Rehabbing to flip involves bringing a property up to a good condition in order to maximize return and sale for full retail market value.
Rehabbing to Rent
Rehabbing to rent works best as a long-term investment strategy. If you can buy, fix and hold then you will realize your profit through collecting rent on a monthly basis. You must also understand the differences in rehabbing to flip and rehabbing to rent. Rehabbing a property to flip will be slightly different than for a buy and hold strategy. Whereas when rehabbing for resale we will upgrade the finishes to appeal to someone buying a home versus thinking of durability, keeping our costs down and anticipating more wear and tear in a rehabbing to rent scenario. Ninety percent of the rehab process is the same regardless of your exit strategy; except for the materials will be slightly downgraded in quality for a rental.
If you do decide to rehab to rent the benefits are that you are able to secure a fairly reliable income stream. I say ‘fairly’ because your property may go vacant at times until you get another tenant in. You also have more control as you know what is coming in monthly rather than riding the real estate market to rehab to flip. Rents always usually tend to trend upwards in price as well so it is a good investment strategy if you aren’t looking to flip and realize instant cash.
Rehabbing to rent allows you to diversify your investment portfolio and if you are able to snatch up a foreclosed property at a steal this could be the way to go to gain a steady stream of income coming in on a monthly basis. Obviously you want to do some homework to determine the rental market in your individual area but if there is a demand then rehabbing to rent may definitely be worth considering as an investment opportunity for you and your business.
Just remember that while you will have tenants in the property they may not always care for the property as a real homeowner would. Each tenant is different in the way that they live in and treat a property. Although it is the tenant’s responsibility for their own possessions and contents of the home, as a landlord it is your responsibility to carry property insurance and be on call for any repair issues that may come up.
Hiring a Property Management Company
You do have the option of hiring a professional property management company which will handle most issues of the rental such as being the point of contact, collecting rent and handling the scheduling of repairs, etc. Or you can manage the property and tenant on your own, which means that you get the full amount of rent on a monthly basis but it is up to you to search for and screen potential applicants, collect rent and handle any repairs/maintenance.
The typical rate for a property manager averages around 10 percent of the rent each month. As an investor you need to weigh out your options and decide if it is a better idea to manage the property (and headaches) yourself or let a professional handle all of the ins and outs of tenants.
Renting as a Plan B
Another option is to have renting the property as a Plan B. Meaning that you treat the property as a rehab to flip, market it and then decide to hold on to it get a better return on investment later on when it is not sold right away in lieu of dropping the price and not making a profit. In this scenario, just keep in mind that not all properties make good rentals.
“Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”