Top 10 Mistakes Real Estate Investors make During Property Rehab
Turning distressed residential property into a quality home can be very lucrative as long as you avoid these ten common mistakes.
1. Paying too much for a property: You make your profit when you buy a property at an excellent price, not when you sell it. Focus on negotiating a great price, and you will have “wiggle room” to make numerous mistakes. But if you pay too much for the property, the slightest unplanned repair can eat up your profits. Focus on buying smart and learn to work only with truly motivated sellers or banks. Don’t waste your valuable time with people who aren’t willing to take a rock-bottom price just to be done with the “situation” which they perceive as a major problem they want to be rid of.
2. Buying a property that has fundamental structural damage: If a house or building has foundation problems, it’s usually best just to pass on it. Not only is it very costly to repair, but can expose you to legal liability down the line. Unless you are a structural engineer or have a tremendous amount of experience with these matters, it’s best to just avoid properties with foundation or grading / drainage / flooding issues.
3. Not doing the math properly when estimating fixup costs: This is probably the most common mistakes newer investors make. If you underestimate the cost of repairs, you will overspend which will erode your profit margin. Until estimating costs becomes second nature, get bids from subcontractors before buying the house. Be thorough in your walkthrough, and assume everything will cost 10-15% more than you think, just to be safe.
4. Not checking for termites: Get a termite inspection early. Termites aren’t as easy to spot as you might think and could lead to serious problems causing a huge liability.
5. Hiring poor contractors: Other than general laborers who come in to clean or landscape, avoid hiring unlicensed contractors unless you are completely confident in their ability to perform and they have insurance to cover their work. There are a number of good licensed vendors out there that will work for a better-than-retail price. Sell them on the idea of repeat business and a long term relationship.
6. Not getting quotes from multiple subcontractors: For every repair, make sure you get multiple bids from subcontractors, and make sure you let them know that you are getting multiple quotes. When you have your lowest quote, go back to the others and ask them to beat it. The money you save here goes right to your bottom-line. On the other hand, don’t be so cheap that you anger or alienate every local subcontractor, as you need to build a team of subcontractors that you can rely on. Ask them lots of questions so you expand your understanding of repair alternatives and why repairs cost what they do. It may benefit you to create a list of repairs and what they cost so you can build a database for future reference.
7. Not advertising the property as soon as complete it, and not moving the property fast enough: Have a marketing game plan ready to execute immediately upon finishing the punch-out work. Make sure you stick to this marketing plan. Keep the house well maintained while it’s vacant and you’re looking for a renter/owner. You only get one chance to make a first impression; make sure your property impresses.
8. Not considering multiple exit strategies before purchase: Always have a backup plan. If you can’t find a retail buyer, what else can you do to make the real estate investment a successful one for you? Rent it? Lease/option it? Wholesale it? Convert it or get it rezoned to raise its value? Always have a viable Plan B exit strategy and execute it immediately upon recognizing that plan “A” isn’t working out too well.
9. Not obeying your instincts: From time to time you may get an uneasy feeling about something or someone. Trust your instincts. Don’t let your desire for profit blind you to what your instincts are telling you.
10. Rehabbing the property to your standards instead of the buyer’s standards: Remember, you only need to repair the property or upgrade it to the point where it is marketable. Frequently these homes are in the lower end of the price range for your area, and these buyer’s standards may be different from your own. Research other houses on the market in the subject property’s area and see the quality of their fixtures, flooring, etc. Rehab according to the market, not your tastes.
Real Estate Investing is definitely a type of investing where you learn over time, and get plenty of lessons at the school of “Hard Knocks”. Because of this, many people chose to partner with someone who has this experience and know how. EquityTeam is a licensed real estate investment brokerage in Cincinnati, OH and Kentucky. They can help you find the investment property that matches your wealth building goals, and even have partnership programs available to ensure your success. Contact the EquityTeam today to learn more.
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Top 10 Mistakes Real Estate Investors make During Property Rehab
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