It seems like every new investor wants to be a rehabber. There is certainly nothing wrong with this area of real estate investing, but it is not as easy as it may appear. One miscalculation with your budget or one oversight on the property can cause a successful rehab to turn south in a hurry. There is a lot that goes into completing a profitable rehab deal. As the investor, you are the point guard, coach and star of the show all rolled in one. To get the most out of every rehab, there are a few keys that you need to keep an eye on:
- Assemble a good team. The importance of this cannot be understated. Even if this is your full time job you cannot be expected to be everywhere at once. There will be plenty of times that you leave the project in the hands of your general contractor or project manager. Everyone that works on the property has a direct impact on your bottom line. If the quality of work is lacking or if they don’t show when they are supposed to this will impact everyone else. A good team can make your project much easier and much more efficient. It will take time to develop these relationships but don’t underestimate how important having good people around you that you can trust is.
- Stay on budget. It is easy to make a budget in line with whatever goals you have for the property. The key is to make sure your estimates are in line with reality. The best rehabbers are the ones that are realistic and accurate with their numbers and then strict enough to stay with them throughout the deal. The minute you go over budget there may be no turning back. If your budget is accurate you should have no problem spending money where you need to. There will be unexpected items that come up on every deal meaning you should have a contingency in place and know where to draw the line. If you don’t think that every dollar is important you are wrong. Your bottom line is based on your expenses and if you want bigger returns you need to watch your budget.
- Stay Organized. Rehabbing a property means juggling numerous different people and numerous different schedules. You could be spread out in ten different directions but you need to know what is going on at all times. If you don’t know what time the plumber is coming or what day the flooring is scheduled to be delivered it could end up costing you several days. Technology has made staying organized as easy as possible but you need to develop a system that works for you. You can put it all on the lap of your project manager but you are the owner and ultimately the buck stops with you. This doesn’t mean you have to babysit but you should know what is going on with your property at all times.
- Time is Money. Every day that you can’t get your home to market is directly costing you money. This is just a catchy phrase but the truth. Between loan repayment, taxes, utilities and carrying costs they will add up quickly. A few extra days turns into a week and they next thing you know you are weeks over your projected finish date. This will lead to increased expenses and a lower bottom line. You should always be realistic with your finish date before you start but once it is settled this has to be your goal. Make sure everyone that works on the property knows how important that hitting this date is and hold them accountable if they cause the delay. Time really is money when it comes to your rehab.
- Plan for the unexpected. What makes the rehab shows on TV so entertaining is that there is always a curveball thrown in the mix. If you think that this is simply made for TV you are wrong. Almost every rehab has something that you don’t anticipate from the property itself to the town to the people you have working for you. How you deal with this often makes the difference between rehab success and failure. If you complain and try to fight these issues it will set you back days and leave you playing catchup. You need to accept them and find the best solution given the circumstances. Sometimes you will be forced to pick between the better of two bad options but you need to take a stand and not look back. Very few rehabs will go smoothly from start to finish.
- Spend profits wisely. A successful rehab is one where you hit your mark and make what you thought you would. This number is only important if you spend your profits wisely. It is exciting getting a nice check at closing knowing that you worked hard for this money. You need to fight the urge to take some of that and spend it on yourself. The goal should be accumulating enough capital so that you can fund your own deals or to increase marketing so you have multiple deals to work on. If you spend your money foolishly all the work you did will be for naught. If you spend your money wisely you can grow your business and use your money to make money.
Rehabbing is one of the best areas of the investing business, but it takes work and diligence. It takes time to become an expert. However, if you follow these keys – you will see your profits quickly rise.