Many real estate investors will at some point in their career be involved in a major rehab.
Distressed properties that are in need of rehab are often where the deal is found and value can be added. Properties also often need an upgrade after many years of tenant wear and tear.
All rehab projects, no matter how big or small, have three basic phases. They have a start, they are a work in progress and they have a completion. Each of these rehab phases are similar, yet different. They require differing skills and efforts from the real estate investor. Let’s go through each one.
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.
It sure would be nice to just be able to hire a contractor, point to the project and say “make it so.”
Unfortunately, it is just not always that easy. During this phase, you have to know how to design and budget as well as play human resources director by hiring people to get the job done.
To get a rehab project started, you need to figure out what you want to do, how much you are going to pay for it and who is going to do it. There are numerous questions to be answered about the design of the project and the materials to be used. For example, what color and grade of paint should be used? Should carpet or other flooring be installed? What color and style should it be? And so on and so on.
All of these things need to be decided up front so your contractor so can provide you with a price to “make it so.” Then you can determine if “making it so” fits your budget or if you have to rethink things a bit.
Finally, once you get your plan and contractor lined up, you need to get your contracts with your contractors signed. Make sure you include an estimated completion date, a time frame for payments and a penalty if the work is not completed on time.
The Work In Progress
Once you get things started, you can relax a bit but you need to make sure things keep progressing in order to meet your schedule.
Your job now is to manage, manage both the project and the budget. I like to show up at the job site at various times on different days to demonstrate that I am keeping tabs on things and just to see how things are going. It is after all kind of fun to watch something get ripped apart and put back together again.
More importantly however you need to be available to answer questions and make changes to the project. No project ever goes perfectly. There is always some unexpected bump. Hopefully they are small bumps but they all require you to change course a bit. Be around to both guide the course and make sure things stay on course.
This phase may be the most difficult one.
It is in this phase where all the pieces have to finally fit together. 90 to 95 percent of everything will fit together nicely (a result of your efforts in the second phase). It is that final 5 to 10 percent that can make you want to pull your hair out. Again you have to manage. Be available to keep things flowing. But you may also need to pitch in a hand or hire more help to get things wrapped up.
Do a final walk through with your contractor to make sure everything was completed in a satisfactory manner. When the job is completed, pay them promptly for a job well done.
Rehabs can be both one of the most interesting and frustrating parts of being a real estate investor. While we can describe for you what the process of a rehab is like, honestly you are going to just have to experience a few of them to get good at it.
You might want to start out small if you are new to the rehabbing world and even be a bit hands on to learn some of the tricks of the trade. In other words, don’t tackle that single family burn out as your first project. Rather tackle one requiring a bit of paint and other touch up in order to learn the rehab process and develop your rehab skills.
So there you have the three phases of a rehab and some of the techniques I use to ensure a satisfactory job. What would you add to the list?
Be sure to leave your comments below!