Every rehab you get involved in is a new experience. Even if you have a blueprint for previous successes, future wins are not guaranteed. One of the biggest mistakes that rehab investors make is trying to shift gears after the project has started. This can work on properties where there is still room for profit, but for those that are tight, getting off track can be risky. Before you make your offer, you need a firm budget. Accordingly, you need to determine what work you are going to do on your property. Trying to cut corners and go halfway is often the worst thing you can do.
You are in control of everything you do on a rehab. You can gut the whole house and start from scratch or you can just add paint and a few minor touch ups. If you start out by looking at the end goal, it will help you with your decisions. If you are looking to sell for top dollar, spending money on quality upgrades is the way to go. If you want to find a tenant without putting in too much of your money, you can focus on affordable options. Not having a plan can lead to indecision.
Before you do any work, you need to know your market. Spending money to make tour property look like the Taj Mahal in an area where rents aver $1,000 a month is a waste of resources. The goal is to upgrade the home so that it is a little better than the houses around it. In doing so, your home will be the same price as those it is around, but nicer. This is incredibly important when it comes to selling. Buyers and renters will compare your property with other comparable homes in the area. They will also compare what is offered, and if they are getting the best bang for their buck. This doesn’t always mean that you have to spend money, but it does mean that you need to know where you are getting the best return. Items like new flooring, updated kitchens and remodeled bathrooms will often appeal to the greatest number of buyers.
If you start your rehab on a shoestring budget and decide to paint and make other minor cosmetic upgrades, you may be disappointed with the results. As you try to find a renter or buyer, you notice that demand is not where you would like it to be. You start out listing the property – hoping to get a certain value. After a few weeks, you end up lowering your number to drum up some interest. In some cases this may work, but more often than not the reduction is not low enough and you are forced to do it again. What you thought was going to be a quick and easy deal with a good profit is now dragged out several months, leaving you to decide between a weak offer or waiting for another buyer to come along. This isn’t a horrible scenario if you bought low enough and there is room to still make money, but if you are deciding between only bad options you should consider plan B.
The alternative is spending money to generate interest and attract the highest possible price. This means doing the right work at the right price, and leaving buyers wanting to make an offer on sight. You will spend more money and time than you had anticipated, but by spending more, you hope to see more when you sell. Anyone that has ever watched one of the many rehab shows on TV knows that this is often the plan B of flippers when they go over budget and are looking to save face. In reality, this is often the best option and should be done from the outset. Buyers want to buy properties that are new and fresh. In this business, it takes money to make money.
Instead of committing to one direction or another, many rehabbers will do upgrades in one area and leave the rest of the house as it was. This doesn’t appeal to any segment of buyers. The house will not be priced low enough to justify the amount of work still needed and not new enough that they can move right in. What you will find in most cases is that many buyers have just enough money for the mortgage and don’t want to worry about doing anything once they move in. By delivering a property that is move in ready, you will increase your demand.