Rehabbing is the most popular form of real estate investment and the area where the majority of investors have lost money. The overwhelming number of television shows featuring rehabbers and flippers tend to show the pitfalls of rehabbing a property, but neglect to evaluate the most important area, the investors bottom line. Every project will experience delays and have a unique set of challenges, but not every project will be profitable. We advise our clients every step of the way from procuring the property, getting through the rehab, and resale for a profit.
Explore Your Options
Making a profit on a rehab starts at the moment you begin evaluating properties. One of the biggest mistake a rehabber can make is paying too much for a property. The excitement of the project and dreams of fortunes to be made can cloud an investors better judgment. Experienced, veteran rehabbers know the best deals are hard to find. The average rehabber will reject 9 out of 10 deals that come across their desk. A network is required to keep up to date on information for possible properties that come up for sale. It is vital to look for any avenue that can give an investor the first opportunity to evaluate a property and potential profits.
The purchase price a rehabber pays for a house has little to do with the value of the property as it stand today. Homeowners and Realtors looking to sell high will attempt to bargain with investors on the value of the home. What they fail to realize is the rehabber is only concerned with the value of the home as a finished product. A rehabber will evaluate a house by "backing out" or taking the value of the home after rehab, subtracting the anticipated rehab and closing costs, and coming up with the purchase price. At this point, when the rehabber makes an offer, he or she is negotiating for their profits.
Know Your Rehab
The other main reason rehabbers fail is not knowing their rehab. Experienced rehabbers budget for surprises and areas going over budget. Hours of forecasting and predicting can be undone in an instant when the contractor opens up walls and finds far more electrical and plumbing work than the rehabber had anticipated. It is also crucial that a rehabber have contractors ready to do the work and a solid idea what they will charge to complete all phases. First time rehabbers are faced with a hard dose of reality when they get quotes from contractors. Experienced rehabbers build up relationships with contractors and know where they can get breaks on materials and labor.
Selling Your Product
The process to rehab a property can be both exciting and exhausting, but what keeps investors awake at night more than anything else is waiting for an offer. Placing a value on a rehabbed property is not an exact science. It's more of an educated guess and the rehabber hopes they guessed right. Some properties will sell for more than anticipated and some will sell less. Until the rehabber has an offer in their hand, the stress can build hoping they didn't make a bad investment. By giving rehabbers an idea of their anticipated closing costs and economic factors affecting the property, our clients can make an informed decision on asking price and evaluating offers.