IS REHABBING FOR YOU?
Prior to the real estate crash of 2008, I would occasionally buy a house that needed repairs subject to the existing mortgage or get a new loan. Sometimes I would partner with others, at other time I did it on my own using my son's labor to help me. The rules to buying investment properties have changed since then and it is not my intent to get into these "new rules" with this blog.
Periodically I will get a call from a friend or client asking me to find them a rehab property. Most of them had never rehabbed a home nor have the skills to do it on their own, nor do they fully understand what is involved in rehabbing a home, i.e., permits, local inspections, trusted contractors, etc. They either read a book about rehabbing or read an article and got interested,
You don’t have to devote 40 hours a week to the project but remember, you’ll be working for the same wages as the person you would have paid. It too me some time to understand this but I eventually formed my “contractor team.” It consisted of painters, carpenters, roofers, etc. In the beginning we tried to do all the work ourselves and then contracted out the areas where we had little or no skills.
There are basically two negatives to rehabbing: time and money. As I look back, I probably would have tried to accumulate more cash to fix up a home rather than borrowing it and doing one house at a time. Secondly, I would have had my “contractor team” do most, if not all the work to save me time to look for other property.
In addition to construction, you will need to get knowledgeable about mortgage programs and their loan rates as you will soon see your potential buyers know very little if anything about home loans and what is needed to get qualified.
I am asked, “How do I find these homes?” Of course, you could use a realtor, but chances are the home will be vacant, tall grass out front, possibly boarded up, needing fix up inside and out. Just drive through area you want to invest in and take note. Word of mouth is another great way. Let your friends and contractors know what you are looking for. The mailman or Fed X or UPS driver is full of information about a neighborhood.
Just keep in mind, unless you have a whole lot of cash or access to it, you are not going to find many deals in the “prestigious” or high demand neighborhoods. Also, if you are just starting out, don’t fool around with houses that need major structural problems, like foundation problems. Cut your teeth on houses in need of cosmetic repairs or updating.
You need to have three strategies in mind when trying to find a rehab: (1) purchase strategy, (2) repair strategy and (3) marketing strategy. One investor I know uses this formula in his purchase/repair strategy:
Estimated Resale Price (Conservative)
Less: Repair Costs
Less: Holding Costs (mortg., insur., taxes, lawn care, utility, etc.)
Less: Resale Costs
Less: Minimum Profit (ex. $10k to $20k)
Equals: Maximum Purchase Price
Your marketing strategy started with selecting the right house to begin with, i.e., a house in a salable neighborhood with homes selling in 180 days or less. Even while the rehab is underway, have your signage out front to attract potential buyers. This is part of your marketing strategy.
Rehabbing can be fun and profitable for the right person(s). There will be ups and downs as you gain experience, Learn from your experience.
This was not intended to be a treatise on rehabbing but just an overview. If we can help you with your real estate needs, call us at 252-257-4822 or visit our website at