Rehabbing and flipping real estate is currently one of the most popular forms of investing. Since there are no licensing requirements, anyone can make an offer and buy a property. However, while it may be easy to get started, not everyone will be successful. The process of rehabbing is a lot more complex and intricate than it may appear on TV. A few missteps can cause a reduction in your bottom line. If you dive right in without doing your homework, you could actually lose money. Like every other aspect of the real estate business, it is the little things that often make the biggest difference. Here are the five most important things that every rehabber should know.
1. Buy At The Right Price: Rehab profits are calculated by taking the end sales price and subtracting them from the purchase price, plus expenses. Looking at this simple equation, we can see the importance of getting the property at the lowest possible price. There will be times when you may have your heart set on a property, but may need to walk away. Buying at the right price sets the stage for everything else you do on the property. You can put the right work in that will demand a higher price. You can hire the right people that will do the work you are looking for. On the flip side, once you go over your projected price you are chasing profits on everything else you do. This may cause you to cut corners to keep your costs down. If the quality is poor, you may not get the sales price you need to make the project worth it. Before you even make an offer, do your homework and know what your bottom line number is. Once it goes over that, you need to walk away.
2. Assemble The Right Team: You cannot complete a successful rehab on your own. It takes a collaboration of several key team members to make it happen. As you begin looking for rehab properties, you should start assembling your team. The first team members will be your real estate agent and mortgage broker. Everything starts with your financing and your ability to find the right home. As soon as your offer is accepted, you need to take action. You may only have three days to get an inspection completed. This means you need to have someone you trust ready to do the job. Assuming that everything checks out with the property, you will take ownership and start your work. Your general contractor should have already seen the property before you made an offer, and should be ready to get going when you need them. Depending on the property, you may need an electrician, someone for the drywall, painter, carpenter or hardwood floor installer and landscaper. You will not be able to see what everyone is doing at all times. As a result, you need to surround yourself with the best possible team.
3. Add Value: In order to maximize your profit, you need to add value to the property. This starts by knowing what the right work is for your area. What works for one property in one market may not work in others. It is important to separate your personal tastes and what is best for the property. Take a look at what has sold in the area, and what trends buyers are currently leaning towards. Make these the focus on your work. Every buyer, regardless of location, wants to live in a fresh, modern home. They will also look to see that any work that is done is clean and precise. Simply painting the walls or replacing the kitchen cabinets is not enough to generate interest.
4. Trust The Numbers: Before you sign your name to a contract, you need to look at the numbers on the property. It can be confusing at times knowing which numbers are important and which can be flexible. The bottom line is that the numbers rarely lie on a rehab. Trust what you see and let them guide you. If homes in the area are only selling for a certain amount, you can’t think that the work you do will add 15 percent to the value. The same is the case with your rental number, and any other projection you make. It is easy to change the budget to make the numbers work for you. By doing this, all you will do is get involved in a property that will bleed cash from the first day you own it. The numbers are there for everyone to see.
5. List At The Right Price: It is important to remember that the market does not care how much work you did or how much time you spent in the property. All they will base their opinion on is the final product. By letting your emotion get in the way, you may be tempted to list at a higher price than the market dictates. This will cause the home to stay on the market without generating interest for weeks. The longer a home goes unsold, the less interest it has. This usually leads to a price reduction and several more weeks on the market. All of this can be avoided by listing at the right price from the start. This will create a buzz that will give you a higher value in the end. Listen to your real estate agent, and trust the comparable listings and sales that are in front of you.
Rehabbing is a great way to generate income, but you need to follow the right steps. Before you start your next rehab, focus on these five areas.
