Why Subpar Rehabs by Real Estate Investors Create a Losing Situation for Everyone
Just because you buy a piece of real estate, paint some walls, and put some carpet into it DOESN’T mean you’re a real estate investor.
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It might. But it’s no guarantee.
For more than a year (probably more like 15 months), an investor near my house “rehabbed” a small house. He actually bought the house for a really great deal — I think honestly a better deal than he realized. And so there the renovations went — on, and on, and on, and on.
Eventually, they ended up putting a roof on the house. During and after winter, they began building their deck. It was so out of square, they ended up tearing the whole thing down after working for the first 2-3 weeks and doing it all again. It wasn’t much better afterwards.
Finally, the property came up on the MLS. I was pretty curious as to what the property looked like and went searching for the listing, but there actually were no photos of the house at all. None on the MLS or anywhere else.
Once the property sold and closed, we ended up meeting the new family that moved in. They were a very nice young couple, and we enjoyed chatting with them. With zero prompting or questions on our end, they started sharing how they had so much work to do on the house, how bad it was, and how they basically needed to rehab the house.
So, let’s think on this:
- “Investor” buys house
- They rehab for more than a year
- They put it on the MLS with no pictures
- They sell to new owners for a profit at near retail price
- The new owners have to redo most of the house
Now, I’m sure there are some of you who find this totally acceptable. That no matter what, at all costs, this kind of deal is OK for the end user because they were the ones who decided to buy it, after all.
I’ve made money many times in wholesale deals deals doing absolutely nothing. But this WASN’T a wholesale deal. It wasn’t putting a non-rehabbed property on the MLS and selling it as is. It was a flip house, meant to be a flip house to an end user.
A True Win-Win Deal
When we speak of a “win-win” deal in the real estate business, this means it has to be a positive for all parties in the transaction. Just because you CAN do a crappy renovation on a house and sell it for a profit doesn’t mean you SHOULD.
Ack. It gets me so upset. Why do mediocre work?
It's my very strong opinion the real estate investing community has a role to play and a job to do. Our role is to set better expectations of what our renovations look like, helping make neighborhoods better, giving awesome places for our buyers or clients to live in. Better houses for tenants to live in. And setting a standard of having really nice homes, rentals, flips, or whatever else. Not the cheapest crap we can bang out for the highest profit.
Now, I do understand there are skill levels in investors. I also understand there are learning curves for new investors. If you aren't sure what to do, bring in a partner. Ask a friend. Hire a contractor who does great work. Learn from someone in the business.
Experience and Trial By Fire
I'm not remotely suggesting that my first 10+ renovations looked like the ones we do now. I'm also not suggesting we still don't miss problems, find issues in walls, go over budget, or have inspection items to repair. There is a huge learning curve in renovating a property, simply from the standpoint of what to fix, how to fix, and what makes a great house. You'll need to learn how to prepare, who to have on your team, what to do yourself, and when to bring someone in to help.
There is no substitute for someone with both the skill and the experience. Bring those people in, and make sure you surround yourself with experts, even in your first or second renovation projects. Make a personal commitment to doing an awesome job. Don’t settle for an “OK” job.
Applications to Our Turnkey Business
When we meet with clients in town, they see the rehabs for our rental properties and quickly realize they are nicer than most of the regular retail flip projects out there. Our entire team is obsessive about having the best rental and turnkey properties out there.
Our approach to real estate in general is if it doesn’t have at least 10 years of useful life left, it gets replaced. Every plug, switch, vent, anything on the walls, it gets replaced. Plumbing and toilets, vanities, they get replaced. New paint everywhere. We refinish hardwoods whenever possible. Our finishes are nicer than some retail flip houses, and these properties will soon be occupied by tenants!
The other obvious question here is — are you really making more money by doing a subpar job? My guess is no. When we do a better rehab, take professional pictures, and have the property cleaned well, the property rents faster, sells faster — with fewer issues, questions, or negotiations.
If it’s a great product, someone will want it. In the market and style today, a few people want to buy the crap houses (my favorite), and most want to buy the “HGTV” ones. We buy the crap and make them HGTV. You know why? Because they sell the best and make the most profit, with the least amount of issue.
And because we have done the work up front, we know the future tenant and/or owner has a safe, functional, healthy home to live in.
- Spend a little more money
- Offer a nicer house for the tenant and/or owner
- Make more or at least a much
- Have a better product
- Sell it or lease it faster, for more money
This is how we should operate as real estate investors. And this is a true win-win situation.
Let’s go win.
Investors: If you flip houses, how do you ensure a high quality product? Do subpar rehabs annoy you as well?
Let’s discuss in the comments section!