Rehabbing can be costly and having good contractors who you trust can be critical to keeping your profits up.
Greg discusses how important it is to know what your contractors are capable of and that they aren’t overbooked.
Mike: Welcome back to the FlipnNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Greg: Hi, I’m Greg White from Imagine Home Realty and Imagine Construction Management here in Detroit, coming with you today as your host on REI Classroom.
Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com.
Greg: Welcome back to REI Classroom, I’m Greg White from Imagine Construction Management and Imagine Home Realty here today with my construction coordinator, Ashely Carr, to talk to you today about rehabs and today’s market. Rehabbing homes when investing in properties is one of the most important parts of a successful flip, long-term buy and hold. Almost every aspect of real estate investment at some point is going to need rehab, refurbishment, which is going to call for good contractors.
That’s what I wanted to share with you today is the ability to find, locate and secure good contractors. So whether you’re doing one job for $2000 or you’re flipping 30 homes at a time, you’re going to need to scale contractors at some point. And there is no shortage of contractors out there that want to take money and run away and not do a great job. And what we would like to talk to you about is being able to find those good contractors. I have Ashley Carr here with me. She is my rehab coordinator and she lines up all our jobs for our company here in Detroit called Imagine Construction Management. I’m going to let her talk to you today quickly about finding good resources and good contractors.
Ashley: I would add a big part of construction and rehabbing your property key is familiarizing yourself with contracting terms, language, get to know what you’re buying and then trusting your contractor is the largest part. Find references, look at previous work done, all those things. Knowing who you’re hiring and what they’re capable of is 90% of the battle.
Greg: I’ve had countless investors who have Craigslisted contractors, who’ve Angie’s Listed contractors with “good references,” different things who have done shoddy work or their money just ultimately disappears. So, that all being said, the number one tip that I can give you today is do your homework. It’s by far the most important part. Make sure that your contractor isn’t overbooked. There are times where we as a company can’t handle any more work, and although I hate to turn away business, I would rather be honest with my investors and let them know that we can’t currently handle it or refer out somebody else that we know in the business or in the local market that can handle the work.
So your biggest part of an investment, short of the actual purchase price of buying the house, usually the next biggest number that you’re going to put on the line is the rehab or the refurbishment. So make sure you do your homework, get your numbers right. As Ashley said, familiarize yourself. Otherwise you’re going to get a quote where it says the hot water tank is $4000 and if you don’t know that you might pay $4000 for a hot water tank instead of $750 or whatever you would need to pay. So become aware, do your homework, do your research and just be ready to be well familiar with all things rehab. Familiarize yourself. Ashley, anything to add?
Ashley: Something very common, though, the less expensive the property that you purchased is usually the more expensive amount you should expect to rehab. Higher property purchase, less you should have to do in rehab.
Greg: And whenever you’re doing quickly I will give you a rundown of . . . each market’s a little bit different but the different quality that you want to do. When you’re flipping a property, like when I’m flipping a property here in Detroit myself, if it’s a flip maybe a $100,000 purchase I set aside $30,000 for rehab budget, and I plan on selling it for $175,000 or $200,000. I, of course, go travertine tile and granite countertops and things like that. If it’s a long-term rental in the city of Detroit, we go Formica countertops and vinyl flooring and stuff. So make sure that you’re also not over improving or under improving for your market.
It’s been Greg White and Ashley Carr from Imagine Construction Management and Imagine Home Realty in Detroit signing off. Thanks for letting us teach you today.
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