BiggerPockets

Avi, there is a lot to know about when it comes to rehabbing but I will cover a few of the most basic mistakes new rehabbers make, although it sounds like you have some real estate investing experience so hopefully you can avoid these:

1) Overestimating ARV (after repair value): it is human nature to be optimistic and look at the best case scenario, but you have to be realistic when analyzing the end sale price of a property. You need to know how to identify proper comparable properties and make the correct adjustments. Failing to estimate propertly can kill your profits, for example: if you estimate a house will sell for $120K and you plan on making $20K, you will be left with zero profit if the house is actually worth $100K.

2) Underestimating rehab costs: this is the one I see over and over again. The fact of the matter is it is very difficult for new rehabbers to understand how much money is going to be required to complete the rehabs. This is generally due to not knowing the true costs of materials, not accounting for all the work to be done, and surprise problems that were not expected. Make sure you understand all the costs associated and include a contingency in your estimates.

3) Underestimating time of rehab: again, inexpierence causes people to miss the mark when they estimate rehab costs. A one month estiated renovation turns into a 4 month renovation and the holding costs start adding up.

4) Not understanding holding costs: this is the part that some people totally forget. Holding a property is not free... you have to pay insurance, taxes, debt servicing (if financed), utilities, etc. These expenses add up very quickly and can eat into your margin very quickly.

Hopefully that is helpful, and good luck. Let us know how it turns out!

ROI on a basement usually doesn't work out and in most times your lucky to get your money back

UPDATE: We closed on the house last week. Electric and Gas are on and we are starting with the installation of the Furnace and A/C unit as well as applicable ductwork that needs repair.

Question: Does anyone have a General Contractor Agreement that I could use as a template for my contractor? We've started work but I think an agreement in place would serve me well.

As well, are there any suggestions as to what points would be crucial to include in the agreement?

Thanks!

Yeah, after the inspection reports came in from the house inspection as well as the municipal inspection we decided to put all our efforts on the main concerns. We also felt that making the basement "ready" to be finished might add to the appeal upon sale but not actually finishing it as that would cut into the budget. We'll see how it turns out.

Thanks @J Scott. Work is progressing nicely. We hit one snag so far, when we turned on the water we discovered water pouring into the garage from the bathroom above. Now we're getting quotes from plumbers on getting much of the plumbing redone.

Anybody have experience with replacing a bulk of the plumbing and taking Before/After pictures to use a selling point? What were the results?

I am rehabbing my first project...
I am doing not to flip but fixing a foreclosure to rent. Still have similar issues. First the furnace worked but to my surprise it kept shutting off... So I had to replace it. My hot water heater was old so I decided to update it so avoid a headache in a few months. Turns out the code has changed and now I needed to update the whole system.
Some of the issues I am finding is ordering cabinets took longer than expected as I was planning on doing
Home depot premades but when i priced it out I was able to get a lot more with the sales and making friends with the sales associate. But it cost me two weeks.
Now my sump was not set up properly and not up to code...
So as you can see the trend ...
I new going into it I would have surprises so i budgeted it for it and I am still with in budget but mostly because I had more time so I did some work myself.
The one thing I would advise as someone who has a RE license and has enough experience to know that people often price things wrong because for greed. the attitude that they dont want to give it away or all it takes is one person is often used.
I only did a few deals just to learn the business but I can say I did my deals fast and clean for one reason. I made my clients price aggressively. They set the tone of the market instead of waiting for the market to change. First weekend six showings three offers an done was accepted. It was lower than the asking and the sellers initially were disappointed but when they saw their friends sitting for months and eventually a year they were real happy they took my advice.
The fact is it costs money to sit on a property and it cost you buyers if you price it wrong...If you price it to low you will get multiple offers so in my opinion set the tone and price it aggressive and move on to the next deal.