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Are You An Investor Or A Rehabber?

By: Steve Weber
Submitted: 06:01AM on Saturday 09 August 2008

First Off ... Let's Define an "Investor" and then a "Rehabber" along with some other pertinent terms.

INVESTOR: One who Leverages their Resources, Time, Talent and Money to Produce even More Time, Talent and Money.

REHABBER: One who Finds a Property requiring Repairs and then Acquires the Property and Puts it into a Better Condition which is then Marketable at a Higher Price to Make a Profit.

PROFIT: The amount of Money Received over and above all expenses that are incurred.

BEAN THEORY: Getting More BEANS "Out" than the Amount of BEANS Put "IN". You may think of BEANS as Money and Value of your Time on the Open Market IF you were Working for someone else. The ratio of BEANS "Out" for BEANS "In" are Directly Related to your Ultimate Rate of Return.

RATE OF RETURN: Is the Amount of Return that one gets for their INVESTMENT expressed as a Percentage per Unit of Time. EXAMPLE: A Rehabbed Property that Costs $100K to Purchase + $25K to Repair [Including Labor, Materials, Your TIME, Interest, Marketing and Closing Costs] That THEN Sells for $175K within 6 Months from Acquisition to Sale Would have an 80% ROI [Return on Investment]

The Way this is simply Calculated [and this is Before Tax Dollars and Not your Net Profit] is $50K Profit [BEANS "Out"] divided by $125K [BEANS "In"] = .40 or 40% in a 6 Month Period and since there are 2 Six Month Periods in a Year you would then Double this 40% ROI making the Gross ROI 80%.

Now that we have all this Technical Stuff Covered ... Let's move on!

The Trap that I've seen most Rehabbers fall into is simply this! They ARE ONLY As GOOD as Their LAST TRANSACTION !

And Most Rehabbers that I've known ... then Need this Money either to DO their Next Deal And/OR they Need it to Pay Bills. Hence ... they are Always Starting from Scratch or Ground Zero.

IF you ARE One of these kind of Rehabbers ... that is What you ARE ... just a Rehabber! Nothing WRONG with Being a Rehabber ... Just Realize that This IS What you Are ! Knowing and Admitting this IS the First Step to Improving your Financial Conditions.

Now ... If you are Wanting to Consider yourself an Investor, then you are going to have to Change Your Operating Basis and Structure your Transactions Differently so that ... On each and Every Transaction you End up with a Portion of each Rehab Project that you Engage in to Produce a Future Stream of Income for you so that Eventually you Will NOT Need ANY of the Funds from your Transactions to "Pay the Bills" ! Ideally it would also be GREAT "If" you also Retained some of the Profits so that you ended up some of your Own Money so that you were not continually having to use Hard Money Sources which end up eating more of the Profits than you Intended when a Rehab Project ends up taking more time [which they usually do] than you had originally Intended.

Now ... Here is a Simple Concept that I want Everyone Reading this Article to Leave with !

Just Like there Are Many Ways that one can Build / Structure the Building of a Home ... such as building a home on varying different types of Foundations [i.e. Slab, Pier & Beam, or a Basement built of block or poured concrete ] ... There ARE Also Many Different Ways to STRUCTURE [Build] your Transactions so that You Get the Maximum Rate of Return !

Once you "GET" This "IDEA" ... You Have BEGUN to Think like an INVESTOR and Not just a Rehabber!

The Transition is not an Easy one BUT It IS One that is Necessary if one EVER Hopes to Achieve Financial Independence from their Hard Earned Efforts as a Rehabber. Rehabbing is a Much Needed and Wanted Activity within the Real Estate Investment Pie AND It IS a GREAT Way to Start! It is my opinion that Rehabbers work Harder than any other person in the Real Estate Arena!

But do NOT allow yourself to Fall INTO The TRAP of Only Being a Rehabber!