Are you interested in rehabbing properties for profit? If so then this blog post will help you know what to do, what not to do, and will give you 4 deadly reasons not to over do it on rehabs (because it will cost you a lot of money and headaches if you do).
I know you guys are probably a lot like me and watch your fair share of HGTV. You make your popcorn, grab a beer, and tell yourself it is educational and you are getting inspiration. However, we know we a lying to ourselves and are just in it for the entertainment and to critique their numbers. Experienced investors know that stuff is not reality. However, inexperienced investors see rehabs as an easy and fun way to get rich quick with minimal work. That is definitely not what rehabs are. Of course, it is possible to make good money doing rehabs, but it is also possible (likely) to over do it or buy wrong and lose money. Here are 4 deadly reasons not to over do it on rehabs.
4 Deadly Reasons Not To Over Do It On Rehabs
Reason #1. Your Budget Can Easily Go Out The Window
When rehabbing, you actually set two budgets. One is money, and the other is time (better known as a schedule). Unfortunately, it is very easy to blow one budget, which then causes you to blow the other one too. If you had three weeks to get everything done, and it’s half done after two, you either will have to pay more to get it done on time or blow the time budget, or both.
This can happen for any number of reasons but it especially happens when you over do it because even simple additions to your plan can increase the money or time you need to spend. Custom tile showers for example are great selling points, but they also are very time consuming and expensive. It is much quicker and cheaper (and still looks nice) to just throw in a fiberglass tub and tile the shower wall with ceramic.
Reason #2. People Will Change It Anyway
Most buyers want a house that is move in ready. Some even want a well finished house that they won’t have to worry about changing, however most will want something plain and neutral that they can add their own flare to.
Buyers often change the décor right when they move in, so your expensive modern paint scheme and beautifully stained custom cabinets may get painted over immediately. Stick with plain and neutral decoration to keep your budget down and not turn off any buyers.
Reason #3. Money Is Only Made When You Sell
This reason also could be called “Holding Costs Suck”. One thing a lot of investors underestimate is the longer the project is underway, the longer you have to wait to get paid. You should put together a straight forward schedule, get in there, do the work, and get the house sold as fast as possible. Overdoing it will only delay you and increase your holding costs.
Reason #4. You Are In The Rehab Business
You are in the rehab business, not the home decoration business. Your job is not to shock people with how beautiful the house is or how good your taste is in paint; rather, your job is to create a nice house that someone will want to pay you for. Period.
Bonus Reason: Some types of properties have caps on what they will sell for. I just had a manufactured home in Livingston that could use a new vanity, but I wouldn’t put granite in there because there is a cap on how much a house like that will sell for regardless of what you put in it. You could probably put the original painting of the Mona Lisa in there and it still wouldn’t go for more than $80k.
Summary
It’s easy to go overboard and do too much on rehabs but if you follow these 4 deadly reasons not to over do it on rehabs then it should help you keep more of that money as profit.