☛The ABCs of Rehabbing Investment Properties on a Budget

☛The ABCs of Rehabbing Investment Properties on a Budget One of the pricier projects a real estate investor can undertake is rehabbing investment properties. This undertaking can be overwhelming and tricky, especially for beginner investors. It consists of purchasing a property, renovating it, and selling it for full market value or renting it out. Rehabbing […]

☛The ABCs of Rehabbing Investment Properties on a Budget

One of the pricier projects a real estate investor can undertake is rehabbing investment properties. This undertaking can be overwhelming and tricky, especially for beginner investors. It consists of purchasing a property, renovating it, and selling it for full market value or renting it out. Rehabbing requires attention to detail and time to master. It remains one of the more lucrative investment options in real estate. That’s why investors flock to this type of investment.

Rehabbing a house takes three things:

  • Time
  • Working Capital
  • Experience

It’s not something you want to jump right into if you’re not prepared. Instead, as an investor, you need to mind your due diligence before starting a project. Getting familiar with all aspects of a project is paramount when taking on a new rehab venture. While rehabbing can fetch profitable returns, it’s a complex exit strategy that shouldn’t be taken lightly. So, let’s go over the ABCs of rehabbing a property.

☛What Is a House Rehab?

A house rehab is the process of taking property and restoring or curing it into a habitable property. The level of rehab, the quality of the materials and the extent of repairs are all tied into the exit strategy. According to Homeadvisor.com, the national average for this type of undertaking costs $39,567.  That’s for a typical single-family dwelling.

Many times, investors looking to buy a fixer-upper are in it for the short game. Buy the property well under market value, make a few renovations, and then quickly sell the home for a profit. And that’s all good—you need to decide which camp you’re in from ground zero. This Old House explains that fixer-uppers that need a little paint and cosmetic work are excellent for flippers.  They are a low-cost investment that could provide bigger returns. Keep in mind, that other investors are chasing the magical unicorn as well…so 

☛There are two categories of investment rehabs:

  • Fix & Hold – Rental rehab
  • Fix and flip.

As an investor, you need to decide early if you’re holding or reselling. This key detail is critical since each approach will differ in how profits are made. Also, understanding the time commitment and the costs that will be incurred is different for both and need to be considered.

☛Property Rehab Vs Fixer Upper

The best way to think about a house rehab vs. a fixer-upper is overall workload and cost.  A house rehab is typically a more comprehensive project than a fixer-upper. Property rehabs will involve renovating the property and making bigger changes.  Changes like fixing electrical, plumbing, or roofing issues. On the other hand, a fixer-upper focuses on cosmetic changes that can be made quickly or at a lower cost than a full rehab. A good rule of thumb is that if someone can live in the property during renovations, it will most likely be a fixer-upper and not a full property rehab. Keep in mind that most private lenders only lend to non-owner-occupied rehab projects. Only a handful of lenders allow owner-occupied rehab projects.

☛Building Your Rehab Team

Next, begin exploring prospective properties in your market. If you are new to the game, consider looking for a property with light to moderate rehab. Taking on more challenging properties leads to greater financial rewards but may not be good to start out. Once you nail down a project you will need to inspect the property yourself. Before we chat about property walkthrough inspections, let’s talk about your rehab team.

Now keep in mind as a professional investor, you will need to be working on a few items at a time. So, while you’re looking for a property, you need to be building your rehab team. You should be connecting with local professionals like contractors, property inspectors, electricians, and lenders.  You can begin building your team from day one. In the beginning, rehabbing may not be part of your skills. So, you will need to connect with local contractors in your market promptly.  Getting familiar with your rehab team candidates is critical to your success. You should start reaching out to them as you embark on this new endeavour.

☛How Much Does It Cost to Rehab an Investment Property?

Rehab can cost anywhere from $20,000 to $75,000 and up. It’s your task to find a rehab project within your budget and skill set. As a rule of thumb, it is a good idea to start by assessing how much capital you have available. Especially, if you are borrowing funds for the purchase and rehab. Lenders like to see a bit of skin in the game. Once you know what your cash situation looks like, you can narrow down the size of the property and rehab project you can take on.

