While TV glorifies rehabbed houses and most people can do it; not everyone will do it
successfully A 30 minute TV show makes it look all too 
easy. Buy a property, fix it up and put it on market and watch the offers line up. If you have ever renovated a house before you know that this is not as easy as it appears. There are several seemingly minor things that can have a huge impact on your profits. Forgetting or ignoring, these important steps can make all the difference between an average return on investment and a significant one. While it is important to know the right steps it is even more important avoiding these costly mistakes.
- Is the price right? Obtaining an inexpensive house does not always correlate
to a positive ROI. There are times when you will get a good deal on a property
and other times the asking price is too good to be true. Just because you get a
discount from the asking price doesn’t necessarily mean you got a good deal. It
is very important that you do your own due diligence and obtain a purchase
number that works for you. It is not uncommon for a seller see their property
more valuable than it really is. The Seller has an attachment to the property that
the public does not, and they tend to ignore the data in front of them. As an
investor you should only use data as your guide. You need to take into account
the condition, potential value added, market appeal, cost of repairs and time
commitment and come up with a number that works for you. If the price is still
too high, try to negotiate and get the seller to see things your way. If the
seller is fixed on his price then it’s best to walk away and move on to the
next property. - Doing work yourself. Real estate investors need to pick and choose there battles
carefully. There is a fine line between
saving money and creating a greater expense. Even though you can do some or
most of the work yourself doesn’t necessarily mean that you should. Working on
multiple areas will often cause your quality of work to go down. Improvements on a rehab are not the same as
improvements on a rental property. Rental usually require less work and less
expensive items placed in them. Also, if a problem arises you can usually patch
the problem until the lease ends. Rehabs are expected to be in great working
conditions If a buyer sees substandard work, they will submit a substandard
offer. Secondly, time is money and if you are doing it yourself. Chances are
you are not doing the work as fast as a professional in that area of expertise.
Extending the timeline is can add costly
expense to the project and lower your profits in the end. - Inadequate budgeting. The end goal of any rehab is to realize a profit. The reality is
that you can make your budget and projections to look any way you like. By
taking the best case on some items all you are doing is hurting yourself down
the road. When you start your project, you will quickly realize that you may
have shortchanged the work needed and need more capital. Without working
capital, you will make short sighted decisions that will negatively impact your
bottom line. You will try to cut corners where you shouldn’t and everything on
the project will suffer. To protect yourself from unexpected expenses you
should always give yourself a buffer and
try to stick you your budget because it is mostly likely that you will spend
more than you anticipated. - Unrealistic ARV. Some improvements don’t necessarily equal value. One of the
biggest mistakes rehabbers make is assuming the market will agree with their
value. Before even making an offer, you need to know everything about the
market. Studying previous sales and current listings will give you a better
picture of what you can anticipate as far as resell value. By studying the market, you will also get to
know what buyers want and value in that area. You can then take those preferences
and apply them on your rehab. Over improving a property does not mean you will
sell for a higher price. If you are unrealistic in your ARV you will put
unnecessary work in which will diminish your return. - NO Cookie Cutters. Every rehab
you do should be unique. Though you need
to be aware of trends; you also have to know that trends don’t work for every
market. As a rehabber we sometime want
to put our preferences in our project; but, we must remember that our
preferences will not always be something the buyer wants. Listen to the advice of the people around you
and be willing to shift gears every now and then. Stay away from the cookie
cutter model; it’s important to stand out and appeal to the end buyer. If you
rehab the same on every property in every market eventually you will be stuck
with a finished product that doesn’t move. This leads to a price reduction that
ultimately forces you to take much less than you ever thought at the start of
the project.
While rehabbing has many upsides it isn’t without it’s pitfalls.
By being aware of these common mistakes we can avoid these errors.