The other day I was asked by a networking contact if I would talk to one of her colleagues about rehabbing real estate. This person was a well established professional looking to venture into real estate investing with a focus on renovating distressed properties. He would be partnering with a fairly successful contractor with extensive home renovation experience. He wanted to know the ins and outs of the rehabbing game in an effort to minimize mistakes and have the greatest chance of success.
We talked about a number of issues and I suggested he read my book and get back to me with any questions he may have. The nuts and bolts of running a business and dealing with the administrative side of things would be easy for him because it was something he did for a living as an accountant and corporate controller. His concern was more the buying, selling, making repairs, and determining what was or wasn’t a good deal. After talking about quite a few things he asked me the one question that made me think he might not be ready for rehabbing or real estate investing:
“Is now a good time to do this?”
My answer: “That’s up to you.”
When is the Right Time to Rehab Houses or Invest?
When it comes to rehabbing or investing in real estate it’s always a good time. Conversely, it’s always a bad time. Time has very little to do with it and you can make money regardless of what’s happening in the market, economy, or anything else. If you buy at the right price, correctly estimate all of your costs, and sell for profit, then the time was right. If you buy when the market is flying you make money by buying high and selling higher. If the market is in a slump you can pick up a fantastic deal from desperate sellers and flip a rehabbed property at a price that will attract a buyer no matter how bad things are.
The biggest threat to success is often being blindsided by something you didn’t expect. With rehabbing that is often unexpected costs of repairs, especially with beginning investors. It could also be not selling at the price you expected because you misjudged the market or were overly optimistic with your price assumptions. However, the biggest profit-buster by far is time. If a project takes too long you can be eaten alive by your carrying costs. Insurance, utilities, taxes, and interest accumulate by the day and come off your bottom line.
There is a great truism in rehabbing: It will cost more than you think, take longer than you expect, and sell for less than you hope.
Is it the Right Time for You?
So is it a good time? Yes, if you are prepared, conservative in you estimates, and realistic in your expectations. Make sure your own financial house is in order, create a realistic business plan, and – when working with partners – make sure everything is in writing before you start. There is plenty of money to be made in rehabbing but if you aren’t confident that the time is right, you may not be as prepared as you think.
The meeting of preparation with opportunity generates the offspring we call luck. – Tony Robbins
Photo credit: Jeremy Levine