You’ve watched the HGTV shows on flipping houses.
We all have.
You see some of the ugliest houses with layers and layers of filth turn into immaculate properties that any homeowner would die to live in.
They show huge profits and on TV at least, they make it seem pretty easy to pull off. Sure, sometimes they run into issues but all is solved in the end and it usually sells quickly.
What they don’t highlight is the upfront cost it took to get the rehab project going and how until you have a solid rehabbing crew, there’s extra time involved making sure the rehab project is being done correctly.
This is because you’re working with new (to you) subcontractors and you haven’t built that relationship with the general contractor so that he knows your needs.
With a rehab, you not only have to have money to close on the property, but you have to pay your contractor usually 45% of labor and supplies up front for them to get started and another 45% midway through the project (based on completion of scope of work) and then the remaining balance at the end of the project.
If you are working with a lender, each draw is going to be extra money out of your pocket that you need to account for.
In addition to the rehab cost, you’re going to have holding costs. Insurance, taxes, utilities, maintenance, and interest from your loan are going to add up the longer the project takes.
With a rehab comes more risk.
It’s easy to go over budget if you find a repair that is more extensive than originally planned. Depending on how tight your budget is, it can affect your overall profit if any part of the rehab is calculated incorrectly.
Your time is valuable!
When you’re first getting started in real estate investing, there is no doubt that you’re wearing multiple hats for your business.
You very well could be handling the marketing, lead calls, buy appointments, transaction coordination, follow ups, and a handful of other tasks when your business is new.
Having to find a reliable general contractor and subcontractors that you then have to oversee takes time out of your day.
Time that you could have spent generating leads and going on buy appointments!
While yes, a rehab project can bring in a large profit, it’s not generally best for brand new investors. Wholesaling and assigning are much easier deals to tackle while you’re figuring out the real estate investing industry and your business.
Wholesaling and assigning requires less money, less risk, and usually provides a quicker turnaround time so you’re bringing money in quicker. In the beginning of your business, having that profit can help you reinvest to help grow your business.
This business isn’t just about home runs. Having a handful of “base hits” are going to push your business to the next level as well.