Here’s what the cost breakdown looks like for a few of the most common fixer-upper areas. (Note: These are national averages and may vary depending on where you are.)

  • Rehab Level 1: At times a project may need light work completed. Any investor can expect to pay about $10,000 to $20,000 for light remodels that include interior painting and spot refinishing, etc.
  • Rehab Level 2: Any investor can expect to pay about $25,000 to $45,000 for smaller remodels.  That includes painting both the inside and outside of a home, light refinishing cabinets, and updating the landscaping.
  • Rehab Level 3: A heavier rehab, that includes all the above.  Additionally, a complete kitchen renovation and a small bathroom fixup.  The cost could be between $46,000 and $75,000.
  • Rehab Level 4: This is a major upgrade.  It includes the cost of gutting a house and remodelling.  This includes everything listed above plus structural issues, foundational and roofing.  This will likely cost $76,000 or more. Keep in mind, that every level of rehab

If you are new to rehabbing, we suggest you start with level 1-2 rehabs. Build up to the other levels when you get some experience under your belt. Remember the more hands-on you are the better prepared you will be moving up the line for your next few projects.

It’s crucial to add up all the costs of potential renovations before you put a down payment on a property. And don’t let the dreamy idea of owning a rental property suck you in. This isn’t the time to go easy on your potential property investment. Instead, it’s all about being brutally honest before you commit. Doing so may actually pay off in the long run.

“If people are unforgiving upfront about assessing the costs of renovation, the value of the property and the neighbourhood, and how much money they have, they can come out ahead and buy more house than they otherwise could ever afford,” Bradley Inman, CEO of HomeGain.com, told This Old House.

☛Here are a few expenses to take into account when organizing a house rehab budget:

  • Project Materials: Estimate potential repairs during the property walkthrough.  It helps you get familiar with the materials needed so look up potential material costs. These include new countertops, windows, doors, appliances, paint or flooring, and any other supplies necessary to complete the project.
  • Project Labor: The most essential part of a rehab project is a good team. Not only will you need a contractor, but you made need an electrician, plumber, carpenter, cleaning team, etc.
  • Project Professionals: You may need an attorney, real estate agent, title company, inspectors, appraisers, and lenders. Each of whom will be associated with various costs.
  • Purchase Price: The initial purchase price of a property is the base of a rehabbing budget.  It impacts everything from the loan required to the future return on investment.  So, getting the right price is critical to your success.
  • Lender Fees: Depending on how the property is financed, different lender fees could be required. These will cover paperwork, title searches, and other costs associated with property purchase. You should expect to pay approximately 3-6%. Note the level of speed-related to how quickly you want to close may sometimes drive the lending fees, rate and term.
  • Ownership Costs: Do not forget to account for holding costs when estimating the budget. This includes the costs of utilities, property taxes, and overall upkeep during the rehab and selling or rental process. So, if you set on a 3-month rehab, consider 3 months of ownership cost. As a rule of thumb, we always include 6 months of carrying cost. This allows for a safe buffer as you work toward curing your project for sale or rent.
  • Property Staging: Now for a first-time rehabber you may skip this expense if you are on a tight budget or if you are going to rent it out. Once you have some decent funds in the bank and are insulated financially, you can incur the staging cost. After the rehab is complete it will need to be staged and photographed to sell. Staging helps to dress the property up so you can get more for the property. Just so you know, in some hot markets, investors can’t wait to get their hands on completed projects to add to their portfolio. So, use your own judgment on this expense.
  • Permits: For newbies, this is the Achilles heel. The permit process can influence the cost and project timeline of a property rehab. A permit will typically be required when adding to the square footage of a property.  Also, parking a dumpster for old materials and, and changing utilities to the property. In some states like California, it’s not unheard of to wait almost 6 months to 2 years for permits. Yet in Texas, you can get a permit in as little as two weeks. Keep in mind that you may skip the permits to save a few bucks, but if an inspector comes by and doesn’t find a permit, he can shut the project down.  Plus, you will be facing a lot of fines to boot.

