Rehab profit eases any parting pains

Controlling costs as important as deep-pocket buyers

November 11, 2001|By Charles Cohen | Charles Cohen,SPECIAL TO THE SUN

One of the big lures to doing a rehab is the equity that comes with the house customized to taste.

Typically, one would find an inexpensive shell - a house in disrepair - in an up-and-coming neighborhood, rehab it and then make a nice profit by being an early-bird seller in a rising market.

But making a profit on a rehab project in a high-priced neighborhood is not automatic, according to Charleene Doverspike, a Washington builder who bought her first house to rehab in Canton in 1995.

Once sellers get a whiff that the market is getting hot and a trend is forming, the cost of a particular shell will rise accordingly, she said.

When the shells are cheaper, so are the prices for the finished products, Doverspike said. Back in 1995, a shell could cost $50,000, the renovation another $60,000 and the closing costs several thousand dollars more. A finished house was selling for $115,000 to $120,000 - not leaving much room for profit.

Doverspike and her partner said they made $400 profit with their first house. Not until 1997, as the craving for Canton homes pushed prices higher, could Doverspike make a more substantial profit - about a 15 percent return - on a rehab. Today, she said, with some homes selling for nearly $300,000, buyers are demanding top-quality fixtures and workmanship. Homes, in a high-end market, can't be renovated for less than $100,000.

"You can see high-end customers were moving in here, and you wanted to offer the kind of product that they were used to from the neighborhoods they were coming from," she said.

Just how much does it cost to take on a rehab project? For a quick analysis, Doverspike detailed some of the costs of one of her homes under renovation on the 500 block of Curley St.

The home was purchased for $78,000, with the bank lending her $58,500, which is 75 percent of the purchase price. It then allowed her up to 70 percent ($138,600) of the finished appraised value minus the loan amount, which came to $80,100.

The 1912 home will be gutted down to its pine floors, joists, roof rafters and brick walls. When rehabbed, the home will have a basement guest room and family room with bathroom and two second-floor rooms with one large bathroom that includes the original claw-foot tub and double vanities and water-resistant wood floors.

The total renovation costs, including her profit of $18,983 and overhead of $6,646, came to $115,816. Some of the particular costs of the nearly four dozen items that were renovated ranged from a privacy gate for $225 to $10,000 for the interior framing.

The house has been sold for $193,816.

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