When done correctly, there is significant money to be made in rehabbing properties. Also known as “flipping,” the process involves buying a distressed property for as little money as possible, making necessary repairs and improvements, and then renting long term or selling for a nice profit. Because there are always risks with rehabbing, it is critical to purchase the right property, possess the right knowledge, have necessary funding, and work with an incredibly talented and dedicated crew.
For starters, the economics of the deal, as well as specific financial goals, need to be determined. This includes not only the initial purchase price but also the expenses for labor and materials in order to bring the property to a productive state so it rents or sells quickly. There are also expenses for insurance, property taxes, and utilities.
Most importantly, you need available funds for unexpected expenses. For instance, you might discover the entire subflooring has to be replaced, hidden black mold, or structural damage. With rehab properties, anything is possible, so you have to be prepared.
Finding Great Rehab Properties
Choosing the right rehab properties is essential. Below are some helpful tips:
- Identify who the renter or buyer is.
- Consider the type of features/amenities most wanted.
- Determine the current market value for specific geographical areas.
- Calculate the estimated cost and time needed to transform the property.
- Find out how long the property has been on the market.
- Determine if the property is in an area that supports good renters or quick sale.
- Research any liens or judgments against the property.
- Identify any special challenges with building codes and permits.
Although tempting, you never want to purchase a rehab property just because the price is low. Even though a bargain is important, look for properties that will attract solid renters or serious buyers by being located in low-crime neighborhoods, close to good schools, and near parks, grocery stores, and hospitals.