The area, neighborhood and existing condition of the property will dictate if you should approach your next project as a flip–clean the property, make needed cosmetic repairs, refresh the appearance and put the home back on the market OR do a full rehab—replacing the infrastructure of the house such as furnace, boiler, plumbing, electrical panel and electric cables—putting that extra time and effort into the property before selling.
Both rehabs and flips can bring a good ROI if done the right way. A flip has a quick turnaround since most work is cosmetic. A rehab, on the other hand, is more extensive and takes more effort since it requires updating/replacing the necessary systems along with all the necessary aesthetics.
Experts agree that for either project, having a list of do’s and don’ts will help you go a long way.
Do’s and Don’ts of Home Rehabbing & Flipping
Buy the right property
Do: You must buy the right property at the correct price, no exceptions. Without counting for the appreciation, run the numbers. Visit the market to get a sense of home prices in the neighborhood. Is the concerned property a suitable candidate for your next rehab project? Will you make a profit rehabbing that old house?
Don’t: If you want to make money rehabbing homes, resist the temptation to pay extra to get that deal under your belt. It is especially important if it’s going to be your 1st rehab deal.
Determine the Value & Cost of Repairs
Inspect the home in detail. Get in touch with a licensed contractor in your area. What is the exact cost of repairing that property? How much do you need to spend on each system, repairs, and renovations? Get the number in writing.
Don’t: Assume the price of a repair. Never base your rehab plans on someone’s suggestions. Run the numbers and only proceed, if everything is clear and makes sense financially.
Find the Right Contractor
As an investor, your job is to assemble the right team. Find and keep trustworthy and experienced people. Doing so will free up most of your time that you can spend on finding other profitable opportunities.
Finding the right contractor also involves finding someone who shares the same vision of quality. When a project requires a permit, your contractor should know how to get one. Also, think of a warranty that can be transferred to your customer.
Do establish a written contract between you & the contractor. Getting things in the written format allows you to use the exit strategy if things don’t go as discussed.
Make Your Home Appealing to the Target Market
Visit other homes in the area. How are they renovated? Which kind of amenities attract most buyers? Your home should appeal to the target market. The task is to add the wow factor without overspending/overdoing.
Don’t Put Lipstick on a Pig
Rehabbing is not about cleaning the house, putting new carpet and new paint. It involves extensive repairs, hard work, and probably the addition of various amenities. Remember that a good dependable buyer’s agent will look for these signs and know whether a house was rehabbed or flipped. Rehabbed properties, at the right price, tend to sell much faster than flipped homes. Experts can tell by looking at the property about the quality of the work. Invest in quality work that will add real value to the home.
Calculate the Holding Costs
The holding costs can eat most of your profit if you slowly go about renovating a property. Projects should be finished in a timely fashion as you intend to sell the house. It is safe to assume that it can take six months to sell the home. Calculate the interest rates, utility expenses and other holding costs (i.e., insurance expenses) for the six months’ period.
If the house was properly rehabbed and you are aggressive with your marketing approach, your home should sell within weeks. However, let’s be realistic.
Even after the deal is finalized, the buyer might need more than a month to arrange the money to buy that house. During that period, you’ll be the one paying the cost of holding the property.
Stage Your Rehab Property
Don’t think of staging as an expense. It is going to be an investment. Staged homes sell faster.
A quick sale reduces your holding costs, and you’re able to earn a profit quickly.
Right Pricing is Important
Recent sales data determines the price of a property.
It doesn’t matter how many hours went into the rehab project. Buyers don’t care about wrong profit calculations or how long did you have to hold the property. The market will only favor the right price.
Don’t overprice the property because that’ll result in a delayed sale which means you must bear the cost of holding the property for an extended period.