☛Common Fixer Upper Project Costs

Kitchen Remodels: According to HomeAdvisor’s 2019 remodel estimates, the average cost of kitchen remodels is $20,474. The National Kitchen and Bath Association estimates the top expenses for an average kitchen remodel include:

  • Cabinetry/hardware (29%),
  • Installation (17%),
  • Appliances (14%),
  • Countertops (10%),
  • Flooring (7%).

You could always save by purchasing stock cabinets from a place like Lowes or Home Depot. In most cases, it may only run a few hundred dollars per cabinet. You may also want to look at damaged cabinets that can be salvaged if you know how to make slight modifications.

  • Bathroom Renovation: The average bathroom restoration ranges from $6,000 to $14,000, according to HomeAdvisor. The biggest cost in the room is, once again, the cabinets. Next is the bath itself which HomeAdvisor said could cost between $400 and $1,500 for a basic tub. If you’re looking to go high end, that tub could set you back a cool $8,000-$10,000. For rental properties, you can find a one-piece shower and tub fibreglass set that is easy to install, nice looking and cost about $800.
  • Roof Installation: A roof should typically last two to three decades on a home—or longer in some cases. The average cost for replacing a roof is roughly $6,838 – $10,000.

But, again, that cost can vary depending on if you want to go budget-friendly or superior quality. For instance, asphalt shingles, which are the most common roofing type, could cost as little as $1,700 for a standard size roof. Now a slate, which could last even longer without needing repair, may run up to $120,000.

💎Pro Tip 1: You can also try surplus and liquidation clearance building supply warehouses. At times, you may find used cabinets sets for under $1500. If you are planning to do a few rehabs in the next 12 months, it’s wise to visit these surplus warehouses.  So, you can stock up on cabinets and other used building materials. It is a good way to save moving forward.

☛How Long Does It Take to Rehab an Investment Property?

It can take anywhere from six weeks to six months to rehab an investment property. There are several factors you can use to determine how long a project will take.  That includes the size of the property, the extent of work, and how many team labourers. To get a more concrete understanding of a rehab project, look at each of these factors before purchasing a given property. Additionally, make sure you are on the same page with the contractor. Make sure he can give you a good time estimate. Using a “Scope of Work” report itemizes all the tasks to complete the rehab, but it also provides a complete time schedule. Download the report below so you can use it on your next project.

Click Here for Your Our Property Rehab Checklist and “Scope of Work” Report

☛What Is The 70% Rule?

Before deciding on a rehab project, you should be certain that it will see a worthwhile return on investment. To achieve this, investors typically use the 70% rule. The 70% rule helps home flippers determine the maximum price they should pay for an investment property. Basically, they should spend no more than 70% of the properties after repair value minus the cost of renovating. It is a loose principle that real estate investors use to differentiate which investments will be profitable in the end.  after the necessary repairs to the property are made. This will help differentiate the winners from the losers. It is not a precise estimate, but it provides a fluid basepoint for decision making.

☛How to Start the Process?

To start rehabbing, investors should first do the following:

  • Research their market area and get familiar with all aspects of the market (rents, population, price, jobs, etc.)
  • Assess their financing options
  • Pool capital reserves,
  • Assemble a team 
  • A great place to start is attending a real estate networking event in your area or connecting with real estate groups online. Both will help you connect with other real estate professionals.

☛How to Rehab an Investment Property from Start to Finish?

1. Evaluate the property with the help of a professional inspector.

2. Create a project checklist so that rehabbing a house from beginning to end becomes a reality.

3. Create a realistic rehab budget once you define your scope of work.

4. If you are not doing the rehab yourself, find a reputable contractor who is best certified to execute your rehab project.

5. Obtain the necessary permits that are required for your project.

6. Commence with the cleanup and demolition phase that will allow for renovations to begin.

7. Prioritize interior improvements by choosing repairs that offer the highest return on investment. Kitchens and bathrooms are primary sweet spots.

8. Get started with exterior improvements that will give the property the curbside appeal you desire. 

9. finalize any improvements before considering the project completed.

