Restoring And Rehabbing Houses: 10 Things To Know Before You Get Started
Rehabbing houses can be incredibly profitable and very rewarding. What do you need to know before you dive in?
Being successful at rehabbing houses, getting the maximum rewards, and enjoying a smooth slide into all the rewards available, without falling into the costly pitfalls, requires some knowledge. You don’t need to head back to college for a new degree, but you will want to learn these key factors before you put it all on the line.
1. The Key Team Members for Rehabbing Houses
The first step is recognizing who you’ll need to work with to make your vision a reality. No one can do it all. At a minimum you’ll need title experts and closing agents, and some licensed contractors on call. You will probably also want a finance partner, a Realtor or two, insurance agent, real estate attorney, banker, bookkeeper, GC, and marketing help. Make a list of these roles, and what you want to look for in each team player.
2. The Types of Homes to Avoid
Some say you can make money on any property, it’s all about getting the right price, making the right improvements, and great marketing. However, there are some which can certainly be far more complicated than newer rehabbers expect. It may take a while to understand different types of liens, title defects, code violations, and the full scope and cost of some repairs. Know what to avoid, as well as what you are looking for.
3. Determine the Right Strategy
One of the great advantages of rehabbing houses is the multiple exit strategies available to investors. Know them, and when to use them. You may start off planning to rehab to hold as a rental or flip at retail. Though you might end up wanting to be able to wholesale, rebuild, or something else. You want to know the numbers on all these options, before you get in.
4. Determine How Nice to Make it
One of the biggest make or break parts of rehabbing houses is knowing how nice to make it. Knowing what really needs to be repaired, and to what quality level. This can either tank your deal and bankrupt you, or maximize your profit margin.
5. Due Diligence
Learn all the due diligence items you need to do in advance of making a purchase offer, and after signing the contract. Make sure you know how many days and hours you have to complete inspections and raise issues, and ensure you have the team on standby to get it done on time.
6. Creating a Detailed Scope of Work
Rehabbers need to master creating a solid and detailed scope of work in order to turn their vision into reality, and to do it profitably. This is the document that will layout what needs to be done, who will do, when they will do it, and how much it will cost.
7. How to Manage Contractors
It doesn’t matter how great the opportunity is, how well you did the research due diligence and the numbers…. if it all falls apart in the execution. Mediocre deals can be made awesome with good contractors and contractor management. Awesome deals can be trashed by poor contractors and management. Know how to find good ones, work with them, and manage them.
8. Whether You Will Self-Manage or Hire a Manager
You can always switch mid-project, but that can drag things out, add costs, and add stress you don’t need. Both options are possible. It is just about knowing what you really want out of real estate investing, where your strengths and value really is. Decide which way you will go upfront. If you decide to self-manage, be sure to know your local laws and regulations regarding permits and general contractors. You must also know the timing for a new buyer potential impact on financing and resale. Everything has to be built in to your math such as the potential need to hire out the job to a general contractor, just so it doesn’t catch you off guard.
9. The Process & Your Systems
Sometimes investors just have to start taking action to get started. However, it can create a lot of stalling, hiccups, and stress if you don’t know the next steps in the process. It is much better to have a process for the full project laid out, and have systems for every part of it. You can begin by adopting already proven and successful systems, and then tweak them and make them your own as you go.
10. How to Pick a List Price & Market the Deal
After all the above, your real success and net profit will come down to your ability to accurately and strategically pinpoint the optimal listing price, and ace the marketing for rent or resale. This is usually done by obtaining a thorough market analysis by a licensed professional real estate broker, or an appraisal by a licensed professional appraiser.