Whats wrong with doing your own rehab on an investment?

6 Replies

I hear quite often on the BP podcast to not do your own rehab work and to not self manage. But other episodes contradict the other by stating the opposite. To build sweat equity and increase cashflow via self managing and doing some of your own labor.

Is this advice for different investors? Let's say one person has a 4 unit portfolio and the other has a 40 unit portfolio. I can see it making sense on the larger scale to outsource these jobs. I am just confused as to why some say to never do your own work and others say to do some if you can.

Thoughts?

@Jason Kim

I think the advice largely comes down to scalability. If you are doing all of your own renovations, you can only grow so big. Additionally, as you scale up, you’ll hear references to doing work that is $X / hour and if you can earn more money doing something else, you should pay for a contractor. For example, a surgeon that can make $1,000 an hour shouldn’t turn down a surgery in order to clean her house when she can pay someone $15 an hour to clean it for her.

@Jason Kim everyone’s situation is unique. No one answer is perfect for everyone.

At the end of the day most of us get into real estate for passive income, so ideally you can outsource rehab and property management.

But if you are just getting started it often makes sense to do your own work to save costs and learn the process a bit.

@Jason Kim  If you are investing locally, I would self-manage for a bit to truly learn what it takes (and doesn't take) to run a property. I would not call myself a handy person, but over the years I learned how to paint, install fixtures, do light electrical work, lay flooring, etc on my houses. If it was something bigger or crazier, THAT's when I would hire it out (plumber, electrician, HVAC, etc.). I have saved myself tens of thousands of dollars in my own repairs/light renovations over the years. Could I have hired that out and worked longer/harder at my "day job" to pay for that work to be done? Yes. But, I HATED my day job, so doing the work was actually enjoyable for me, because I was working on MY business, not my employer. Yes, you cannot scale quickly doing that, but for most people starting out, you're not going to be buying dozens of units/building a couple of years into you RE career. This is a get rich slowly game, and starting out with 1-2 houses per year for a few years is perfectly fine. But as everyone above said, everything depends on your situation. Good luck!

@Jason Kim

This is an age old question that is more about Active vs Passive real estate.

Both options work, it's more about your goals that will determine your path.   

If you decide to take on the rehab and management you do have the ability to increase your profits if you do it correctly, without mistakes.    But you will have to commit time and energy to gain all the profits.  This is active real estate, even though you are rehabbing a rental, because you are committing your time that is what makes it work.

If you decide to work with a Provider that does most of that for you and you simply are the financial backing then you will sacrifice about 10% of your potential profits, but you will gain back security and time.  Of which time is the most important part of the trade off, this is Passive.

For most people it's not the ability to do it on their own, its the time commitment to makes the decision.  Most people have full time jobs that are asking the same question you are.  With jobs, school, kids, church, and all the other obligations in our lives most people just don't have the available time, or they don't want to sacrifice their time.

The investors that are advising you to take on the sweat equity generally have more time and they can trade that time for profits without sacrificing time with family, ect.  If you are already doing real estate full time or don't have a 40-60 hour job, then you probably aren't taking time away from family and the important things.

For me time with family and doing things that are more important than money and for me is a bigger priority than a little extra profit, so my decision is easy I prefer Passive.   But that doesn't mean my situation is the same as yours or anyone else.

Luckily you can do it either way, you just need to decide what is more important to you, time, or 10% of your profits?

 

It's a per investor choice. Investing passively or actively, is really about time, experience, capital, passion, location and risk tolerance. Where you sit on those subjects determines how you coordinate activities on a project.

For me, I do not have a strong passion into growing skills into learning how to roof or tile for example. I also do not have the time to spend learning such skills as I focus my efforts on building my business and networking with other investors on investment opportunities. Does this mean I am wrong or right? I would say neither, it's simply what aligns with my goals.

So if you are going to be doing the work or not doing the work, just ask :

  • Do I have the time for this? Do I want to spend time on this?
  • Do I have the knowledge or experience to do it correctly?
  • Do I want to learn or have the passion to learn how to do this?
  • Am I located near the work or do I have to travel frequently(out of state) to complete?
  • Am I comfortable with the risk of doing it wrong or losing money for me and potentially other partners?
  • Do I have the capital to outsource this work?

So, once any project is looked at like this. The decision becomes very easy. Hope that helps!

It depends on your skills, the amount of work and how much time you have.

If you are able to do it right, do your own rehab.  It will save you money.  Things that you can easily do are paint, change hardware, clean, etc.  Electrical, plumbing...probably best left to professionals.

As for managing your property, by all means do it yourself.  Make sure you know the local laws and use a standard lease for your area.

This doesn't always apply to flips where time is money.  If you work full time, you won't have time to do all the rehab yourself.