8 Secrets Rehabbing Houses to Sell by Colin Egbert
Getting started in the real estate investment business with rehabbing houses is surprisingly easy. You practically wake up one day and announce to the world that you are going to become a rehabber. However there is a lot of preparation involved before the purchase of a rehab property, especially that first property.
You know what they say; it’s 99% work and 1% inspiration. Well, the same is true for rehabbing houses and property. You’ll spend a lot of time looking around for good fixer upper houses to work on, talking with homeowners, doing research on local property values, getting repair and remodeling estimates and securing your own loans and mortgages to buy that property. Then, you get to start rehabbing houses.
It doesn’t hurt to have a few extra tips to rely on when rehabbing too. The process can take some time, about three months on average per house. So, you’ll encounter many unexpected needs and mix ups the first few times through. Here are a few tips that have helped me out along the way and I’m sure you’ll find them useful too.
1. Require the Realtor to Get Underwriter Approval
When you do place that rehab property on the market for sale it’s perfectly okay to place it with a Realtor. However, realtors can be tricky sometimes and you don’t want to waste your time with them. Have the realtor sign your contract with a special clause that requires them to provide a letter of underwriter approval for their buyers. This is a letter of intent from a buyer’s mortgage underwriter stating that the buyer is indeed approved for so much money in so many days for the purchase of the property.
It’s a practice that will really motivate your realtors to bring in solvent buyers and reduces the likelihood of a deal falling through at the last minute because they aren’t approved for the mortgage.
2. Don’t Advertise Until You’re Almost Done
Rehabbing houses isn’t like selling foreclosures or working on wholesaling property. You don’t want to start advertising the property at the beginning of a rehab or the middle even. Most traditional homebuyers want to see a house in its’ finished form and won’t even make an offer if the rehab property has holes in the walls, plumbers wandering around and roofers stomping around upstairs.
Hold off on the advertising part or the placing property with a realtor part until it’s about two thirds complete. This way the buyers know that there is a property available and you can start spreading the word in advance of your first open house when that rehab property is complete.
3. Get those Permits!
Sometimes working with the local government can be annoying. If you rehabbing houses on your own you’ll have to secure the necessary permits for the work. There are separate permits for roofing, electrical, structure, plumbing and even windows.
Plus, city officials have an annoying habit of dropping in on the middle of a rehab project to inspect. If you don’t have your permits yet, and you’ve already started on a certain area that official can hand you a nasty fine to add to your expenses.
4. A Gift Card Goes a Long Way
Some contractors will provide their own supplies for projects, others will expect you to reimburse them at the end of the project for supplies they picked up and others yet will expect you to provide all of the supplies while rehabbing houses. It’s always a good idea to check with your contractor before they start to make sure how they want to handle the supply situation.
If you are going to be the one providing the supplies it’s also a good idea to get your contractors a gift card for the nearest big hardware store. Workers are always running out of supplies at the worst moments on a project and sometimes you can’t be reached. That gift card with a few hundred dollars on it comes in handy when they can just run down to the store and pick up the supplies themselves. Have the contractors keep all the receipts for you and reimburse them with a little extra pay for making the run themselves.
5. Keep all Receipts
Every single stick of lumber, screw and bolt you buy is deductible on your taxes for this rehabbing business. Keep all of your receipts for everything from fees to supply to the purchase price of the house. A good accountant will be able to get you massive deductions for these receipts that you didn’t even know were available. The practice will save you a lot of money in taxes in the long run too.
6. Get a Good Accountant
At the end of the business year you’ll be accountable for taxes like every other person and more than you realize. Rehabbing houses qualifies as self employment until a corporation or LLC is established so you’ll have to pay your own self employment taxes on those earnings.
A good accountant who specializes in real estate can help reduce your income with deductions, IRAs, and those corporations mentioned above. You can even deduct the cost of hiring an accountant to do your taxes too. So it saves you a lot of money from all those rehab property profits.
7. Visit the Properties Daily
This is just a good idea in general. You don’t want that rehab property to get an overall uninhabited look. It invites trouble in the form of neighborhood kids looking for a place to hang out and the form of thieves looking to steal lumber, aluminum siding and the copper pipes in your rehab.
Plus, you’ll want to open up the house for your contractors. Check on their work and talk with the contractors to make sure they are staying on task. In rehabbing houses you become the manager in a way making sure that everything stays on schedule.
8. Check from Top to Bottom
When you first walk through any potential rehab property you’ll want to pay attention to any damage or cosmetic problems. Knowing from the beginning what kinds of problems are likely to pop up will help you prepare remodeling estimates.
Look at four areas on every rehab property to ensure it’s not going to be a major expense: Roof, Electrical, Plumbing and Structure.
The roof shouldn’t exhibit any sides of termite damage. You also shouldn’t be able to pull up any of the shingles easily. Make sure that the electric all works. Ask if there is any history of problems. Know if there is a fuse box or if the house has breakers. The plumbing definitely shouldn’t leak. Look in all of the cabinets for signs of leakage from pipes and from the second floor. Run water in all the sinks to make sure they drain quickly. Lastly, walk around the outside of the rehab property to see if you can spot any cracks in the foundation. Also look inside to make sure there aren’t major cracks in the walls that indicate settling to one side.
Eight tips on rehabbing houses and you’ve got eight little secrets to help you with your rehabbing business. It’s a good start but make sure you keep on learning about rehabbing houses as you go because there is much more to know and more secrets to find.
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