Rehabbing Houses

Rehabbing basically refers to fixing up a house or other property that is in need of repairs, usually a lot of repairs. The extent, type, and quality level of the repairs depends to a great degree on what you ultimately intend to do with the property. Beyond meeting local building codes, how you fix up a “fixer upper” depends upon whether you are going to rent or sell, and the general selling prices of property in the neighborhood. You may love a gourmet kitchen but it’s not likely you’ll make a profit if you put one in a starter home.

I’ve gone about rehabbing property two different ways; hiring my own subcontractors or using a mature builder with his own crew. Go for the mature builder. Even better, go for one who specializes in renovation construction. Hiring a contractor with his own crew will save you hundreds of hours of sorting through people who may not show up when you need them or do the quality of work you expect. They all want to get paid but many don’t care about how, or if they do the work.

What sort of property do I look for? If you said one that just needed some cosmetic repairs, like some fresh paint and pretty new carpet, you’d have guessed wrong. Sounds like an easy deal, just a little work. Unfortunately, a “little work” usually translates into “little” or even worse, no profit. I never do these kinds of houses. I go for the REALLY UGLY houses because the profits are so much prettier in the end. Of course, you have to find just the right sort of ugly house, but more on that later. In general, really ugly houses often spook people but there’s gold to be mined there! These ugly ducklings make me $20,000 or more profit on each house. I rather like these kind of profits; sound good to you?!

When you first get started as an investor, put finding a Hard-Money lender at the top of your To-Do list. A Hard-Money lender is one who will finance your renovation project, as your local banks usually shy away from financing these kinds of deals because of the higher risk involved. Hard-Money lenders are a good source for a loan but be aware that a higher risk loan comes with a higher interest rate.

You absolutely want to make sure you qualify for the loan you need BEFORE you negotiate a contract and put down your earnest money. If you don’t want to kiss your earnest money “goodbye”, make sure you can close a deal when you say you will. It is very important that you do what you promise in this business, just as in any other.

I know investors who get a prequalification letter, make offers and actually have the closing set up, but who never show up for the closing. That in of itself is a $500 expense someone has to pay. If it is the attorney, guess what? It won’t take long before attorneys and agents get the word and won’t do business with you. I’ll talk in more detail on this subject in a future newsletter.

Okay, back to the contractor. This is really, really important. Prior to closing the deal, make sure have your contractor(s) all lined up and ready to jump on your project right after you sign your name at the closing. Well…. maybe not that very minute, but as soon as possible afterward. You can’t just assume you will find someone to do the work when you’re ready for it to be done. Delays can end up chomping away big-time into your profits. Remember, when you close that loan, the clock starts ticking on that interest…Cha- ching, cha-ching….

Take it from someone who’s “been there, done that” and learned that particular lesson the hard way.

Till next time……