Why Subpar Rehabs by Real Estate Investors Create a Losing Situation for Everyone

Why Subpar Rehabs by Real Estate Investors Create a Losing Situation for Everyone

4 min read
Nathan Brooks

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year.

Experience
With more than a decade of experience in real estate investing, Nathan is a seasoned investor with a large personal portfolio and a growing business portfolio. Just last year, through Bridge Turnkey Investments, he helped investors add over $12 million in value to their real estate portfolios and has goals to crush that number in the coming years.

Nathan regularly produces educational content to fuel his passion for helping other people learn about and find success in real estate investing. He has been featured regularly on industry podcasts, such as the Bigger Pockets Podcast (#87, #159, #232, and #319), Active Duty Passive Income podcast, Freedom Real Estate Investing podcast, Fearless Pursuit of Freedom Podcast, Titanium Vault, InvestFourMore Real Estate Podcast, the Best Real Estate Investing Advice Ever show, the Good Success Podcast, FlipNerd, Wholesaling Inc., the Real Estate Investing Profits Master Series, Flipping Junkie Podcast, Flip Empire podcast, Think Realty Radio, and more. He is a sought-after speaker and writer, featured regularly on the BiggerPockets Blog and found on stage regularly at events across the country.

He is also part of multiple leadership groups for top executives, including Collective Genius, an invite-only group known as the Elite Investor’s Board of Directors.

In an effort to help investors further, Nathan started Bridge Real Estate Investing Meetup (BREIM) in 2018. The group’s tremendous growth earned it the title of “Largest Meetup in Kansas City” after only three months running, and it continues to grow daily.

Nathan is a passionate leader, well-respected investor, and friend to everyone he meets. He currently lives in Kansas City on his 11-acre property with his wife and two beautiful children. He loves to enjoy the outdoors, train MMA, and come up with new business ideas to crush.

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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.

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.

Related: 6 FREE Places to Get Design Inspiration for Awesome-Looking, On-Trend House Flips

Fine.

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.

rehab-issues

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.

Related: 5 Highly Actionable Tips From the #1 Book I’d Recommend on House Flipping

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!

exterior_rehab_buy_and_hold_renovation_tips

Wallet Approach

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.

Review

  • 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!