Rehabbing is currently the most popular form of real estate investing. All you need to do is turn on the TV, and you will find a show about rehabbing. Despite being so popular, however, not every investor knows what they are doing. A successful rehab is much more difficult than it appears on TV. If you don’t focus every step of the way, you may be disappointed with the results. Like everything else you do in business, you should have a system for maximizing results. Before you start your next rehab deal, there are a few things you need to know:
1. Understand your market: The market in which the property is located should have a direct impact on the work done to the house. All properties are not the same. The work you do for a rental property should not be the same for one you plan on selling. This doesn’t mean to ignore quality, but you need to know what your market offers. Some markets call for different materials, fixtures and appliances than others. By not knowing your market and doing the wrong work, you can end up wasting money. Something that personally appeals to you in a property may not be what the market demands. Items like a pool, hot tub and granite countertops are nice, but may not fit the specific property. Look at past sales to give you an idea of which amenities had the most impact on buyers. Understanding your market helps you stretch your dollar, quickly find buyers or renters and improves your bottom line. If you don’t fully know your market, you are basically rolling the dice and hoping that you produce a property people will want.
2. Set a realistic budget: Numbers hold the key to every rehab. You can have a great property in a great location, but if the numbers don’t work you won’t be successful. Anyone can set a rehab budget, but it is critical to make sure these numbers are realistic. If you are rehabbing to flip, start with your after repair value. It is important not to think that the work you do will add value that isn’t really there. Repairs and upgrades will improve the value, but not more than the market dictates. Once you know where your after repair value falls, you can set a budget. Instead of using estimates, try to get as many iron clad numbers as possible. In guessing, you will run into problems during the process. Going over your budget can cause you to take short cuts that directly impact the value. If you don’t know what the correct numbers are, reach out to a local contractor or ask a fellow investor. The numbers you use dictate everything that goes on in a rehab. Take the time to make sure you are using the right ones.
3. Get on the same page with your contractor: In a perfect world, you will have an experienced contractor that you can lean on during the project. This relationship is forged usually after months or years of working together. Even if you have worked together in the past, you still need to make sure you are on the same page. Before the first nail is hammered, you should discuss every aspect of the process. It is not enough to give your contractor a budget and leave it in their hands. Talk about your vision of the property and what your goals are. The more that you discuss with your contractor, the less likely it will be that there are issues down the road. Spending a few hours at the beginning of the project will save you from taking phone calls every day asking you what they should do. It will also help you follow your budget and do the work that you expect. Your contractor should be the point guard for the project, but you are still the coach.
4. Have your team in place: A typical rehab usually has a handful of tradesman that need to be in place. Even the best contractor cannot handle every aspect of a project. It is a mistake to assume that your electrician, painter or carpenter will be available when you need them. By having to work around one person’s schedule, you run the risk of delaying the entire rehab. As soon as you know the property is yours and your budget is in place, you should begin making phone calls. Find out availability and get as many quotes as possible. From day one of your rehab, you want to be able to hit the ground running. This means having your team in place and schedules for everyone. Things are always subject to change, but you need to have your team lined up and ready to go.
Rehabbing a property can be an exciting and profitable experience. It can also leave you with months of stress if you don’t know what you are doing. Success is determined before any work begins. In your excitement over starting a new project, you need to take a step back and stick with your system. Following a proven system on every deal leads to increased success. Success leads to more rehab deals in the future.