One of the most common questions among new real estate investors is how they can conclude their first rehab deal. While the flipping house process is pretty straightforward, getting to the finish line is often more difficult than expected. Irrespective of whether you are looking to close your first rehab deal or expand your real estate business, there are a few basic steps you need to take. How well you understand and implement these actions would go a long way towards deciding the viability of your project.
Here are 4 house flipping tips to help you buy your first rehab property:
You can have everything else ready to go but if you don’t have deals to work on you won’t get very far. Like any other business real estate investing is a numbers game. The greater number of properties you look at the better the chance that you will find one that fits with what you are looking for. You may have to look at a dozen different properties to find one that you will make an offer on. It is important to stay disciplined and wait for the right property to come your way. To discover offers you need to get as many different outlets as possible. Wholesalers, distressed property mailings and local real estate agents are just a few of the different ways to find deals. You can also find potential deals on Craigslist or by reading your local newspaper. Investment club meetings and local networking groups are also great sources for potential deals. Rehab properties will not just fall on your lap. If you want them you need to go out and get them. This often requires thinking outside the box or by outworking your local competition.
Estimated cost of repairs.
The first thing you need to do when you find a property you see interest in is to estimate the cost of maintenance. Rehab deals only make sense if you can get them at a discount. A lot of work will often be required to get the best discounts on the house. You need to get an idea of how much money you’re going to put into the property as you run the calculations. You need to take your time to do this and assess every square inch of the house. An oversight on the foundation or the plumbing could lead to thousands of dollars in repairs that will impact your bottom line. The current state of the property is not the most important thing. Almost anything within a property can be substituted, set or changed. Take a look at some of the big ticket items that could break the bank. Doors, roofs, plumbing and electrical appliances may be dull, but they hold the key to success on the house. Finishing touches on walls and installations do not push the budget too much in either direction. If you don’t have a good idea of repair costs, you can ask a local consultant or auditor to join you. You need to decide how much you’re going to spend before you can measure the after-repair benefit.
Figuring out how much value you can gain based on the improvements you make can be a difficult proposition. The best way to gain an idea is by looking at recent comparable sales. You need to look at properties with similar size, style and square footage as close to the subject property as possible. The comparables should have closed within a 90-day window. Take a look at the facilities the hotel provides and how they stack up against your own. You can read the details on the selling sheets to see if there is anything about the property that would have affected the valuation. From there you can take make a good estimate on what your property will sell for. Things can often shift quite a bit in a market in a few months so never keep such values as absolute. It is also far better to go conservative with your estimates than to expect a high sales price and be disappointed in the results.
Make an offer.
After you do your due diligence on the property it is time to make an offer. You never know what a seller will accept. You need to walk a fine line between offering an amount that works for you while not upsetting the seller. Before you attach a number to the contract you should be ready to justify that amount. You can do that either through the amount of work that is needed or the comparable sales in the area. Never be afraid to make the deal that you want. You can risk a deal or two by selling too small but think of the alternative. Through giving beyond what you really want you begin the process behind the eight ball. You now need to make up for the rise in purchase price either by cutting corners on the job or increasing the end sales price. Neither of those choices would help you sell the property easily and at the right price. Offer the price that you want to get the property for and if they agree, fine, if not – be prepared to submit a counter offer. Many deals you make will not be considered. This is just part of the process. The only deals you accept are the ones you make.
There are many new investors closing rehabs every day. If you’re unsure where and how to proceed, use these four steps as a reference.