10. Implement your exit strategy – Fix & Flip, Fix & Hold/Rent

☛Make an Offer

Another element for investors to consider is making an offer. This stage requires investors to run the numbers on a deal to evaluate exactly what type of offer they can introduce to the seller. This step will also involve the After Repair Value (ARV) estimate. It’s used to calculate the value of the cured property after all necessary repairs have been finalized. This crucial figure will help investors determine their exit strategy. It will also assist in revealing which financing options work best for their project. When making an offer, be a diplomat. If you are dealing directly with the seller, be honest, and patient and be sure to listen to them. From start to finish, try to understand what they are looking for and create a win-win for both parties. Look out for our article on negotiating and making an offer. We will share some additional proven tips and tricks.

☛10 Rehab Steps to Follow

Follow these steps on how to rehab an investment property:

  1. Property Evaluation: The initial walk-through of a property is a crucial component to succeeding in the rehab. Make sure you are looking at all the major high-ticket items (AC units, heating units, plumbing, electrical boxes, electric connections, kitchens, bathrooms, structural, roof, leaks, old water damage etc.). Take pictures and good notes during the initial inspection. These site notes and pictures will play a significant role in developing a budget using a rehab checklist.
    • Investors should hire a professional inspector. The deal should always be contingent on a good inspections report. These individuals will identify items that need repair and recognize items you would have otherwise missed. A home inspection will include examining the home’s heating and AC system, electrical system, plumbing, foundation, roof, flooring, walls, ceilings, windows, doors, foundation, and insulation. For foreclosure investments the bank may be selling the property as-is and having a property inspector may not be an option.
  2. Property Rehab Checklist: When you conduct the initial walk-through of the property it is important that you capture as many details about the property plant as possible. Having a good property rehab checklist that covers all areas of the property is critical. Without the checklist, you may forget crucial details that may cost you down the line. Budget-conscious investors should summarize all necessary repairs and the costs associated with each. Use the inspection report as a guide. Keep the most important items on the top of the list to ensure you complete them first.  Unforeseen expenses pop up all the time so running a tight budget is critical to a successful rehab. Investors on a constrained budget will need to examine the thin line between cost-effectiveness and high returns. So be vigilant of every detail. Also, keep with the plan, contractors love revisions, but they cost time and money.
  3. Set up a budget: Once you have your property rehab checklist completed, you should be able to start estimating how much each renovation task will cost. If you are working with a contractor, he will be able to provide a “Scope of Work” report. This report outlines a plan of action with a timetable and a breakdown of labour, supplies, and project tasks. Most lenders want to see a version of these reports to identify the funding draws for each phase of the rehab. Usually, the funding is released in 2-4 draws. (Click here to access a copy of our Property Rehab Checklist and “Scope of Work” report)
  4. Interview local contractors: Working with a vetted, a quality contractor can be the difference between a great rehab and a crappy rehab. Be sure to do your due diligence. Especially, if you’re investing in another state. For newbies, the first few rehabs should be local projects. If you’re braving an out of state project, boots on the ground are a must. Relying too much on strangers to look out for your best interest is not wise. Make sure you work well with your contractor. Especially if you are going to be spending time with them. Bear in mind, that this is someone whom you will be working with for one to six months.
    • Schedule a contractor walkthrough: Once you have hired a contractor, schedule a property walkthrough.  Conduct it together. This is when you can discuss the rehab plan. An experienced contractor should be able to help you set your timeline, set your budget, and rehab repair checklist.  They can also offer suggestions to help with the project.
    • Building permits: Make sure to apply for any building permits as necessary in a timely manner. Verify what permits you may need by checking with your contractor and following up with contacting your local government.
    • Start Advertising- Use Craigslist and social media to introduce your project to the community. Build preliminary interest before you finish so that when the project is done you can get a few names. “Coming Soon totally renovated apartments for rent @ $1,500 a month.”
  5. Budget & Finances: Once you understand the scope of work that needs to be done, the next step is to assemble a rehab budget. All rehab plans are different but getting a complete profile of all the tasks that need to be completed is super important. Doing so will enable you to prioritize your rehab checklist or make changes if necessary. Remember, prioritizing is the key. Important items first and secondary items afterwards. Make an itemized list and work your way down by levels of importance. Keep your exit strategy at the forefront of your budgeting. If you are selling the property, the materials used might be a bit upscale to maximize return. With that said, if you are not moving in…don’t overspend. So don’t fall in love with the property because it will cost you.
  6. Contractor Candidates: The importance of finding a quality contractor cannot be understated. These individuals will play a crucial role in transforming your property into a successful investment. However, not all contractors are the right fit. As an investor, you will need to spend a decent amount of time investigating general contractors. Using Yelp, Angi.com and Google are extremely helpful.  Most investors, don’t do the homework and hire the first head that pops in. Try to hire slowly and fire quickly. Consider the Trojan Horse story. Once you invite the contractor to start the project it’s too late and can be devastating to your bottom line if it doesn’t work. This painstaking process will help you steer clear of awful contractors. This vetting process ultimately saves you time, patience, and big bucks.

