Buying an under-priced house that needs fixing up, and then doing the rehab and reselling it is a great way to make a profit in real estate investing. While it all looks good at the outset, there are pitfalls that can eat up your profits.
One of the cardinal rules of rehabbing is to keep it simple. Don’t try to create all the latest decorating fads. Remember this is not your house and you will not be living in it. This is a business transaction and you will do well to keep your emotions out of the equation.
The second rule is not to do the work yourself. You will come nearer staying on budget (and on time) if you hire competent, qualified contractors and use your time to find more deals.
The process of rehabbing a house depends a great deal on speed. The longer it takes the more money you will lose on the deal. Hiring the work done usually means it will get done quicker (and usually with higher quality work) than if you do it yourself.
It’s understandable if at the outset of building your business, you feel it’s necessary to do the needed repairs yourself, but make it one of your highest goals to move out of that position as soon as possible
When searching out contractors, be sure to obtain more than one bid. Don’t go with the first contractor you talk to. And keep in mind that the lowest bid is not always the best.
Ask for references. Find out if this crew is reputable and trustworthy. Then weigh that against the cost. Contractors who do not do what they say they will do are more expensive than you can afford! One of the best places to obtain references is at your local real estate investors group. Many of the members will know the names of the best contractors.
Make sure everything is in writing. Clearly state what is needed and how much you feel should be spent on each aspect of the job. Communication is vital in this relationship. If you specify you want the interior painted as cheaply as possible, do you want cheap paint, or cheap labor? There’s a big difference, and the contractor must know exactly what you mean.
Create a contract that includes a structured penalty for every week (or day) that the crew goes over deadline. Discuss this point before the work ever begins. This proves to be a great protection against lost time.
Once you set these parameters in place, you will be much more likely to stay on budget for every rehab project you undertake.
And that means more cash in your pocket when the deal is closed.
