It seems like every new real estate investor wants to start rehabbing the second they enter into the industry. There is nothing wrong with the enthusiasm, but rehabbing is not something you can simply jump into at a moment’s notice. There may be more to rehabbing a property than the average new investor realizes. Not only do you need to find the right property in the right location, but you also need to do the right work. If you have an interest in rehabbing your first property, there are a few things that you need to have in place before you get started. Without them, you probably won’t get very far. For those of you that are new to the industry, here are five things you must take into every rehab:
1. Capital
However you choose to fund your deal, you will need capital to make the necessary improvements. One of the biggest mistakes rehabbers make, both old and new, is not having the appropriate funds available. Prospective buyers will judge you on the quality of your work. Without the capital to do the right work, your property will sit on the market a very long time. If you have never flipped a property before, you will be surprised at all the things you will need money for. Prior to starting any work, you will need money for holding costs, taxes, insurance, utilities and more. These costs could range from a few hundred to a few thousand dollars. Once you get going on the improvements, there will always be unexpected costs that will pop up on every project. Even if you think you can do most of the work yourself, you need capital to ensure everything goes smoothly.
2. An Understanding Of Costs
If you don’t know how much everything costs, you are in for a rude awakening. These costs should be analyzed long before you take ownership of the property. In fact, they should be factored into your offer price. Without knowing all of the costs involved, you may get into a bad deal. These costs can range from carrying costs to labor. Additionally, you will have expenses when it is time to sell. Simply selling for more than you purchased the property for may not be enough. The numbers are an essential part of the rehab process. You need to know where every dollar is going and exactly what you are getting from it. If you have any doubts with the costs, you should consider passing on the deal.
3. A Contractor
Once you get the property, you need to be ready to act on it. Every day you own the property without selling it is costing you money. This is one of the reasons it is so important to have a contractor in place before you buy. Sure, you can always find someone to get the job done, but that may not always be the best idea. Trying to chase labor as you go will lead to scheduling delays, and may end up costing you money. Your first team member should be a general contractor. In a perfect world, you will already know someone that can do the job. If not, you should take the time to find the contractor who is the best fit for you and your ideas. They should understand your end goal and be able to work with your budget. You should treat finding a contractor like hiring an employee for a job. Get as many references as you can and don’t settle for the best available candidate. In addition to your contractor, you will also need a plumber, electrician, drywall and possibly even a landscaper. You and your contractor should work hand in hand to schedule and hire everyone that is needed. Before you make your first offer, you should reach out to every potential member on your team.
4. A Schedule
The rehab process requires a proper schedule, or a flow if you will. You should never waste any time, and a schedule prevents you from doing so. Try to understand the schedule of events for a typical rehab. You wouldn’t want to do the floors before you rip down a wall. You never want to create a situation where you have to do double work. Here is where you need to work in lockstep with your contractor. The odds are that they have a better understanding of what needs to be done than you. Lean on them for schedule advice. As much as you want to get everything done immediately, you also need to be realistic about how that is going to happen. Your understanding of when and how to schedule can make your rehab go as smoothly as possible.
5. Comparables
The first step in the rehab process is understanding your market. You need to have an idea of what comparable homes are selling for. You should reach out to a local Realtor to give you hard data on what is going on. Before you finish your project, you should start the marketing process. The quicker you can find a buyer, the sooner you can move on to your next project. Even though you may have done a bang up job, you need to be realistic with your asking price. Listen to your real estate agent’s advice. In listing too high, you can wipe away any good work you may have done. Getting your property sold quickly for the right price is the end goal.
Anyone can get started rehabbing, but not everyone will be successful. Before your first deal, make sure you are comfortable in each of these five areas. Knowing these before you head into your first rehab will point you in the right direction
