Once you purchase your first investment property, you start envisioning how to rehab your investment property and dedicating yourself to real estate investing. You are filled with excitement about what comes next and already visualize the result of a fantastic rehab and the money you will make once you sell the house. However, before you get started in real estate investing, it might be wise to take a minute to answer questions such as exactly where and with what do you want to end up? Quick equity grab, long-term positive cash flow? What’s the final goal? It’s always useful to know your final objective.
What Does Rehabbing Properties Mean?
The best way to understand what rehabbing properties consists of is this: if you could live in the home safely and comfortably while the work is being done, chances are, it’s just a little fixer job, not a full-scale rehab. However, if you would have to go to great strides to live in the property before it’s more than halfway finished, it’s leaning towards a rehab.
Every project that involves rehabbing properties must have a specific goal for the rehab before the purchase. With a specific goal in mind, you can approach the negotiating of the deal with a specific plan of attack and know your boundaries.
Start by deciding who your potential buyers can be, their expectations, and how you will deliver that product. The due diligence of knowing the deal before being involved makes this a business decision, not a personal goal or accomplishment.
Remember: this is real estate investing; this property will not be your home. This being said, understand your market and rehab the home to those standards. Granite is not needed in a Formica neighborhood. Always do apples to apples. We always want the best product at the best price.
A strong evaluation of the homes you have established as comparable is needed to determine the end result of your rehab of the property. If you have a neighborhood of hard siding, you don’t need to add brick to make it more appealing. What’s appealing to you is not always appealing to the new tenants/owners of the property. There are always diminishing returns, so stay focused on the goal.
Steps to Rehabbing Properties
When buying property for rehab, it is important to do your clean-up and repairs in a particular order. This way you will be sure to avoid wasting time and money on the project. Approach the process systematically, and leave your frustrations aside if things don’t always go according to plan. Here are some pointers to help you rehab a house or commercial property.
Inspect the property
Start by thoroughly inspecting the property. Note which items are in good condition and which areas need work. It helps to have a professional inspector walk through with you. He or she will be able to identify things that you may miss. You can find a qualified inspector through the American Society of Home Inspectors.
Create a Checklist And A Budget
Once you identify areas that need work, create a rehab checklist. This will help you stay on track and not miss any repairs. Then, go through your checklist and decide how much each repair will cost. An Excel spreadsheet is a great tool to use. The budget should be itemized for each individual repair. If the cost of your repairs exceeds your budget, make the appropriate changes.
Hire a Contractor
Unless you are an expert at rehabbing properties, having a good contractor will make the rehab process much easier. Take your time when you are searching for a suitable contractor. Pre-screen any candidate to determine if he or she is a good fit for your project. Once you have hired him or her, have a walk through together of the property and set a timeline for completion in regard to every aspect of the rehab. The contractor can also help you get any necessary permits before the work can begin.
Start the Work Rehabbing Properties
Once you start, there is an order that should be followed. That order is:
- Begin with demolition and trash removal
- Take care of any foundation or roofing issues
- Install new doors, windows, and trim
- Work on the plumbing and the heating, ventilating and air-conditioning system (HVAC)
- Hang and finish the sheetrock
- Paint the ceiling and walls
- Install light fixtures, flooring, and appliances
- Add the finishing touches
- Add landscaping if needed
Ways to Cut Costs
In real estate investing, when it comes to rehabbing properties, remember not to get carried away. Some home flippers hire top-of-the-line contractors and insist on the highest-quality materials from the nearest suppliers. To help you avoid costly mistakes, here are some secrets that can cut your cash outlays and improve your bottom line:
- Most home-improvement stores have their own designers on staff to assist you – ask them questions
- Hire moonlighters from big construction companies – they always want to make some extra cash
- When school is out, hire students – they are eager and well-qualified to perform renovation chores
- At your local hardware or building supply store, buy overstocked or discontinued building materials
- When shopping for building materials, ask the salesperson to direct you to the builders-grade materials
- Carpeting stores, countertop manufacturers, and other suppliers often have remnants. – use them to trim your costs
- Buy power tools – they may be expensive, but you can spread the cost over several flips
- Have plumbers, electricians, and other skilled-laborers complete all their projects in one trip
- Rent a dumpster and tell contractors to take that item off their estimates
- Check for online deals on cabinets, paint, and anything else you might need