💎Pro Tip 2: When doing your walkthrough of the property the seller or realtor may try to chat during your inspection. At times they may try to talk to distract you from noticing obvious property defects. Remember you are there to carry out a job, so make sure you are laser-focused. Later that distraction can cost you $5000-$10,000! Excuse yourself and walk away from them and make sure to revisit the area that triggered the interruption. Also, take lots of pictures, notes and even videos to avoid a second trip. Remember time is not your friend.

☛Contractor Report Card:

There are several things you need to know when looking for a contractor, including:

  • References: Get at least three references from past clients.
  • Project Scheduling: Do they have time in their schedule to perform the necessary duties?
  • Licensed and insured: Be sure they have the qualification and certificates to perform the duties they are being hired to complete. You can use a handyman for small tasks, but the big items on the list should be completed by a licensed and insured professional.
  • Payment Schedule: Determine if the proposed payment schedule aligns with the funding procedures. If you are borrowing funds, the lender determines how many draws.  They also provide the schedule using the “Scope of Work” report as a template.
  • Work Ethic: Being on time for the job and completing tasks on schedule is the best gauge for vetting out a contractor. Are they dependable? Are they trustworthy? Are they reputable?

Once you’ve found several contractors, the next step is to have each one submits a formal project bid. This will enable you to handpick the contractor that best fits your needs and budget.

💎Pro Tip 3: Never…ever…ever give all your rehab funds to the contractor. We had a borrower that gave $75,000 cash to an unvetted unlicensed contractor. They dropped off some materials at the site and were never seen again. Even if you are paying with your own cash, you should always use the draw method of dispersing cash. Every time the contractor completes one phase, you need to sign off on it, so they can move to the next phase. Most professional contractors follow this system.

5. Permitting: Do you have the required permits to perform the rehab? Avoid violating local building codes and pull the permits needed early. In most cases, the contractor will determine what permits are needed based on the type of work. You can contact the local building department to confirm.

6. Demolition: this is the beginning of the physical part of rehabbing your investment. This phase includes trash removal and removing damaged items like doors, windows, and fixtures.   The cleanup is essential to prep the property for renovations and safety. A clean and safe site insulates you against accidents and liability. Keep in mind, if you do the cleanup yourself using a little sweat equity you can save a few bucks and minimize additional costs.

7. Exterior: One of the most inexpensive expenditures when rehabbing is the exterior. Improvement to the property exterior can generally be accomplished without a contractor. These enhancements can be performed at an inexpensive cost. Consider using a power washer to clean the deck or exterior property instead of painting. Sometimes a little bit of elbow grease and a power washer is what’s needed to take 20 years of gunk off of a house. You will be surprised what a good power washer can do and in the long run, it can save you a bunch of cash. While the cost of rehabbing the exterior of the property will differ from property to property, these costs are generally lower than other project improvements.

8. Interior: The main costs of rehabbing a property will involve the interior of the property. Depending on the repairs that need to be made, the scope of work will almost always demand the biggest chunk of the budget. Projects like repairs to the HVAC system, plumbing, and electrical systems tie up most of the cash in a rehab. However, there are a few things investors can do to avoid overspending.

  • For starters, there are endless ways for investors to enhance interior appearance through do-it-yourself improvements. Changing the doors or painting the cabinets instead of replacing the cabinets.
  • Repairing existing systems rather than replacing them. Resurfacing countertops, repairing AC units, and heating systems, and patching up defective items.
  • Switching out cosmetic elements is shown to have a high impact on buyers. Things like light fixtures, door handles, hinges, etc.

