Rehabbing houses to sell retail is a business plain and simple. If you wholesale homes or have a rental portfolio, do not kid yourself into thinking you know what it takes. Yes -in the hysteria of housing boom you could overcome just about any fundamental mistake let alone move the poorest planned dogs. The game today is serious -anyone thinking they can passively rehab is destined to failure; however, with serious thought, planning, and WORK (just as with anything) wealth can be created.
There are two key markets to making money in real estate these days: rentals and rehabbed homes to sell to the entry level housing market. Due to the lack of investor financing and the constraints of both valuation and owner occupied financing, mainly deep-discounted housing, owner financing (another story), and the best priced rehabbed home in the neighborhood are the real estate products moving.
Do we agree that rehabbing homes is a business? Do you know what the key to business is? The word is RESEARCH
According to Websters Dictionary the definition of the word ‘research’ is:
Main Entry: 1re·search
Pronunciation: \ri-ˈsərch, ˈrē-ˌ\
Etymology: Middle French recerche, from recercher to go about seeking, from Old French recerchier, from re- + cerchier, sercher to search — more at search
1 : careful or diligent search
2 : studious inquiry or examination; especially : investigation or experimentation aimed at the discovery and interpretation of facts, revision of accepted theories or laws in the light of new facts, or practical application of such new or revised theories or laws
3 : the collecting of information about a particular subject
So how do we apply this to help insure the odds of success with rehabbing homes?
- Strict discipline on the numbers -look at the average of the comps without pushing the envelope when determining investment costs and sales price.
- Maximum 65% ARV investment while offsetting for cost of capital and average Days on Market for the neighborhood.
- Marketing Team. You need a Realtor that does more than just list a house. Pick leaders that knows what design/layout elements are moving houses, brings buyer to the table, and is a top producer.
- Know your buyer. Whom is your target market for the neighborhood and what are they buying?
- Know your competition. Walk 6-8 comparable homes both before your take down purchase and retailing the home. Make sure you up-fit your home to at least minimum standards (if not excelling), offsetting deficiencies with bonuses (and/or pricing), and setting your retail pricing realistically
- Know your rehab team. Efficiency, professionalism, and Skill are essential. Apply as appropriate.
- Efficiently move your inventory.
Each one of those topics is an article itself. I will work at breaking each of them up down the road. However, let me give you a few quick thoughts. Went to look at a potential project last week with an investor who is an old time landlord. His idea of what works for rehab to retailing homes is all wrong. He simply cannot get away with using his rental crew that doesn’t have the carpentry skills for the proper fit and finish nor will his cost cutting cheap porcelain tile work when the competition is using nice subway, glass, and various stone tiles. Not knowing what your competition offers will cost your retail house to sit on the market longer, sell lower, and (most importantly) slow the turn of your inventory. Keeping the blinders on and refusing to see what buyers want and are willing to pay for is a fatal mistake. Successfully rehabbing (and selling) homes is not about what you or I like -it is about what the customer wants!
Research your housing market, buyers, competition, lenders, Realtors, and your rehab crews. Constantly work at educating and communicating so all parties know one anothers’ needs/wants, can adjust as needed, and meet deadlines/goals. Anyone that doesn’t run their operations like a business will only slow you down -keep an eye out for replacements.
Insure your odds of success and continued prosperity -research. It is this research that will provide you with the ability to make educated adjustments as needed.
by Tyler S. McCracken -a Charlotte, NC real estate investor and hard money lender.