Rehabbing property takes some skill, some sweat, some experience and some money. The good news is none of that has to be YOURS! You can borrow some or all of the above and turn a modest amount of cash into big profits! Here’s the thumbnail!
- Buy it right! That is THE number one key to a profitable rehab. You make your money when you BUY, you realize your profits when you sell! If you buy it right, you can make up for junior rehab mistakes and still turn a nice profit. Use
Other People’s Money (OPM). - Develop your budget meticulously! Take into account every expense you can imagine, from your purchase closing costs to your sales closing costs. The most junior mistake rehabbers make is not accounting for the carrying costs during the rehab and resale process.
- Develop your time line and be dogmatic about following it! Create schedules for your contractors and have them sign documents that bonus them for on-time work and penalize them for late results. The name of the game in this business is TIME!
- Hire contractors that are hungry, but honest. There are so many tradespeople that are talented at their trade, but not at their business. They tend to work on their own jobs, have lower overhead and take on only a few clients. Ask material suppliers for references to these folks. They will know exactly who they are. Hiring them should make for a smooth process.
- Babysit your project. That means you are on site at least four times a week. Your contractors should expect to see you regularly, but not at scheduled times. This keeps them on their toes and prevents slacking. You should be collecting data on every facet of your process and documenting what works and what doesn’t work.
- Document, document, document every aspect of your job. Track every expense and categorize every possible payment you make. This data will be used to develop your systems. Your goal is to make every rehab you do a cookie cutter. Each time you complete a project you will have more systems and a clearer idea of where you can improve and what worked for your market.
- Market your project immediately upon completion. Notice I did NOT say market your project when you buy it, or half way through or when nearly complete. If this is a flip, or a rental, you will learn that buyers or tenants have very little vision. Do not expect a buyer to be able to visualize their favorite color of carpet so you can install it once they buy. It won’t happen, and you will lose valuable marketing time. If you are selling “by Owner” market your project for no more than 30 days before getting it on the MLS with a professional Realtor.
If you learn to follow these steps your first rehab will be one in a long string of profitable rehabs. If you don’t, well, good luck!