As mentioned earlier, as an investor you must choose repairs that offer the highest return on investment. These upgrades will help produce the best return for your dollar. Sample projects include the addition of energy-efficient appliances, bathroom upgrades, and insulated windows and doors.

💎Pro Tip 4: Green and energy-efficient systems are in favour and will impact your investment returns. Buyers will sometimes pay extra for a property with a low carbon footprint and energy-efficient systems. Items like solar power, water reclamation system for watering the grass and other creative ways to conserve and reuse resources is a clever way to make an old house into a modern one.

9. Wrap Up: The last piece to rehabbing a property is finalizing the improvements. Do a walkthrough with your contractor by your side. Examine all of the work done, including double-checking any adjustments made during the renovation. Make a final punch list if necessary. A final inspection by a professional service is also recommended, as they can confirm the work completed by the contractor. The confirmation that the work is finalized correctly lets you sleep better at night.

10. Exit Strategy: Once your rehab project is complete, it’s time to achieve your exit strategy! First, since you started with local ads, contact anyone who expressed an interest in your property. Whether it be potential buyers or renters. If you get lucky, you may secure a terrific offer or place excellent tenants without even having to take the house to market. Otherwise, list the property on an online listing platform for renters or buyers and get the ball rolling. After this final step, your project is now complete. Rinse and repeat the process!!

☛7 Property Rehab Tips

Rehabbing your first house is no easy feat, and you will be sure to welcome any advice from experienced rehabbers. The following are some helpful tips for your very first project:

1. Don’t bite off more than you can chew: Especially with your very first project. Don’t hesitate to start at a level 1 or 2 rehabs. Focus on a few renovation projects that offer a high return on investment. At first, try to do one project at a time. This allows you to focus on completing the rehab without too many distractions. Take on bigger projects as you gain more experience.

2. Handpick your team: One of the keys to achieving success during rehab is working with the right team. This might start with hiring the best possible contractor in your market.  Working with that person to screen and hire great construction workers and support staff that you can depend on.

3. Factor in holding costs: When creating your estimated budget, do not forget to factor in holding costs.  Include the timeline of your renovation project, the marketing phase, and finally the selling and closing phases. It would be smart to factor in estimated costs for a case in which the property does not sell right away. Three to six months is a good buffer.

4. Always have a contingency plan: In a worst-case scenario that you are unable to complete your rehab project, what will you do? It is important to have a contingency plan in place. Line up an exit strategy in case you fire your contractor, or you run out of money. Reselling to another investor in your area may be an option.

5. Leave a buffer in your budget: One of the major rookie mistakes investors can make when rehabbing a property is failing to plan for the unexpected. A broken pipe, a masked leak, or a faulty electrical panel can cost you dearly. So, while there is no way to predict the exact costs that may arise when rehabbing an investment property, you always need to leave a little wiggle room in your budget.

6. Always get accurate permits: It is not uncommon for local municipalities to require property owners to get different permits or licenses before working on a site. Always verify with your contractor and confirm with the local city government to make sure you have the right permits and licenses to start and finish the project. Keep in mind that certain permits require that the county inspect the property before completion. This process varies from county to county and from state to state. 

7. Get Property Re-appraised: The goal of any rehab project is to add value to your investment property. Your ultimate goal is to fetch a higher selling price if you’re selling it. Or rent it for a much higher rental amount. When you are finished making changes, hire an appraiser to come out and look at the property. A certified appraiser should be able to give you the After Repair Value (ARV).   If your budget was tight and the project looks good…there should be some profit between the purchase and the potential sale price.

Rehabbing an Investment Property: 5 Mistakes to Avoid

As you gain understanding, you will become more secure with the methods of rehabbing investment property. However, that may not make your first rehab any less terrifying. Read through these closing mistakes to avoid before embarking on your first investment property rehab:

1. Market Research: Failing to research the market is mistake number one. Just because a market is well suited for one exit strategy does not mean it is the right place for another. Make sure the property is located in an attractive area and consider what amenities you could highlight in the future when selling the property. We converted a small 20-unit hotel into studio apartments. We had a common area, and a gym and added a laundry room. In a residential area property like that would not fly, but this particular project was by two colleges (4 years). It was a perfect fit for the local college students attending school. Great thing is that we offered discounts to parents if they paid for the year and about 8 of the units paid for the full year. Look out for a market with potential, and don’t be afraid to branch out of your local area.

