingency. If we are working with a 100-year-old home, we do a minimum of 20% for all the unknowns hidden in those walls. Having that extra buffer in place has saved our profits from going in the dumps.


9. Professional Inspectors


When you get the property under contract, it is so important to do your due diligence and hire a professional inspector. That inspector will get on the roof and belly crawl under the house and find any items you may have missed. If they uncover a few additional repairs needed, you can see if your contingency will cover the cost or if you need to go back to the seller and renegotiate the purchase price.


With the use of good research, proper tools, and the right professionals, you should have no problem declarin' the repairin' on your next project. It only gets easier with practice.


It's been 25+ years since my experience of being a server at Applebee's, I am happy to report that I now know my way around a drink menu.


Come on now...practice makes perfect! Cheers!


If you would like to read more blogs by Jen Josey, you can find them at www.REIGNmastermind.com/blog. or visit www.TheRealJenJosey.com.

If you would like to listen to some blogs narrated by Jen herself, search for "Real Estate Investor Growth Network" anywhere you listen to podcasts.


Now go out there and make it a great day!