Every real estate investor, regardless of their experience, needs to expect the unexpected. It doesn’t matter which deal you are working on, any real estate investor can find themselves in the middle of a tricky situation. This could be as minor as shuffling schedules around or as major as running out of money. Once you accept the fact that things won’t always go smoothly and you need to plan for the worst, the better off you and your investing business will be.
The biggest issue that many investors face, especially when working on a rehab, is not having a big enough budget. Instead of breaking down the numbers and expenses, they typically go with rough estimates that they use as firm numbers. Only after they get started with the project do they quickly realize that a few dollars here and a few dollars there add up and will lead to major shortages in the budget. This can lead to a chain reaction of negative events. Should you short yourself on a budget, you may be forced to borrow from a high interest rate lander. Subsequently, you may skimp on the project, making the job shotty at best. If the budget deficit is severe enough it can cause you to walk away from the project all together. All rehab projects must have an ample cushion for the almost certain overages you will face. If you don’t use it you can add it to your profits, but the odds are you will be glad you have this extra money.
Any time you need to do work on the property you need to get multiple estimates in writing. Even if you consider yourself a handy person or have some contracting knowledge, you should get in the practice of getting everything in writing. This will you an exact idea of what work is being done and for how much. It can be easy to overlook a step or two that can eat away at a budget and leave you scrambling. It will also give you protection in the event your contractor wants to try to say they quoted you a higher number down the road. If you are not getting estimates in writing, you are doing nothing more than taking an educated guess which could leave you with issues moving forward.
Every property you buy you should have a plan of how you want things to go. That being said, it is important to know that the plan is not set in stone. You have to be flexible with your contractors, price and schedule. Even the best estimates and schedules will encounter some degree of change. If you need everything to break a certain way to make a profit, you are asking a lot. Your dates should have some degree of wiggle room and the same goes for your listing price or rental amounts. Even though you may be basing your prices on actual sales or rentals, it does not mean you will get that amount. Give yourself a little cushion with those numbers.
Things won’t always go as planned in business. Knowing this, you should plan accordingly and accept reality when things go south. The quicker you can react to adversity and changes, the better your business will be.