2. Sale Price: Choosing the wrong sale price is what you need to avoid. No matter how exceptional a property is, it must be priced to sell. If it’s priced too high, it will sit on the market and increase your holding costs every month, undercutting the deal’s potential profits. Take comparable home prices into account before planning the renovations and purchasing the home.

3. Get Insurance: Property insurance is critical to the success of any project. In case anything unforeseen occurs, insurance can help protect both you and your investment. Always make sure you are covered. This is crucial, especially as workers start working on renovations.

4. No Mas!!!: On November 25, 1980, boxer Sugar Ray Leonard fought and defeated Roberto Duran. Towards the end of a really brutal match, Duran shouted, “NO MAS!!!” Basically, he knew he was beaten and realized when to stop. In real estate, not knowing when to walk away is a problem. It can cost you dearly and worst-case scenario you can lose everything. It is okay to walk away from a potential deal if something is not right. For example, don’t be afraid to pass up on a property if you cannot find the right financing or team. Let’s say that during a rehab you find that you have a problem with the foundation. Foundation repairs, especially on older homes are super expensive and can add an additional 15-30K to repair cost. In that case, you have 2 options. Resell it to another investor and pass the burn and cost or if you’re renting it, swallow the cost and get it done and rented ASAP.  These details can greatly impact the success of the project, even if the other details seem perfect.

5. Setup Your LLC: An LLC protects the property owner from forfeiting any personal wealth.  In the circumstance that they are sued by tenants for any situation for which the owner may be at fault. An LLC if setup correctly caps the amount for which an owner may be held liable to the market value of the property itself and nothing beyond that. So, if you were that kid in the neighborhood that played in the sandbox and didn’t want anyone else to take your toys…get an LLC…LOL 😂 Seriously, protect yourself from day one. Get with an attorney and get yourself the right type of entity and insulate and separate your wealth.

☛Wrap Up

Investors interested in rehabbing houses should not be frightened by renovation horror stories or do it yourself TV shows. The internet is peppered with all types of crazy stories. Unfortunately, most of these stories occur because of poor planning, zero capital, lack of experience and more importantly lack of common sense.

Recently we had an investor in NJ who had 3 rehab projects open, and all projects were about 50% completed. Basically, he had 3 loans and ran out of rehabbing funds. He was in over his head and sinking fast. Prior to these 3 projects, he worked at Home Depot and was a drywall finisher for 3 years. He was a jack of all trades, but not perfect. When we met him, he was about to lose all three projects. This is what happened. He sold one of the projects at a discount to an investor within 2 weeks. He paid off the lenders and use a portion of the cash from the sale to partially rehab the other two properties. We were able to refinance the other two properties for the short term and provided the additional rehab funds to complete both projects. Once fully rehabbed and rented we refinanced for a traditional and competitive 30-year loan. He now has two properties with 6 units rented @ $14,400 a month. With the right research and planning, any investor can learn how to rehab an investment property successfully. The first step is finding the right property for your situation. A property that gives you the best chance to make your money stretch. Do not be afraid to start small when it comes to rehabbing houses; even the best investors had to start somewhere.

☛Ready to get started flipping houses in your local market?

The best rehabbers know how to find the right properties, accurately estimate costs, and scale their businesses. ROGP Capital offers private funding for qualified investors interested in building their portfolios. Better yet, you can get pre-qualified in less than 24 hrs, with no obligation and no hidden fees.

So, don’t miss out on the next wave of foreclosures. Despite the competitive market across the country, savvy investors will be able to plunge into the market and find great deals. Please book a call for a free strategy call. If you are ready to take your investing to the next level, we can help. Let ROGP Capital help you build your portfolio using our private capital resources.

Maximilian D. Lucena

Royal Oxford Global Properties
Office: 904-876-3080, Ext 5
Book A Call: Click Here