Thursday, December 5, 2013

A Great Reason to Be in Real Estate - Rehabbing Properties

Among the reasons to be in real estate, quick cash is one of the most attractive upsides, especially for new investors looking to get started in a new business/career. When investors think of what it means to invest in real estate, there are two common things that come to mind. One is the holding of rental properties. The other is fixing up rundown properties and selling them for a profit.

I'll be discussing the idea of holding properties, particularly apartments in later articles and also cover this extensively in my training programs. I'd like to briefly discuss the idea of rehabbing properties and how this fits into your model for generating quick cash in real estate.

Having rehabbed over 450 properties of my own in just a seven year period, I have a lot of experience with this means of generating quick cash and know that it can be a useful tool in building your own real estate business. Rehab opportunities are everywhere and, once you see them as investment properties, instead of rundown junkers, your perspective will have changed for the better.

The secret to successful rehabbing starts with an accurate assessment of retail value post rehab, meaning after the job is done. Too many investors overestimate what they can sell a property of after fixing it up or underestimate either costs or time needed to sell it. Either way, profits can diminish and so too can morale, especially after having invested months into a single project.

My suggestion is to always err on the conservative side when estimating resale value of a property that needs rehabbing. Use lower sales prices, embellished repair estimates, and figure the job will take twice as long as you think it really should. When your analysis of a deal is built around these principles and the deal still looks good, then you likely have a winner. This is because the numbers work in a worst case scenario. Be positive but avoid shameless optimism as this will sooner or later bite you in the behind as a rehabber.

Consider too the end before the beginning. Who will buy your rehab project when it is complete? If the property is in an area where most properties are rented, then investors will be your most likely buyers and they are not going to want to pay you retail for the property. The best rehab deals are in areas where homeowners are looking to buy, as they are far more likely to compensate you fully for a job well done.

A final thing to consider is exactly how the work will be getting done. I didn't do 450 rehabs in seven years by doing all of the work myself. Some of you are handy and some of you are not and that is not the best gauge for how to process a rehab. Consider more than just your skills. What is the value of your time? Is it better spent putting up drywall or laying tile? Or rather seeking and negotiating deals? Chances are, your activities as an investor, rather than as a contractor, will be more lucrative so do what you do best and leave the rest to hired specialists.

No comments:

Post a Comment