Real Estate Investors Make A Decision Prehab Vs. Rehab

When Real Estate Investors have to make a decision about whether to prehab or to rehab, that is more than likely the first question every Real Estate Investors faces when acquiring real estate property. If not able to get a Wholesale deal, the next step would be to determine an alternative exit strategy. When doing a Prehab, it means to invest sweat equity into the property. A Rehab is renovating the property.

Real Estate Investors Evaluate Options

To Prehab:

A Prehab is the bambino of a Wholesale/Rehab deal. A Real Estate Investor would do minimal work, the resell value of the property would be more than what was paid to get the property. The visible appeal of a Prehab is in the ROI – Return On Investment – as it consists mainly of sweat equity.This would require painting, cleaning, small repairs and some landscaping. The resale value of a Prehab can instantly increase with a few minor upgrades and improvements, at times there’s little to no additional costs.

To Rehab:

Rehabbing involves purchasing a distressed property, it requires renovating it then selling at full market value. While Rehabbing allows for large profit margins in Real Estate Investment, it also happens to be one of the more complex exit strategies and is normally reserved for more seasoned Real Estate Investors.

Rehab deals normally fall into three main categories

Personal, Rent or Flip:

Personal Rehab – When you live in the property while at the same time making improvements. This by far offers the least amount of risk. Rental Rehab: A rental Rehab has similarities as a flip, this consist of making the necessary upgrades in order to rent out a unit to future tenants. Flip: This means to improve the condition of the property in order to capitalize on property value. However, a flip requires to hold cost, which sometimes eat away at your initial profit.

Real Estate Investors Determine An Exit Strategy That Is Best

Prehabbing is the best deal for beginner Real Estate Investors because it has minimal risks, while at the same time combining the speed and efficiency of a wholesale deal, in the end giving Real Estate Investors higher profit margins.

The choice to Prehab or Rehab many Real Estate Investors will have to make but it’s crucial to have an exit strategy before entering any Real Estate Investment deal. When Real Estate Investors decide on an exit strategy, it provide a specific plan for each property and at the same time giving the Real Estate Investor a clear understanding of what the profit from the deal will be.

Real Estate Investors go through a list to see what aspects of a Rehab deal is right for them.

Real Estate Investor Go Through The Following Aspects:

Full cost

Contractor/No Contractor

Materials – Supplies – Logistics

Different Permits

Real Estate Investors Decide On Financing

Private or Hard money?

In some cases, a Rehab project is probably not be the best exit strategy for your beginning Real Estate Investors. A main drawback of working on a Rehab project is that while renovating the property, you’re tying up working capital for an extend amount of time, and depending on your financial situation, this fluxuates.

In Closing

For beginner Real Estate Investors, it would be beneficial to speak with Real Estate professionals who have completed Prehab and Rehab projects. Most seasoned Real Estate Professionals are more than happy to help a newcomer along.

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