One of the biggest opportunities to net large profits in real estate is by rehabbing. Taking on a rehab can seem a bit overwhelming at first, but here’s a general overview on how to rehab a property.
First, look for opportunity in all types of properties. This could mean properties with foundation issues, mold, a bad floor plan, pet urine, major electrical problems, fire damages and much more. These properties are usually willing to negotiate price which means a greater opportunity for profit for you.
This brings us to budget. The key to a successful rehab is knowing your budget. When you purchase a property for 50% of property value or less (depending on the market) it gives you room to invest in repairs on the property. If you want to sell a property for $100,000, then you would want to try and buy it for about $50,000. You would then invest $20,000 in the rehab. At this point you would have spent $70,000 and you would be left with $30,000 for remaining expenses and your profit. This is an extremely simplified version of a budget but it’s important to understand how much you’re going to want to invest in a property before you buy it.
Once you buy a property, you need to create a detailed scope of work for both your knowledge and the knowledge of your contractor. The more specific you can be, the better. Try to give as many details as you can, this will give you and your contractor a better overview of the amount of work as well as the budget. A good scope of work will include the materials to be used and who is going to provide them. Using the same materials on your rehab jobs can help keep you organized and knowledgeable about the cost of materials. Talk to your contractors and see what vendors they already have relationships with.
The next step, is to find the right contractors. Referrals are usually a great way to find great contractors. Be sure to interview your contractors thoroughly, like you would an employee. This means checking references, those who have repeat jobs for the same person are usually great to work with. Make sure to sign an Independent Contractor Agreement and check to see if they are EPA certified, insured, and licensed if need be. Last but not least, make sure they have the time to get the job done.
The easiest way to make sure the job gets done is to hire a General Contractor. The General Contractor can oversee the entire project and save you a ton of time and headache. The only downside to General Contractors, is that they can be pretty expensive. Being your own General Contractor is a lot more hands-on and will save you a lot more money. However, this will take up a lot of your time, so consider the options when deciding whether to hire a General Contractor or not.
Rehabbing is a learning process and it gets easier the more you do it. Make sure you take the time to ask the right questions and learn from your mistakes. Real Estate Prodigy is here to help make the process much easier by offering you insight to how we rehab properties. Whether this is your first rehab project or your 100th, we’ll give you the guidance you’re looking for.