Real estate rehabbing is the best way to realize maximum profit on any given deal.
If you’re willing to take the additional risk, take on the additional headaches, take additional time, and spend the additional money, then you deserve to make the big bucks on a property deal.
There are deals that you may come across that you want to simply wholesale because they’re either too big of a project to take on or you just don’t have the time to do the rehab project.
But when you’re thinking about rehabbing a piece real estate in Westminster, Maryland, below are the steps that you should take to do it the right way.
Step 1: Check the Numbers
You have to let the numbers lead your decisions when you are looking to do a real estate rehab project.
Many people make a big mistake of getting emotional about real estate. They follow love with certain house or a certain neighborhood. This always leads to be trouble. You can never fall in love with the property.
Instead, you should fall in love with the deal.
Let the deal make the decision on whether or not you follow love with the property.
You want to be sure that your estimated costs, including renovation costs, come in at under 70% of the ARV of the property.
So, you have to calculate the purchase price of the property which should not be more than 40% ARV. This will allow you to spend another 30% total on all other costs, including renovation costs.
You need to be really strict with yourself when doing these estimates because getting these numbers wrong will cause your great deal to turn into a bad deal quickly, if you don’t.
That’s why you need to make sure to add an extra 20% to your rehab budget.
So, whatever you estimate renovations to cost, add 20% to that image is still be well within the 30% overall expenditure range that you have for renovations and other expenses.
By adding this 20% to your renovation budget, you are being safe and conservative with your numbers. This will help ensure that you have margin for additional expenses that pop up in the rehabbing process.
If you can’t add this 20% miscellaneous estimate and still come in at 70% or under, total, of the ARV, then this may not be the property. The last thing you want is to have margins that are too thin. If you buy that property and end up spending tens of thousands of dollars more than you estimated, you could be eating profit. If that happens, you will be hurt after having spent all that money and time on a project that made you no money.
Get 3 estimates from licensed and bonded contractors. As with most things, you need to be sure to get three estimates from fully vetted contractors. One thing you want to be sure about is whether or not you can use general handyman in the area you doing the real estate rehab.
You have to be sure to check to see whether there are permits that are required by the city and when you need a major professional contractor are if you’re fine using a handyman.
Contractor estimates can be all over the place. That’s why it’s critical that you get three estimates to see what the median cost is.
Use cost estimate software like Open Road’s Hammerpoint Project Estimator. This is a good way to get a general cost estimate of the real estate rehabbing project you are considering.
It’s not a perfect software because it may not reflect the true cost of materials and labor based on your city.
Still, it is a great tool to use to get a basic estimate of the cost of your rehab project. Check out these other real estate rehabbing cost estimators.
Again, it is so important to plan for contingencies and unexpected costs. This way you be covered if some unexpected expenditure pops up.
Step 2: Fund the Property
When you’ve got a great deal line it’s pretty easy to get your real estate rehabbing project funded. You can find private investors and hard money lenders to find your deals.
These financers are looking at the deal and your personal credit, debt to income ratio, and finances becomes irrelevant. But that only happens if you got a great deal on the line.
Step 3: Take Title
Once you purchase the property you will take the title. You are now the owner of the property!
Step 4: Real Estate Rehabbing
The main costs of the real estate rehab will come from rehabbing the property’s major systems. This is where you get into the nitty-gritty of the project.
In most all real estate rehabbing projects that you take on, you will be primarily making renovations within the home.
The primary systems of your home that you must consider in your rehab project are the HVAC, the air-conditioning, heating and venting system, roofing system, plumbing, electrical systems, septic and drainage system, and windows.
It’s also important to look at the structural foundation and the basement of the property. You need to check to see whether the basement is dry and whether it needs waterproofing not.
Large bedrooms are a great selling feature. So that there is a way to knock out always to expand the master bedroom and do it.
Kitchens are critical. If you’ve got an ugly kitchen with outdated cabinets, you need to change these out for sure. Kitchens and bathrooms sell homes.
Since women treasure these areas, and since they will the most power in the home buying decision, you certainly want to appeal to the areas she will be most attractive to.
When you saw the house you want to make sure to include some appliances. These may include microwave, stove, refrigerator, washer and dryer.
Stainless steel and black are great colors for appliances. However, white is the best color for kitchen cabinets.
You can look on Craigslist and eBay for these items at low price.
Most of your rehab expenditure will come from rehabbing interior of the home.
When considering exterior of your home, we’re talking about curb appeal. You want to make sure that when people rollout to that house, and when they take pictures of the front of the house, it looks amazing for the price.
So, what can you do to make the curb appeal on the house really sparkle?
Spruce up the landscaping. You want to make sure that the landscaping looks amazing, which does not cost a lot of money.
Trimming the hedges, tree branches, and bushes are a great start. Apply mulch. Add shutters. Re-paint the front door. Power wash the house.
That’s just about everything. Of course, if the house needs a total new paint job and new roof then you got a little more cost there.
Particularly, with the roof.
Working with Contractors:
Never work with a contractor without getting a written contract. It doesn’t matter how long you’ve known them.
It doesn’t matter how many projects you have worked on with them. It doesn’t matter if they are related to you.
If you value the relationship, then you should definitely get a written contract before starting work.
This will keep the relationship safe and intact.
Never pay a contractor in advance. Always wait until the work is done to pay.
Always buy materials yourself and never give open credit to a contractor. Again, it doesn’t matter how long you have known them or whether they are close friends or family.
In these cases, protect the relationship and by your own materials that they need the project. Do not give your credit card are blank check to someone else.
Make sure they agree to a NOT TO EXCEED clause in the rehabbing budget.
Flip It Or Rent It
If you made it through the real estate rehabbing process and no more than 70% of the ARV…
That is a huge victory. This is particularly true if it’s your first one. At this point you want to implement your exit strategy.
During the process you should have decided whether or not you want to flip it for a big payday or rent it out or steady cash flow.
There are great pros and cons to either of these options.
Either way you go you know you will make more net profit on this property because you did the rehab yourself as opposed to wholesaling the property
You’ve now got a newly renovated property that is HGTV worthy, and you’re ready to cash in.
If you need help selling your property then you should not hesitate to reach out to Utz Real Estate for service in the Carroll County, Maryland area.
Secondly, if you are looking for the ideal handyman service in renovation contractors, consider Utz Handman and Remodeling.
Finally, if you want to rent out your property for long-term cash flow, then you should consider Utz Property Management.