The journey began on May 25th when I sat at the closing table and purchased the property from the wholesaler. Now, a little over a month later, the property has been renovated and sold (via our exit plan of a land contract). The journey officially came to an end just a couple days ago (June 26th) I was once again sitting at the closing table, but this time, not as the buyer but the seller.
(NOTE: the “official” journey actually began when the wholesaler whom I bought it from called me about the property, but I always measure my time periods in terms of “when” I am paying for the cost of money.)
Personally, I would have liked to see this one get done in three weeks, but given we already had the buyer in place prior to renovations, I knew there was an extra week available due to the buyer’s schedule. Overall, this one was pretty smooth sailing.
Below are some ‘Before’ and ‘After’ pictures. (be sure to scroll down past the pictures for some Lessons Learned)
If/when you come across a situation in your real estate investing where you have a buyer before you’ve started renovations (or just begun), walk at a slow pace and cover your tracks. I made it through okay on this one, but I also encountered all sorts of potential snares. The buyer was real easy to work with; however, with a buyer of a different personality, I could be writing something much different right now. Things to consider…
- Document, document, document! I had the buyer sign our original scope of work. I also signed it. This way, both parties were protected. She knew what she was getting and I knew what I “owed her”. She couldn’t come back and say, “hey, you said you were going to do this!”, but on the flip side, it reassured her that I wouldn’t be cutting any corners. You can never have “too much” documentation, so if you find yourself in a spot where you are now accepting feedback and suggestions from the to be buyer, put it all in writing!
- Lower your risk, require more earnest money! Anything that goes above and beyond the original scope of work needs to be factored into the earnest money (don’t forget point #1 either! document and get signatures!). If you are going to spend more money, you need to have the buyer put additional ‘skin-in-the-game’ so you can be sure they are serious about fully compensating you at the closing table (which was the case with this transaction).
The stars all aligned and I had a situation with this property where my project manager was off camping with his family and with the buyer wanting a few additional things on top of the original scope of work, I had to personally manage the final phase of rehab. This accomplished something that I needed, a friendly (maybe ‘annoying’ is a better word?) reminder about how my time should be spent. Now, I’m not suggesting that the only way to have success is to get a project manager for renovations, but it does present some questions you should ask yourself about your investing business and gameplan…
How do you spend your time? I found myself having to drive back and forth to the property, whether it was to drop off payments to people, check on the progress, or whatever else, it seemed like I was always there. This was NOT a waste of time, as it was obviously required to ensure things got done; however, was it the best use of my time? For me, no, it was not. I could be doing more productive things with it. Maybe for you and your model, it is a perfect use of your time, but I would argue that for maximum efficiency as the investor, “managing” projects rather then simply “overseeing” them is not efficient.
The great thing about real estate is you can be as flexible as you want, both in the way you approach a customer and how you set-up your business. Just make sure you are always documenting what you’re doing and doing what you want to be doing. If you enjoy interacting with contractors and doing project management type stuff, then go for it! If you don’t (like me), then find someone who doesn’t mind it. Sure, you lose a bit of profits, but you gain freedom!