5 Tips For Success On Your Next Rehab Project
Everyone wants to be a rehabber. If you turn on your TV almost any night you can find a show dedicated to flipping and rehabbing. Some of these shows provide valuable insight as to what it takes to make it in the business. Others do not show always show an accurate description of what the process entails. Rehabbing is something that almost anyone can do but not necessarily do well. Before you get started there are a handful of areas you need to understand. These will often make or break your success on the project. Here are five important tips you need to remember on your next rehab project.
- Examine the property. It is not enough to walk around the property, make a few notes and put an offer in. You need to know every square inch of what you are buying. The more properties you look at the better understanding you will have of costs and the scope of work. Until you gain that experience you should lean on your contractor for advice. There may be a deal or two you have to pass on because you aren’t quite sure of what you are getting into. It is always better to pass on a deal than to move forward without knowing all the costs involved. Overlooking items with the foundation, roof and even electrical can add thousands of dollars in expenses. This completely changes what you plan on doing with the property. Before you make an offer take the extra time to examine the property and know exactly what you are buying.
- Never Overpay. With a rehab property you make your money when you sell or when you buy. The lower you can get the property for the more options you have once you take ownership. In your excitement to secure a deal you may feel the need to make any offer just to get it accepted. It is important to remember that your goal is not to acquire a property but to make a profit on the deal. This means doing your due diligence to determine the maximum number for your offer. Once you have that number you need to stand your ground. The minute you edge over it there is no turning back. Before you know it a few hundred dollars turns into a few thousand and the next thing you know you are in a bidding war. It is never easy walking away from a property you like and see value in. This is all part of being a good real estate investor. Have a number in mind before making an offer and be willing to walk away if the price gets too high.
- Good Neighborhoods = Good Deals. The importance of a good location cannot be understated. Everyone has heard the common real estate quote regarding location, location, location. This is even more the case when it comes to rehab properties. You can change or improve almost anything within a property but you can’t change the location. Almost all buyers place a premium on better locations. You can do all the right work but if the location is not desirable it won’t sell as quickly as you would like. The perfect rehab deal is one where the property needs a ton of work but is located in a good neighborhood. Even if you have to pay a premium to acquire the property it will be worth it when you sell. A deal is only good if you can do something with it when you sell. Don’t forget the importance of a good location.
- Focus On Adding Value. As simple as it seems the goal of any rehabber is to purchase a property, add value through improvements and sell for a higher number. It is not enough to throw some money at improvements and hope for the best. You need to focus on areas that really make a difference. A big pool or a hot tub may be attractive to you but not always the best for the market. Take a look at what has recently sold and is currently on the market. This is what buyers will do when searching for a home. Focus on practical areas that buyers want in a new home. Often times substance is more important than sizzle. Don’t neglect the importance of quality work that adds real value.
- Use Realistic Numbers. You can mold the numbers into any shape you desire. It is important that you use the real data you are presented with. It doesn’t do you any good overestimating your after repair value. By doing this you will be left with a property with minimal profit that you have a tough time selling. The best rehabbers focus on the data and leave their emotion out of it. The cost of repairs, rental income, carrying costs and end sales price are all estimates that you need to get as accurate as possible. The more realistic you are with these numbers the sharper your deal will be.
The rehab process is only as difficult as you make it. There will always be curveballs thrown at you but that is part of the challenge. If you focus on a few core areas everything else will fall into place.