One of the best ways to make money as a real estate investor is rehabbing houses.
If a property is distressed you will be able to buy it at a lower price and add value back into the house by fixing it up.
This new equity creates a huge opportunity for profit.
You can sell the house if you are planning to flip it.
Or if you rent the house to a tenant the lower purchase price will insure you make a profit each month.
When people first start investing they usually imagine buying a run down house and making it beautiful again.
The problem is that this is also where most new investors get stalled.
Once you start looking at houses that need major work fear and uncertainty will likely follow.
Everyone at some time or another has said: • This seems like a lot of work...
• Can I really do this...
? • What if I lose money...
? That last one is the real kicker.
What happens if you lose money on the first house you rehab? This can stop your real estate dreams before they even start.
If you don't lose all of the money you have your confidence will almost always be ruined.
Unfortunately too many people decide this just isn't worth the risk and walk away.
This is the most disappointing to me because it doesn't have to be risky.
An investment should be calculated to minimize risk.
And you can do this by using a few proven guidelines for rehabbing houses.
As long as you follow these there will be no reason to worry and you can buy your first fixer-upper without fear.
Stick With What You Know When you are walking through houses for sale, especially if they have been vacant, you will see a wide variety of repairs that need to be made.
From loose switch plates to full renovations.
The first rule is to stick with what you know.
Make a list of the type of work that you are comfortable with and then follow that list.
Don't be tempted to try something new in the beginning.
You may not think you are comfortable with anything but don't worry.
Imagine you are living in your own house and think about the kind of upgrades you would make.
Painting walls or getting new carpet is pretty common.
And people often change out light fixtures or even remodel a bathroom, etc.
I call these cosmetic repairs.
You are not changing any of the house structure, you are just changing how the walls and floors appear.
Even if you don't think you are comfortable with these most people are at least familiar with them.
The next level of repair is related to the structure of the house.
These include the foundation, plumbing, electricity, heating and cooling, etc.
When you hear someone tell you a house has "good bones" these are the bones they are referring to.
If you are a new real estate investor I recommend you stick with cosmetic repairs only until you are comfortable with the rehab process.
After you have some experience you can take on some of the more difficult repairs that involve structure.
Get Accurate Forecasts For Cost And Time When you are rehabbing houses for profit it is important to have a plan.
You need to know how much it will cost to do the work and you need to know how long it will take.
You will also have carrying costs while the house is being worked on.
More time is going to mean more money that needs to be planned for.
As always, your plan is only as good as the information you put into it.
And that is why you need to have good accurate forecasts for how much time and money is involved.
If you are working with contractors make sure that you stress this up front.
One of the criteria I have for working with contractors is how accurate their estimates are.
Even if they are a little more expensive at least I can plan for it up front and I know my plan will be correct.
Plan For Unexpected Costs If it can go wrong it will go wrong.
This saying is true for many things in life but especially rehabbing houses.
One project can often reveal problems that you were not aware of.
And this leads to more projects with more time and money.
So how can you plan for this (other than buying a crystal ball)? The only way is to set aside a portion of your budget for overrun costs.
This way no matter what happens you will have a buffer in place to protect you.
I can't stress this point enough, one of the top reasons people lose money on fixing up houses is because they went over budget and lost all of their profit.
When you create your budget increase it by a certain percent right from the start.
Then if you can still make a profit you will be safe from almost anything that might happen.
I have heard to use anywhere from 25% to 50% as a buffer.
I know this sounds like a lot but this is the safest way to invest, especially if you are a beginner.
Of course this article can't cover every little thing you will need to know to successfully rehab houses.
But these guidelines are a great start and following them will let you confidently build experience.
If I have one last thing to say it is -- be patient.
Once you start looking at houses you will find many that come close to meeting all of the requirements, but they don't meet all of them.
Stay away from these.
It may take a while to find the house you are looking for and I know that can be frustrating.
But don't bend your own rules just to get started faster.
If you follow all of these guidelines you may not find a ton of properties to work with.
But the few properties you do find will be good smart investments that will make a profit.
And that is the key.
As a real estate investor you are looking for quality properties.
So remember to stay patient, stick with what you know, get accurate forecasts and plan for unexpected costs.
