Investing in real estate can be very lucrative, but it’s not without risk. If you are thinking about getting into the business of flipping real estate or want to build on your portfolio by adding multi-family rental properties, you will have to do plenty of research first.
You have to assess the capital you have access to, research the market, develop strategies, and enlist the add of experienced and trustworthy professionals. You also have to understand the difference between a fixer-upper and a rehab project.
A fixer-upper versus a rehab
These are not interchangeable terms. A fixer-upper is generally in need of cosmetic alterations like new paint, flooring, and modern appliances. A rehab project requires more intensive work that can include new plumbing and electrical. Rehabs are more expensive and take longer to turn around. They also require someone with experience to evaluate the work necessary to get the property up to full market value.
How much do rehabs cost and what goes into the strategy of cost evaluation?
According to Homeadvisor.com a typical multiple room rehab will cost anywhere from $18,422 to $75,577. The average rehab comes in at $46,276. There are plenty of variables affecting costs including location and how much, if any, work you intend to do yourself. Cost factors to take into consideration include:
- Purchase price
- Lender fees
- Holding costs
To make a profit, all these costs have to come in under market value. Also, you have to consider the time frame for the rehab and how quickly properties like yours are selling in your community.
What are the steps and strategies needed to rehab a property?
1. Before you purchase a property you should have a professional property inspector do a comprehensive inspection.
2. Make a renovation checklist.
3. Put together a detailed, cheap budget you can handle and are prepared to stick with.
4. Get the permits you need before any work is done.
5. Hire a qualified contractor.
6. Clean up and start the demolition process.
7. Prioritize your renovation improvements to maximize the return on your investment.
8. Finalize the rehab details, stage, and put the property on the market.
Finding the right rehabbing property at the right price in a good location is critical. Realtor.com has some helpful tips for beginning investors when it comes to making a lowball offer. Once you’ve closed on the property, you can begin the process of rehabbing.
Secure the property
Houses investors purchase are usually empty, so changing the locks and securing the location is an important first step. If there are windows or doors you can’t secure consider boarding them up until they are replaced. Empty homes in the process of being remodeled are tempting targets for vandals. It’s important to make sure all material is secured and unavailable to everyone but you and your crew.
Hire a qualified and reliable contractor
If you are a beginner and new to the renovation process, you will have to do some research before you can contact contractors and ask them to submit bids for your job. You should be looking for the following:
Contractors who are licensed and insured. You need to get copies of the proper paperwork along with bids. Licenses and insurance must be current and prove the contractor can perform the work you require.
Contractors who can bring the job in on time and on budget. The longer you hold an investment the more it’s going to cost you. You must hire a contractor who will be able to start the job right away, has the necessary crew to do the work and has a proven track record.
Contractors who will give you current references. Contacting references is one of the best ways to gauge the reputation of a good contractor. You should be given at least 3 references with current contact information included.
You don’t want to start any rehab without all the permits required by the city and county in which the property is located. Violations will cost time, money, and goodwill with the local authorities.
Start the demo
This is one area where you can save money by tackling a lot of the job yourself. Trash material has to be removed. Walls may have to be demolished.
This is another area you may be able to work on yourself. Many times all the exterior needs is a fresh coat of paint on the windows and doors, removing dead foliage and replacing it with fresh, and resodding and edging. These are simple improvements that make a lot of difference to the first impressions potential buyers have of a home.
The inside of the property is where you will concentrate your budget. Plumbing, electrical, and HVAC systems may have to be replaced or updated. Your budget strategy should be to put the most money toward what will bring the greatest return on your investment. Remember that kitchens and bathrooms sell houses. Modern appliances and fixtures are impressive and don’t have to cost an arm and a leg.
Tips from the experts for newbie investment rehabbers
1. Don’t take on more than you can handle. Start small. You might begin with a single-family with limited renovation needs rather than a multi-family investment.
2. Choose your crew carefully. Your rehab will only be as good as the professionals working on it. You want the best, not the cheapest.
3. Remember to factor in holding costs. It takes time to remodel, market, and sell a property. While it is in your possession, you are responsible for all the costs associated with it.
4. Plan for the unexpected. Always leave room in your budget for unexpected costs, including materials.
5. Double-check permit regulations. Different cities and counties have different regulations. Don’t assume anything. Get everything in writing. Make friends with local authorities.