Almost all attractive investment properties require some repair or refurbishment.
Poor planning of the work that needs to be done after the closure can result in unexpected costs, protracted vacancies, and a “great opportunity” is a painful lesson.
With low cash reserves, lessons can be particularly difficult to handle, forcing creative financing and credit card balances that can compromise your return on investment.
The worse the property is, the more attention and planning is needed to avoid this nightmare situation.
When should I start preparing?
The planning process should start long before you sign the closing document. Wise investors will begin planning repairs and rehab as soon as information about the condition of the property in the future, such as listings, screenings, and contacting sellers, is available.
If you are serious about your property, make a list of all defects and aggregate the estimated cost of getting your property to the desired state before making an offer.
Depending on your strategy, this could be a minimal “rental” condition, a fully upgraded living space that demands higher rents, or somewhere in between. This aggregate is used immediately in spreadsheets or calculators to determine if an investment is worth the time.
After the offer is accepted The actual plan begins.. This is when you want to get more detailed information about what happens immediately after closing.
While you are playing due diligence All aspects of the work should be quoted (inspection, document review, etc.), not only in terms of cost but also in terms of completion date. Remember that time is money when you are repairing a rental property.
Why you need to prepare
A $ 800 rental costs about $ 200 (plus the cost of the utility paid by the lessor) with a weekly delay. So if you pay an additional $ 100 and you can complete it a week earlier, you’ll actually save $ 100 in the end!
The information from your quote gives you a more complete picture of your prepaid expenses. Add this to closing costs, down payments, and other cash that helps determine if it is still wise to make an investment.
If you do your own rehabilitation or repair work, Realistic about time It will take you to complete the work.
If you work 9-5 and only have time to work on weekends, can you really get it done on one weekend? Otherwise, you lose a full week of rent each weekend, and as I mentioned earlier, this translates into a fair amount of money. The trade-off between doing it yourself and hiring a dedicated team to complete it faster may be appropriate.
During the inspection, additional problems may be revealed. These can range from simple things like a burnt out light bulb to big things like electricity, plumbing, roofing, or air conditioning problems. In some cases, these findings can be used to negotiate with the seller, but in other cases they will be added to the final cost.
At this point, it is important to make reasonable decisions about the benefits of the property.
You may be emotionally invested because you have already spent some effort and cash on the inspection and you are very much looking forward to scraping it up soon. Suppress your emotions, guide your investor’s logic, and make the choices you know are right. The last thing you want to do is make a decision that you and your bank account will regret.
An example from one of my properties
In 2011, I bought a seized townhouse that needed a lot of love.
Previous buyers had to replace the A / C unit and withdrew when they noticed that the stove was broken. Upon entering, I realized that I would spend more than $ 10,000 on rehab and was willing to do some work myself.
The numbers still looked attractive and the inspection didn’t show anything else big, so I proceeded with the deal. By the time the store closed, we chose a new A / C quote, a flooring company appointment, a line of handymen for a little electrical work, and an appliance package to upgrade the kitchen in the heart of the living area. It goes back to the present day.
As soon as I got the key, I drove 2.5 hours from my house to open the property and direct traffic. While processing the appointment, I was busy installing fans, patching walls, fixing paint, repairing missing kitchen sinks, adding doors to the bedroom closet, and cleaning the small patio area.
Doing all this in parallel saved me a lot of time. I was planning to go to the site to process the appointment anyway, so I found it very efficient and cost effective to do the simple tasks myself.
This project was successful, but there were some lessons learned. My realtor thought it was worthwhile and harmless to rent immediately, even while all the work was done.
Some people stopped by while we were working, and it didn’t work. They straddled the old carpet and could barely see the kitchen with appliances in the center of the room.
After all, how could they be confident that the finishing touches would be done by the time their lease began? And who is excited to live in the house after seeing its ugliness exposed?
I also learned to fill in a quote for rehab completion. I thought I could do it all in a week, but inevitably new challenges arose, the project took a little longer, and led to a second trip to the final touch next weekend. rice field.
Plan your next investment refurbishment and repair in advance and make sure your contractor understands the urgency to get the job done and bring the property to market. With proper planning, you can ultimately save time, money, stress, and spend enough at first.