It may go without saying, but your bottom line should be at the forefront of your mind on every flip. It is not enough to simply be involved in a rehab deal, you need to be conscious of where it is headed. Your success is based on how well you run the property, and how efficient you are in overseeing the project. Inaccurately estimating costs or allowing the project to go over budget will quickly turn a great deal into one you may regret. There are many things that can give you a great return. Here are five things you can do to maximize the returns on your next rehab project:
1. Find The Right Property: Every successful rehab starts with finding the right property. One of the misconceptions that new rehabbers have is that any property can yield a return. In reality, you need to start by finding the right house in the right location. You also need to make sure that it fits within your budget. Once you become overextended, it opens the door to more problems. Before you know it, you will be deeper in the hole. Listing above market value as your only option to break even. When this doesn’t work, you will be forced to accept the best of the bad offers. You can avoid all this by only looking at properties that fit with what you want to do. A deal may come your way that is great, but if you have other things going on or if it is out of your preferred area you should pass on it. The right property will be one that you can confidently make an offer on. The first key to rehab success starts with finding the right property.
2. Get Firm Estimates: If rehabbing real estate was easy, everyone would do it. One of the things that make it so difficult is working with all of the numbers. Not only do you need to know what you can spend to make a profit, you need to make sure it is possible. There are dozens of expenses on every deal. To maximize your bottom line, you need to know where everything is coming from. What you spent for something on a previous deal may not apply to the current one. The listing sheet may list a rent price, but that doesn’t mean it is accurate. You need to dig in and get to the bottom of all of the numbers. This could mean calling the town hall or asking for the seller for evidence of an expense. Often times it means working with your contractor and getting on the same page with every expense. This is your deal, and you need to understand everything. If you have questions with labor or material costs, you need to ask before you make an offer. Things may change once you start your work, but don’t go into a project without knowing all of the expenses.
3. Time Is Money: Every day you own the property without selling it is costing you money. As the owner you are responsible for taxes, insurance, utilities, interest payments and other carrying costs. Individually, these expenses will not break the bank, but collectively, they can equal a good amount of money. If the project takes weeks or months longer than you anticipated, these expense payments will eat away at your bottom line. One of your jobs as the owner is to keep everything on schedule and working towards the finish. A day here and a day there quickly turn into weeks of lost production. You need to make it known just how important it is to get things done in a timely fashion. You and your contractor, and everyone else that works on the property, should understand that timeliness matters. Time really is money when rehabbing real estate.
4. Work With The Right People: When you are planning your rehab budget, there is usually barely enough to do everything you want to do. Imagine if you had to pay to do it twice? One of the most important things you can do on a rehab is work with the right people. The temptation to hire the cheapest work will always be there, but I assure you, it could end up costing you many times over. You want to work with people that you can trust. If the work is shoddy and you aren’t satisfied with it, you will need to have it repaired or replaced to get top dollar. Before you commit to anyone, don’t be afraid to ask about any previous projects, and to see what they have done. This may take a few extra days on your end, but well worth it.
Everything you do on a rehab impacts your bottom line. Who you work with, shopping for the best costs and keeping everyone moving forward are all critical for success. Remember that the little things add up. If you are not careful, negligence will eat away at your bottom line.