Look for Properties That Need Remodeling by Searching for “Wedged Deals.”

One of the best ways to find a fixer-upper deal is to look for properties that are in need of remodeling. The term “wedged deals” was popularized by the famous YouTuber Kevin Paffrath, and the key concept behind it is that investors can buy the property at a price below its market value, creating a margin of safety and potential for profit. The investor can then increase the property’s value by changing its use or renovating it, as well as by enhancing property management.

Once the property has been renovated, the investor may either sell it for a profit or refinance it to extract the equity and use it for future projects. The strategy is called “wedged” because it involves finding a property that is undervalued or underutilized and using creative financing techniques to acquire it, thus “wedging” oneself into the deal.

The “wedged deal” strategy can be a powerful way to gain significant returns, but it requires careful research and analysis to identify suitable opportunities, as well as a strong understanding of financing and property management.

As a rule of thumb, your general starting point should be a property that is in good structural condition but needs some updates to the interior or exterior. These updates can be as simple as new paint or new flooring, which are relatively easy and inexpensive to do.

Check for Structural Issues.

While cosmetic updates are easy to spot, structural issues may not be as obvious. Have an inspector and a contractor walk through the house to check for any structural issues that may need to be addressed. Before signing the contract, you need to know what you’re getting yourself into. Inspectors will often go deep into every nook and cranny of each room to ensure that all potential safety hazards are uncovered. These can include issues with the foundation, roof, plumbing, and electrical systems. If the property has significant structural issues, it may not be worth the investment. Sometimes, the price of correcting these structural problems exceeds any advantages of owning the property in the first place. To find weaknesses in the foundation, it’s crucial to have a thorough inspection of the property performed by a licensed inspector.

It’s incredibly important to address any structural issues before making an investment in the property. Neglecting such issues could lead to significant safety hazards, costly repairs, and even legal liabilities. So, before spending your hard-earned money, it’s always best to be safer than sorry and make sure the property you’re contemplating purchasing is solid.

Research The Neighborhood.

Before making an offer on a fixer-upper, research the neighborhood. Look at the current and projected real estate market in the area to ensure it’s a good investment. For instance, Manhattan’s West Village is one of the most sought-after areas of the city because of its attractive architecture, lively culture, convenient location, luxury amenities, and elite reputation. This will make it a highly popular neighborhood for years to come, but you may decide not to deal with the tremendous hassle of landmarked buildings. This is the type of research you should conduct in any neighborhood before deciding to dive deeper into spotting a potential deal.

Estimate Renovation Costs.

After you’ve discovered a house that suits you, analyze the new construction costs. Depending on the extent of the renovations, the grade of the materials you select, and the builder you choose, it could be a hard process. The ideal way to estimate renovation costs is to work with a qualified, licensed contractor to get a quote. Finding the right contractor is critical since your property goals depend heavily on the quality of work they deliver. Referrals from colleagues and family members are a great way to find a trustworthy contractor, but if that’s not an option, starting online and searching review sites like Yelp is another method. The contractor should have a business social media page, acceptable reviews, and a website where you can view work from previous projects. Estimating renovation costs requires experience, which you may lack if you’re reading this blog. However, always conduct a thorough analysis of the repairs by gathering multiple quotes from the industry’s best professional contractors.

Factor In Contingencies

Depending on the scope, age, and condition of the property, contingencies often account for 10% to 20% of the total renovation costs. One of the most common unforeseen expenses during the renovation process is issues that were undiscovered during the inspection. Even with a thorough inspection, hidden issues such as mold, water damage, or structural problems may surface during the renovation process. These issues can significantly increase renovation costs, so it’s essential to budget for contingencies to cover these unforeseen expenses.

Another unforeseen expense that may arise during the renovation process is unexpected increases in material costs. Material costs can fluctuate depending on market conditions, supply chain disruptions, or unforeseen delays in the renovation process. To mitigate these risks, it’s so important to conduct your own research, budget for materials with stable price history, and stay up-to-date with market trends and potential supply chain disruptions.

Besides factoring in contingencies, it’s essential to prioritize renovation projects based on their potential return on investment. For instance, kitchen and bathroom renovations usually offer the highest return on investment, while cosmetic updates such as painting and landscaping may offer a lower return. Prioritizing projects based on their potential return on investment ensures you’re making strategic decisions that add value to the property and increase its resale potential. While mechanical renovations like HVAC improvements, plumbing, and electrical upgrades may be required for the property’s efficiency and safety, they might not have the same aesthetic effect as cosmetic and kitchen updates. That being said, don’t pass up the chance to enhance the property’s mechanical features just because they provide the lowest return on investment (ROI); these are extremely important and serve as the heart of the property.

In conclusion, estimating renovation costs for a fixer-upper property requires careful planning and budgeting to account for unforeseen expenses. By factoring in contingencies and prioritizing projects based on their potential return on investment, you can turn a fixer-upper property into your dream home while staying within budget.