Every investor dreams of buying items at a lower price and selling them at a higher price to earn a good buck. The same is the goal for investors in real estate. To get good returns on your investment, you can rehab a house. One of the most profitable real estate investing ideas is rehabbing properties. It does, however, need time and meticulous attention to detail. There are several real estate exit methods available to investors. New investors are frequently shown interest in rehabbing a house, which makes sense.
1- What Rehabbing A House Means
Real estate investors rehab a house by buying it in its existing state and restoring, renovating, or upgrading it. A house rehab can be done by an investor looking for a quick return or by a landlord looking for a long-term investment. There are two ways to go about it.
i- Fix & Flip Strategy
The first strategy, “fix & flip,” involves more risk but high reward for investors. The goal is to buy below market price cheap properties, repair and upgrade them, aka “fix & flip,” and finally resell them at a high price.
ii- Buy & Hold Strategy
The second strategy goes about investors buying cheaper properties and holding them for future appreciation in price and also to earn through rental income. Investors usually create more space in the house by adding new rooms or bathrooms etc. They can also increase the rentable area by square feet. Each of these factors contributes to increasing the value of the property.
2- Is Rehabbing A House The Right Decision For You?
Whether it’s the right decision or the wrong decision, you need to understand the time and effort it will take to rehab a house. Despite the good returns, there are factors that you should consider to know if rehabbing a house is the right exit strategy for you.
- You will have to wait to get good returns. Do not expect profits immediately.
- The house you’re planning to rehab has the right location
- The location is good enough to grant you enough profit margins on the house.
- You’re working with a good team of lenders, contractors, title companies, and other builders.
3- Know The Costs That Can Incur
Location, size, age of the property, current materials, and labor costs determine the expense that can occur when you rehab a house. The cost of renovating or rehabbing a home can range from $15 to $60 per square foot or even higher. The typical cost of rehabilitating a home is between $20,000 to $80,000. The location, which affects the cost of materials and labor, is the most important deciding element when pricing a rehab.
4- Steps To Rehab A House
i- Find The Right Property And Evaluate It
Start off by finding the right property by conducting market research and viewing multiple listings. Make sure the location is right so that once you rehab the house, it won’t go to waste because of a bad neighborhood or a bad location. Check the space and number of rooms each house has to offer. Put emphasis on functional and technical aspects of the house as they can heavily affect the repair bill.
ii- Contact A Contractor To Take A Look At The Property
To proceed with the process of rehabbing, make sure you hire the right contractor. Take a look at his experience, necessary licenses and permits, recent references, and lastly, what cost estimate he presents you with. Walk around the property with your contractor. Have a few contractors look around the house so you can be sure you’re hiring the correct individual for the project. Share your project requirements, make a note of your preferred timetable, and don’t be hesitant to ask questions.
iii- Creating A List That Needs Fixing
Repeat the perimeter walk around the home. Keep a lookout for any foundation cracks or difficulties, as well as any external flaws that may exist. The condition of fences, decks, and outside spaces will affect curb appeal in the future. Once you have examined all the areas, create a checklist of everything that will require repairing.
Create a list of interior repairing:
- Basement, Framing, Insulation, and Foundation
- Walls, doors, and trim
- Flooring
- Kitchen
- Bedrooms
- Bathrooms
- Fixtures
Create a list of Exterior repairing:
- Siding or masonry
- Roofs, Gutters, Windows, Garage, Sidewalk, and driveway
- Landscaping
- Fencing
- Connections to utilities (water, sewer, gas, electric)
- Swimming pools, if any
iv- Calculate The Costs
It is wise to calculate all the costs beforehand to save you from exceeding your budget. The next stage is to get a bid from your contractor after the scope of the job has been outlined using the rehab checklist. Many investors employ a general contractor for a large rehab project, who then hires handymen and subcontractors to work on various aspects of the project. A general contractor typically charges between 10% and 15% of the entire repair costs. So, if the total cost of the job is $65,000, the general contractor will be paid roughly $6,500.
v- Check Permits And Other Legal Documents
A general contractor will be aware of any permits required by the municipality. A municipal worker will frequently evaluate each stage of a rehab project to verify that it is completed properly and according to code. It is the seller’s responsibility to disclose to the buyer any possible obligation that may arise from the completion of a rehab or remodeling project without the required permits.
Other documents such as the scope of work, independent contractor agreement, W-9 Tax Form, Payment Schedule, and the final unconditional waiver of lien are also signed on time.
vi- It’s Time To Start With Demolition
Once you’ve completed all the prerequisites and research, you can finally begin the rehab process by the demolition of the property. Clearing the house and starting with a “clean slate” makes a renovation project run much more easily and allows for consistent development. Start by removing rubbish, cart trash away, and so on. Remove any debris and tear down the bathrooms, kitchens, drop ceilings, paneling, flooring, and everything else that needs repairing.
vii- Make The Exterior Repairs
One of the reasons to start with outside repairs is that it begins to draw notice from neighbors and passers-by. Begin by repairing the roof, windows, and siding in order to keep the interior of the house dry. In addition to that, it’s best to add a basement. Basements create more livable space resulting in higher profits and rentable income.
viii- Move On To The Interiors
There are a number of concerns you need to address when you rehab a house. Often times small issues together create a major impact. When visiting a new house, buyers will gravitate toward the kitchen and bathroom, making these spaces vital. However, renovating them might be pricey.
Look through any cupboards, countertops, or appliances to evaluate what should be kept. Examine the electrical, plumbing, and HVAC systems with the help of a specialist. Then determine which sections require replacement, improvement, or cleaning. Make a list of any outstanding issues, such as missing light switch covers or ceiling fans.
ix- A Good Quality Paint
After you’ve renovated the walls by removing all the cracks, it’s time to elevate them by painting. You can either go for wallpaper or good-quality paint. Apply a layer of primer or a light initial coat of paint to the walls. Have the sheetrock team repair any problems that will not be visible until the paint is applied. Then apply two extra coats of paint to the walls as soon as the defects are corrected.
x- Time To Sell The House
You’ve gone through the lengthy process of finding and evaluating properties, hiring contractors, and making repairs which leads to the final step, i.e., market it to resell it at a good price point. You can either find buyers yourself or contact a referral network to get good leads. If you intend to rent the property to a renter, utilize an online listing site to advertise it for rent.
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