If you are like me, you hate losing out on income with your real estate investments. So you try to avoid things like evictions and vacancies. Another hidden “area” of lost income related to vacancies is the time between when a new property is ready to be rented/sold, but it is just sitting there empty (and not making money) in the meantime.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
My First Rehab…
My first rehab was a duplex that we kept as a rental. We did all the work ourselves, which at the time I thought was smart, but have since learned that it was not the best choice. You see, the total monthly rent for that duplex was $1110. So over the course of 6 months, we missed out on $6660 of potential rental income while we were renovating it. In addition to that, we did not start advertising until we finished the renovations, which meant that it took another 1 month to rent out one unit and 2 months to rent out the second. That equates to another $1,665 in missed rental income. So by doing the work ourselves and not advertising until we completed the rehab, we missed out on several thousands of dollars. Assuming that we hired out most of the work and began advertising sooner, we might have only missed a month or 2 of potential income while we were renovating, instead of $8,000+.
Contrast that with our most recent acquisition. We picked up a ~2,400 sqft top/down duplex. We started renovations 2 days after we closed and are hiring most of the work out. This is a full renovation, from framing, plumbing, electrical, HVAC, sheetrock, paint and flooring. With that said, we are 4 weeks into the renovations and just signed a lease for one unit starting on May 1st. The best part, the renovations looked like this when we actually signed the year-long lease with the tenants.
That’s right, we rented this unit without being very far into our renovations, actually without the tenants even seeing the property until the day they signed the lease. How did we do it? Find out below..
3 Steps to Renting (Or Selling) Your Rehab Before it’s Completed
Establish a Brand
Most of the buy and hold investors in our target markets do nothing to set themselves apart from the competition. They use the generic red and white “For Rent” signs that you can get at any hardware store. They do not establish a business or a name around their rentals, outside of their personal name.
We saw this as a great opportunity to create a brand for our properties and stand out from the competition. We designed a logo and used blue as our primary color. This not only clearly set our signs apart from other “For Rent” signs in the area, but blue also displays honesty and responsibility from a psychological perspective.
Related: Tips for Building Your Brand in 2014
Create a Reputation
Once we had a way to set ourselves apart with a brand, it was time to build a reputation around that brand. We knew that we wanted to be known for quality. Not only would this attract a higher quality of tenant, it would also allow us to charge a premium for our apartments and create positives experiences for our tenants. In turn, our tenants would also talk positively to their friends and stay longer in our properties, which would lead to low vacancy rates.
We provide a consistent experience for our properties. This means that we use the same materials and create the same look/feel in each unit. Not only does this allow us to buy and bulk and systematize many of our processes, it also allows people to know what to expect with a property. Below are a few images of our units.
Notice any similarities? What do you think our next unit will look like?
Advertise Right Away
In the example at the beginning of this post, we lost out on 3 months of rent by not advertising right away. The fact it, it takes time to find a quality tenant. Once you find that tenant, they typically (especially if they are a good tenant) need to provide 30 days notice to their current landlord. Depending on when they provide notice, this might actually be closer to 60 days because typically has to be 30 days before the end of the month.
So we start advertising right away. The image below was taken the day that we closed on the property. The first thing that we did was to place 2 of our custom “For Rent” signs on the property, along with a large “Now Leasing” banner. This property has been sitting vacant for 12 years, so just putting the signs on the house started to spark interest.
We also then advertised the property in other locations, such as our website, newspaper and social media channels.
So that’s it. 3 simple steps to get your rehabs rented or sold faster.
If you have utilized these strategies, what has your experience been? Do you have any other recommendations?