Rehabbing is the first thing people normally think about when it comes to real estate investing. They see shows on television about massive flips that made the investors a huge profit once it was all said and done.
But does it make sense as a first deal?
The simple answer is, probably not.
What they don’t usually include is the other costs involved with the deal.
Real estate investing doesn’t really come with a manual of step-by-step instructions so unless you have a coach or mentor holding your hand, it’s unfamiliar territory for most when you’re just getting started.
Rehabbing is one of the more risky strategies out there because you have more costs involved. You have holding costs (utilities, insurance, closing costs, etc) and labor/material costs that are not cheap.
In addition, if you miss something when you’re budgeting for the rehab, you could be spending thousands of dollars that you haven’t budgeted for.
This is why a simpler strategy such as wholesaling makes more sense. It takes some of that risk of your hands and allows you to learn the business and gain confidence.
Wholesaling is basically finding a property, normally off-market, that you can buy at a discount because it isn’t in retail (MLS) condition. The owner needs out of the property for a certain reason and doesn’t want to put more money into it to fix it up.
You buy the property at a discount, and sell it to either another investor or someone who plans to fix it up and live there (known as an end-buyer). You pay closing costs but otherwise, you’ll make the spread between the two deals.
This way, you aren’t holding the property as long and the risks are minimal.
As you get a better understanding of the business, then you can shift your focus to other exit strategies, such as rentals and fix and flips. You’ll be able to analyze each property and decide the best approach you should take that will optimize your profits.
Sometimes, it might make sense to rehab it and sell it on MLS because that is what makes sense for the neighborhood and the property in particular.
Other times, you might just want to deep clean it, throw some new paint on it, and list it in as-is condition.
If other houses in the neighborhood are in similar condition, you don’t want to spend a lot of money making it the nicest house on the block because you might end up having it priced too high compared to others nearby.
Don’t feel like you have to compare to the guys on television.
Do deals that work for your business and don’t get in too deep before you know what you’re doing.