Learn how rehabbing property is done from start to finish! Rehabbing an investment property consists of buying a broken down or cheap property, investing your time and money into improving it, and then selling it for a full market value and walking away with profits.
This is often a glamorous dream for many aspiring real estate investors. Although it’s a lucrative investment, it’s also one of the more risky and costly strategies for beginner investors. Rehabbing property requires attention to details, time, capital, and experience to master. So, while you can reap a profitable return on investment, this is not something you should jump into unprepared. To help you get started, we’ve created the following guide which breaks down the 9 steps of rehabbing property.
Step 1: Evaluate the Investment Property
This is something all property investors ought to do before investing in any type of property. With the help of a professional home inspector, take a walk through the real estate investment property you’re planning to rehab. This is the first and most important step to succeed when rehabbing property because it’ll help you understand what you’re about to get yourself into. This home inspection will include examining the property’s foundation, plumbing, electrical system, heating and air-conditioning system, roof, floor, walls, doors, etc.
As you can tell, a real estate investor will need the help of a home inspector in this first step. Not only will these individuals identify and prioritize what needs repairs, but they also have the ability to recognize things that you might have overlooked. Moreover, property investors should also take notes and pictures during the home inspection to better understand what the investment property needs to be restored.
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Step 2: Create a Checklist
After you understand the type of work you need to do on the property, the second step is to make a checklist. A real estate investor can look at this as a to-do list to successfully complete rehabbing property. In this step, make sure to outline the necessary repairs that the home inspection identified and estimate the associated costs.
This will act as a roadmap showing you where you need to start and where to go from there. For example, you don’t want to replace the flooring before working on the walls and ceiling. Thus, make a list of what needs to be done to the investment property in order. Our tip is to start with major improvements and leave cosmetic fixes to the end.
Step 3: Develop a Rehabbing Budget
Never buy an investment property without estimating the repairs, and never start rehabbing property without a budget! Thus, once you understand the scope of work needed, the next step is to set a budget of how much you’re willing to spend on renovating the real estate property. While doing so, it’s important to keep your return on investment in mind. You don’t want to spend too much on a property and sacrifice your potential profits.
In addition, don’t forget to estimate the after repair value (ARV). After all, your goal is to make profits when selling the investment property after completing the work. So, you need to do this step to assure that the investment property will actually gain value after rehabbing it and that you can sell it for a higher price than the initial purchase price plus renovation costs. Also, there’s always a possibility for unexpected expenses to rise. Thus, a real estate investor rehabbing property should always leave room in the budget for them. And finally, don’t forget to factor in holding costs in your budget – just in case the real estate property doesn’t sell right away.
Step 4: Find the Right Contractor
Property investors should not try to save money by using a cheap or inexperienced contractor. This is rarely a cost-effective option and often results in a disaster that takes away from your profits. This is why it’s important to find a reputable, experienced, and licensed contractor for rehabbing property.
Even though it’ll cost you more, the work will be done more efficiently and in higher quality which, as a result, will add to the profitability of your real estate investment in the long run. However, not all contractors are equal and property investors need to spend time researching general contractors. Make sure your contractor is licensed, insured, reliable, and fits with your needs and budget.
Step 5: Obtain the Necessary Permits
A real estate investor needs to get permits in order to rehab an investment property. The type of permits needed is something you need to investigate before buying the property in order to avoid violating any local building codes. Beginner investors can contact their local building department to get information on the necessary permits they need. In addition, your contractor can also determine what permits you need to obtain based on the type of work the investment property needs.
Furthermore, never begin rehabbing property until all permitting is complete as it could lead to losing your investment. For example, if you don’t have a permit for additions to the property by its previous owner, you may not be able to sell it once the work is complete. Also, not having permits may create conflict with authorities, delay the project, and significantly raise your costs – all of which will affect your potential profits and return on investment. In order not to fall in any of these worst-case scenarios, be a smart real estate investor and obtain the necessary permits prior to rehabbing property.
Step 6: Begin the Cleanup Phase
After completing all the previous steps, now the physical work of rehabbing property begins. The first thing a real estate investor needs to do is simply remove all the trash and damaged items (like broken doors, windows, etc.) from inside and onsite the investment property. The purpose of this is to clean the property and prepare it for the rehab process to run smoothly and progress. It won’t add any value to the investment property, but it’ll cost you next to nothing as you can do the majority of work on your own.
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Step 7: Start with Interior Improvements
Experts recommend property investors to start with renovating the interior first. This is where people are going to live, so you should utilize the core of your budget on the interior of the investment property. If you’re working on a limited budget, focus on the repairs that will actually bring the highest return for your dollar. Additionally, there are ways for a real estate investor to enhance the interior when rehabbing property through DIY improvements that won’t cost much.
The first thing you need to do is locate the major systems that need repairing. Make sure you’ve hired licensed electricians, plumbers, HVAC contractors, etc. to repair these systems. Once they’re fixed, you’ll need a good handyman to make sheetrock repairs and have the interior ready for paint. You can paint it yourself, but if you’re planning on repainting the entire interior, it’s best to work with a professional painting crew within your budget. Finally, you can move on to flooring and replacing tiles – it’ll add appeal to the real estate investment property and increase its value.
Step 8: Work on Exterior Improvements
Once all the work on the interior is completed, you can move on to the exterior to give the renovated investment property the curb appeal it deserves. This ranges from the front yard, driveway, front door, garage door, shutters, etc. Property investors can perform these improvements at a much more affordable cost than improvements made on the interior, helping them save on their budget.
A few ideas to add curb appeal when rehabbing property include painting the front door, improving the landscape, installing a nice mailbox, new lights, vinyl sidings, etc. All these things might seem minor, but they’ll add value to your investment property and make it feel like home to prospective tenants or buyers.
Step 9: Finalizing Phase
Before considering the project a wrap, the final step to rehabbing property is to finalize the improvements. A real estate investor needs to examine all the work with his/her contractor and check anything that might need adjustments. We also recommend conducting a final home inspection by a professional. This will confirm that all the work is completed up to par with standards and that you can move on to list the property for sale or rent.
Final Thoughts on Rehabbing Property for Beginner Investors
Rehabbing property for the first time is not easy, but that doesn’t mean it’s not possible. Following this step-by-step guide, beginner investors can have an understanding of what they should do to successfully complete a profitable investment. If you think you’re ready for rehabbing property, use Mashvisor’s investment tools to analyze and find the best real estate properties to rehab in any city and neighborhood across the US housing market! To start out your 14-day free trial with Mashvisor, click here.
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