Now that you have the property, it’s time to get it ready for the finish line! In most cases of rehabbing or flipping, this equates to bringing the property back to its full market value. Obviously, you got a great deal on the property if you have made it to this step, and are looking for a fairly quick turnaround in fixing it up and reselling it so you can make your profit and get onto finding the next big deal.
The biggest part of the fix is the contractor and any sub-contractors hired for the project. We will be discussing how to get contracting work done later, but what you should keep in mind throughout the project is that you need to bring your house up to full retail value right away. Why? Because, the longer you have the property the more holding costs are associated with it. You may have gotten a great price, but if you’re holding it for an extended period of time there will be unnecessary costs incurred. Such costs include maintenance and money expenditures for holding it. So, listen up as I run through all of the different options for fixing up the property and bringing it back to full market value so you can realize a profit in the deal. After all, why invest in real estate if you can’t make money, right?
“Now, one thing I tell everyone is learn about real estate. Repeat after me: real estate provides the highest returns, the greatest values and the least risk.”
Maintenance costs are not your friend…if you are paying a landscaper for maintenance on the property, such as lawn care at $25 a week, this adds up in a hurry. The longer you hold the property the more time there is for something to break down or go wrong and now add additional maintenance that may have to be done. Other monthly costs associated with a property encompass the utilities ranging in everything from electric, gas, water, trash and sewer bills coming in. If the season happens to be winter, then make sure that the heat is on before water pipes break and cause a huge mess. Broken pipes are never fun to deal with. Also, consider the monthly costs involved in insurance and taxes.
SPRE Tip: When shopping around for insurance ask about the builders risk policy as this is the best type for rehab insurance.
Especially when borrowing funds, the longer you have the property, the less time you have to keep it on the market. If you have a hard money loan, you may only have a 4 to 6 month timeframe to get a pre-hab or rehab done and sold. If you have to extend the loan because it won’t sell as fast as you would have liked, that’s money coming straight from your bottom line as well as more stress added to the equation.
The money you could be making with the funds that you have tied up in the purchase and ‘fix’ of the house is what can be referred to as an ‘opportunity cost’. If you purchase a ‘good’ deal then shortly after come across a ‘homerun deal’, you might not be able to move on it because your funds are already tied up in the ‘good deal’. So, the rule of thumb is that the faster you get your money back the sooner that you can move onto the next investment. If you find a deal you won’t be able to get to anytime soon, you will need to calculate all of your holding costs. You may find it’s worth holding off on the purchase of it and investing in more liquid assets instead for the meantime. Even if it’s a small return but a safe investment, like a bond or stock, it may be worth it.
It’s important to complete any repairs needed as quickly as possible. Even if you find a great deal, but if you know you cannot get to it right away, you must make sure to calculate all holding costs associated, and then reevaluate the purchase. Just remember the old saying: “Time is money.”
For more tips on bringing your St. Louis real estate investments to full market value, contact us today. Be sure to follow us on Pinterest, Google+, Twitter, and Facebook!