“Any house that has a reasonable degree of structural integrity is a candidate for a remodel job,” states Jazmin Gambino of Dallas Home Buyers, “so the first two things we focus on during our inspection is the concrete slab foundation and the framing of the house. If the foundation can be supported with piers and re-leveled then the house passes the first test. If the wood framing of the house is in reasonable condition, without large gaps in the joints of the joists and rafters, then it passes the second test. Then we move on to other systems such as the heating and air conditioning system, the electrical system, and the plumbing system.”
When we buy houses, the evaluation of the physical condition of a house is very important – a skill and an art that is developed over a period of time. Home inspectors are the recognized experts in this field but real estate investors have more to lose. If they miscalculate on repair expenses, or miss a trouble spot entirely, then they could lose thousands of dollars. One of the hidden problems that can be easily overlooked is termite damage. Therefore, real estate investors carefully scan the exterior of concrete foundations or the pier and beam structures of houses for termite tubes, the small tunnels termites use to travel from the house to another location. Another potential expense is failing to identify houses that have aluminum wiring rather than copper wiring. Aluminum wiring is considered inferior and has potential safety problems.
Another area of potential expense is homeowner improvements. “We see our share of homeowner improvements done by the weekend handy man. Usually it does not meet building codes so we have to tear it out before going any further,” says Ms. Gambino, “and hopefully we have identified that problem before we buy the house and factored it into our offer price.”
The recycling of houses is largely based on math. New construction in the Dallas area starts around $120 per square foot and goes up from there. And this does NOT include the land cost. The construction cost of a typical 2000 square foot house would start at $240,000 plus the land and utility development cost. Therefore the final cost is easily in the $300,000+ range.
On the other hand, a 2000 square foot unwanted house in poor physical condition can be purchased by a real estate investor for $150,000 to $200,000. Remodeling cost can typically range from $30,000 to $100,000 for this size house. So if the real estate investor has estimated the costs accurately and purchased the house at enough of a discount then he or she can make a profit. But there are major risks for the investor. Inaccurate repair estimates and reversals of market conditions can turn a profitable deal into an unprofitable deal in a very short time frame.