For investors looking to rehab houses, it can be quite a process. Today, we’re going to outline some of the most important steps of the process. You may want to consider making a checklist then review it as you go along.
#1. Assemble your team. This can be a small handful of people, or it can be many. It depends on how many professionals you know and trust. For example, your team might consist of: an architect, building contractor, house inspector, plumber, electrician, structural engineer and more just to name a few. The more individuals you trust and can bring along with you the better. You can never have enough professionals on your team.
#2. Before doing any purchasing, it’s critical to study your local market. Invest the time to educate yourself. You need to have a good understanding of property values in your local area. If you fail to do your homework, how will you know when the right property to buy presents itself?
#3. Don’t buy a house beyond repair. This step should be obvious, but shockingly many new flippers acquire the wrong house and it’s the first and last rehab they ever purchase because they run out of funds and end up selling at a loss. Don’t let this become you. Consult your power team. If the consensus is positive, then proceed accordingly.
#4. Know your budget. Everyone starts out with a finite amount of working capital. The most important rehab you purchase will be your first one. How much work is needed? Make a list. Present your list to members of your power team for review. Don’t forget building material prices are quickly rising in a post-Covid market. You might want to even slightly overestimate building materials and prepare for the worst case scenario.
#5. What profit margin do you expect to make on this project? Don’t fall into the trap of thinking that by keeping your cost down you’ll just make a good profit and walk away. Go deeper by making a specific profit margin you are looking to establish. What good is the project if you simply break even or pay your profits in taxes? That’s why making this determination in the beginning is so critical.
#6. The best rehab properties are the ones that can be updated quickly. The best projects have issues that are easily correctable. Easy fixes generally include: patching small holes in walls, spraying cabinets to look fresh and new, and other general painting. Replacing flooring has never been easier. They now make special vinyl flooring that is professionally adhesive and 100% water resistant. Laminate flooring is another option that is not too expensive. It’s come a long way in the last decade and looks fantastic.
#7. You’ll need to establish alternate exit strategies beyond just selling on the open market. For example, what if your rehabbed house doesn’t sell as quickly as you anticipated? That means that you’ll have holding costs continue to climb which will eat away at your profit. Do you have a back up plan? Can you turn the house into a rental property and turn a profit? Try to imagine the worst case situations and develop strategies to overcome them.
Make your rehab purchase based on common sense. Don’t allow your emotions to lead you. Be patient and willing to wait for a good opportunity to present itself. Don’t make any rash decisions without consulting your power team. Allow them to provide you with wise counsel. Be smart enough to sometimes realize the best deals are the ones never made.
For those just beginning a career in real estate, you’ll want to learn the basics of how it works from a professional cash homebuyer. Then you can establish your own business plan.
About The Author
Ryan David is a real estate investor, flipper, and wholesaler. He’s the owner of
We Buy Houses In Pennsylvania that buys distressed houses in Scranton / Wilkes-Barre and surrounding areas of PA.