Jumping into your first rehab

This is great advice Sherry!
I can speak from personal experience when I say you want to do a thorough and honest self-evaluation. You don’t want to get in the middle of doing something to only realize that you over estimated your ability and under estimated the time involved in the project.
It’s great to believe in yourself and in the project, but remember that time is money. To be aware of both.

We just bought our 2nd house to rehab. We had such great luck with #1 that we just assumed it would always be that way. Got a little slack on the due diligence on # 2. NEVER BE SLACK We found a water problem later that we could have avoided!

We failed miserably on our first rehab in 2003 and that fear keeps holding me back. We thought we had a good contractor (we checked references) who would manage the whole project and told us he could have the project done for less than $15,000. He screwed up big time and we paid!! There was structual damage that the contractor claims he didn't see before, so that in turn involved replacing several beams, lots of drywall, and since we "opened it up" the building inspector said we had to replace the wiring for the electric too. We were not even halfway done 3 months later and had already sunk $19,000 into the place. We fired the contractor, called a realtor to list it "as is" and sold it at a loss just to get out from under it. My small savings was gone and so was my dreams of quitting my job. I became seriously depressed and felt trapped in a job I hated. Fast forward 9 years later, I have a different job and am happier, but still can't pick myself up and take advantage of this incredible housing market we're in. Somebody help me, please!!!

Jill & I have done 55 rehabs in our town alone! 1st, know your market,you
really make your money when you purchase the property; make sure you are buying it right! 2nd, be realistic on repairs, labor & material over-runs; Do not over-do the property, don't put granite & stainless appliances into a house where the rest of the neighborhood has laminate counters & white entry level appliances. 3rd,make sure to calculate your holding costs, mortgage and interest, utilities & insurance. 4th, know the true value of the property for
resale. Don't over price the house being greedy, it will just sit on the market & then become a dead listing.
We do all our own work except for roofs and air conditioning unit replacements, since these are harder & require permits. We enjoy the challenge
& are proud of the end result.
We average 20% to as much as 48% return on our investment, but best of all we make our own hours.

Hi,
Sorry to hear your first rehab was so tough. Wait for a really good deal and get back in the rehab game. You have experience now so you won't let it happen again. Sometimes I work only with my contractor to locate major problems, but if my "gut" is not comfortable about a property I call in a home inspector that I trust. This guy comes in with lots of equipment and takes anywhere from 1 1/2 to 3 hours to do an inspection depending on the square footage and style of the home. He takes lots of pictures, crawls under house, goes into attic, snoops in every nook and cranny he can find. Sends me a complete report including pictures, an explanation under each pic, the highest and lowest price to expect of each repair needed (so when you talk to a contractor you have some idea of what to expect), and lots of other detailed information. He also is happy to take calls if I have questions. He has become a trusted and important part of my team. He is very professional and worth every penny. In my opinion you need to find somebody just like him. I found him through a realtor. Hope this helps a little (or a lot). Stop looking back, keep moving forward. God bless.

Hey Sherry,
I like your post very much, but you left out something very important. Before anybody is getting started with rehabs they should watch your presentation on the 2011 Edge home study course,at least once.
Keep up the great work!
Thomas

I have a question, I really want to buy a house to rehab it, but have no money to do so. So I was thinking of using a hard money lender to acquire a property, and use my resources to rehab it. Did anybody do anything like that, as far as using a hard money lender to buy and rehab?
Another thing, my realtor sends me listings, but 90% of them are bank owned, so I can't even put offers on them with and/or assigns so I could reassign them. Any suggestions?

A hard money lender will require you to have some money invested in the property; they normally don't loan 100% for the purchase; however, if you have a great deal (that's all they care about, not your credit), a HML will also loan you funds for the rehab... it's all about the numbers.

Keep in mind that if you've never done any rehabs, (I wouldn't recommend getting a HML for your first one)... and things go wrong, you could get yourself in a pickle...

instead, I would look to partner with someone who could put up the funds and you could take care of the rehab, and when sold you can split the profit 50/50.

I've had a few disasters with rehabbing and a HML, but I'm finally ready to jump back in and this thread was very helpful in boosting my confidence. Thanks!

What we did when we were new and had not done any deals was to learn by wholesaling! To be a good wholesaler you have to know the numbers when you present the deal to your buyer. So you can take the time to learn rehab/remodel costs, what ARVs are and what the rehabbed properties actually sell for. All at no risk to yourself. We thought it was a good idea to learn and watch our experienced rehabber/buyers first. Real world learning first hand before we "jumped in".

We learned first hand how to contract and control our contractor every step of the way. This is every bit as important if not more so than your buy price!! You have to buy right and your contractors bid and TIME FRAME must be accurate. The contractor, through your contract with him MUST be held accountable. This is business, hard core. Rookies will be taken for a ride 99% of the time.

We NEVER have a contractor do the inspections for us, NEVER. We now know what we are looking at when we look at a property. If there is any questions we call in an expert. Structural engineer, plumber/sewer scope, electrician, roofer etc. in advance. What we pay them has saved us from buying a money pit lemon.

In reality, rehabbing is NOT an entry level strategy in our opinion.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

This is all good to know, I just made an offer on a complete re do and now waiting to see if owner accepts

Thanks for the great advice!

I did not plan to start with rehabbing houses, but if anything, this thread confirmed my impressions of why not to do so. Thanks for all your help, you have no idea how much it did so!

-Marty

Flips are more difficult to find then rentals and more risky but have greater upside potential. If done right that is. Here are 5 musts before taking on a flip project.

70% max LTV – Make sure you have plenty of room for surprises, overages, etc. The higher the discount, the lower the risk and higher the profit. Use sales comps from the last 3-6 months and within .5 to 1 mile.
Cash flow positive – The property must cash flow to provide multiple exit strategies. Flips require more expertise, have more risk and multiple exit strategies are a must.
Do things in 3s – During due diligence, get 3 rehab bids, talk to 3 property managers, 3 listing agents, 3 opinions from fellow flippers, etc. One is not enough, to be thorough these items must be done in 3s.
Align your goals – This is very important. You are building a team and systems so you can do the best job and duplicate deals over and over. Conflicting goals can destroy a deal, make sure your contractors, agent, teams, etc all have aligned goals.
Reserves & Backup Plan – Do not ignore the inevitable. There are surprises, delays, over budget items, extended market times, etc related to rehab flips. Always have reserves and backup plans that you can execute when appropriate. rmoeller