Good luck!
If a property is distressed you will be able to buy it at a lower price and add value back into the house by fixing it up.
This new equity creates a huge opportunity for profit.
You can sell the house if you are planning to flip it.
Or if you rent the house to a tenant the lower purchase price will insure you make a profit each month.
When people first start investing they usually imagine buying a run down house and making it beautiful again.
The problem is that this is also where most new investors get stalled.
Once you start looking at houses that need major work fear and uncertainty will likely follow.
Everyone at some time or another has said: • This seems like a lot of work...
• Can I really do this...
? • What if I lose money...
? That last one is the real kicker.
What happens if you lose money on the first house you rehab? This can stop your real estate dreams before they even start.
If you don't lose all of the money you have your confidence will almost always be ruined.
Unfortunately too many people decide this just isn't worth the risk and walk away.
This is the most disappointing to me because it doesn't have to be risky.
An investment should be calculated to minimize risk.
And you can do this by using a few proven guidelines for rehabbing houses.
As long as you follow these there will be no reason to worry and you can buy your first fixer-upper without fear.
Stick With What You Know When you are walking through houses for sale, especially if they have been vacant, you will see a wide variety of repairs that need to be made.
From loose switch plates to full renovations.
The first rule is to stick with what you know.
Make a list of the type of work that you are comfortable with and then follow that list.
Don't be tempted to try something new in the beginning.
You may not think you are comfortable with anything but don't worry.
Imagine you are living in your own house and think about the kind of upgrades you would make.
Painting walls or getting new carpet is pretty common.
And people often change out light fixtures or even remodel a bathroom, etc.
I call these cosmetic repairs.
You are not changing any of the house structure, you are just changing how the walls and floors appear.
Even if you don't think you are comfortable with these most people are at least familiar with them.
The next level of repair is related to the structure of the house.
These include the foundation, plumbing, electricity, heating and cooling, etc.
When you hear someone tell you a house has "good bones" these are the bones they are referring to.
If you are a new real estate investor I recommend you stick with cosmetic repairs only until you are comfortable with the rehab process.
After you have some experience you can take on some of the more difficult repairs that involve structure.
Get Accurate Forecasts For Cost And Time When you are rehabbing houses for profit it is important to have a plan.
You need to know how much it will cost to do the work and you need to know how long it will take.
You will also have carrying costs while the house is being worked on.
More time is going to mean more money that needs to be planned for.
As always, your plan is only as good as the information you put into it.
And that is why you need to have good accurate forecasts for how much time and money is involved.
If you are working with contractors make sure that you stress this up front.
One of the criteria I have for working with contractors is how accurate their estimates are.
Even if they are a little more expensive at least I can plan for it up front and I know my plan will be correct.
Plan For Unexpected Costs If it can go wrong it will go wrong.
This saying is true for many things in life but especially rehabbing houses.
One project can often reveal problems that you were not aware of.
And this leads to more projects with more time and money.
So how can you plan for this (other than buying a crystal ball)? The only way is to set aside a portion of your budget for overrun costs.
This way no matter what happens you will have a buffer in place to protect you.
I can't stress this point enough, one of the top reasons people lose money on fixing up houses is because they went over budget and lost all of their profit.
When you create your budget increase it by a certain percent right from the start.
Then if you can still make a profit you will be safe from almost anything that might happen.
I have heard to use anywhere from 25% to 50% as a buffer.
I know this sounds like a lot but this is the safest way to invest, especially if you are a beginner.
Of course this article can't cover every little thing you will need to know to successfully rehab houses.
But these guidelines are a great start and following them will let you confidently build experience.
If I have one last thing to say it is -- be patient.
Once you start looking at houses you will find many that come close to meeting all of the requirements, but they don't meet all of them.
Stay away from these.
It may take a while to find the house you are looking for and I know that can be frustrating.
But don't bend your own rules just to get started faster.
If you follow all of these guidelines you may not find a ton of properties to work with.
But the few properties you do find will be good smart investments that will make a profit.
And that is the key.
As a real estate investor you are looking for quality properties.
So remember to stay patient, stick with what you know, get accurate forecasts and plan for unexpected costs.
Good luck!