Tips on Buying Rehab Properties
Buying rehab houses in the real estate market can be a rather challenging task, especially for newbies. Also commonly referred to as “flipping houses, it generally refers to the business practice of buying real estate cheaply and then selling them later on at a profit, usually after doing some renovations or upgrades.
It can be an exciting and profitable business venture if you know what to look out for, which is not always so easy especially for inexperienced entrepreneurs. Fortunately, there are a few simple guidelines that will help you get started in the right direction:
1. See the big picture
Take a look at the property up for sale and try to visualize it in its final form. If you can picture a fantastic finish, go for it. If you have a considerable amount of doubt, it’s best to steer clear. There’s no point in buying something that you can’t picture being a success simply because it’s up for sale at a cheap price. Always think about the big picture before purchasing.
2. Calculate the numbers
Consider the overall value of the property right now and when you’re done making renovations. For example, tally up the purchase price, rough estimate of renovation/upgrade costs, and the legal fees involved. Then come up with an estimated selling price. Calculate the profit and consider if the return on investment will be worth it.
3. Research the history and current state of the neighborhood
Dig up some information about that particular piece of property. Ask around the neighborhood and perhaps even some realtors. Sometimes the history will make a difference in whether someone will want to purchase that property from you in the future. For example, a long history of mysterious deaths on the property may work against you, while a discovery that someone important was born there may drive up the value of the said property.
4. Determine the reason the owners are selling the property
Is the home a favorite spot for seasonal ants, flood prone, or a bulls eye for tornadoes? These could not only catch you by surprise in the middle of renovations (incurring heavy losses and delayed timelines), but leave you with unexpected expenses on top of a moral dilemma of whether or not to sell to someone else.
5. Check on legal issues
Are there any legal limitations on what can or cannot be done to the property in question? For example, it would be disastrous to discover that the property you bought with the intention of turning into a five-storied flat actually has a legal limit of four.
As you can clearly see, it would be extremely wise to avoid any rash decisions as just one misstep could turn out to be really bad for business. Take your time and follow the prescribed guidelines above and you’ll be a real estate rehab guru enjoying excellent cash flow in no time.