Investment Property Makeover: A Budget-Friendly Rehab Blueprint

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.

• 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.

• 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)

• Interview local contractors:
• 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 out.
• 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 vetting process ultimately saves you time, patience, and big bucks.
• For newbies, the first few rehabs should be local projects.
• 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:
• 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.
• 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.”

• 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.

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.
• In the past, I tried to find properties near each other so I can hire a crew to clean up all the properties in one day.  I centralized the dumpster between all the properties and carted debris to the dumpster.   I used Craigslist for local hires.  It was a good move.

Property 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.
• You can use a good power washer to clean cement, outside walls, roofs, decks, etc.
• 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.

Property Interior: The main costs of rehabbing a property will involve the interior of the property.

• Depending on the repairs needed, the scope of work inside the property 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, medicine cabinet, etc. 
• Note: a little paint goes a long way. Whitewashing the hallways, common areas and basement goes a long way. 

Pro Tip: 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.

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.
• Avoid having a combative attitude with the contractor.  You want to cultivate that relationship if you want to keep investing in that area.

Exit Strategy: Once your rehab project is complete, it’s time to achieve your exit strategy!

• Note: To ensure success, make sure you think about your exit strategy before you start the project, in the middle of the project and at the end….this is a must!
• If you follow our guide and started advertising early on, you should already have some nibbles on your rental ads.
  • Contact anyone who expressed an interest in your property rental ad.
  • 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!!