Getting into rehabbing houses can be a very lucrative way to invest in real estate. It can also be a very dangerous investment if you are not fully informed as to what you are doing. I have done several rehab projects over the years and have learned from some very costly mistakes along the way.
I have seen several investors whose first rehab project was also there last rehab project because they were not able to fully recover from the mistakes that were made. Below are 5 costly mistakes you will want to avoid when taking on your next rehab project.
1. Not knowing the construction costs. This is probably the biggest mistake that is made on every rehab project. If you are like most new investors you walk through a property and take a shot in the dark as to what the construction costs will be. The key to nailing down an accurate budget is to create a rehab expense sheet. This is a sheet that has a list of what all of your materials and contractors will costs. Once you have this sheet dialed in you will be able to walk into a house and be able to go down the line and have the ability to calculate every expense needed in order to get the project done.
2. Not getting more than 1 bid. Especially if you are new to the business make sure you get at least 3-5 bids on job that will get contracted. I see a lot of investors who are so worried about speed and getting the job done as quickly as possible that they get impatient and take the first bid they get because they think it sounds reasonable. The first bid is usually never the lowest bid. After 3-5 bids you should have a good idea as to what a “good price” looks like. If you over pay 15 different contractors on one house then you are almost guaranteed to go over budget.
3. Hiring a General Contractor To Do All The Work. This is a definite NO! Never let a contractor say “we will call you when it’s done”. This is a recipe for disaster. You want to make sure you are in control of every contractor that is doing work on your job site. You want to make sure you are in control of every material that is getting installed on your job site. More times that not these general contractors are picking out the cheapest finishes as possible and getting the cheapest trades doing the work leaving your newly rehabbed home looking less than desirable. Pick and choose your sub contractors wisely and make sure you are the one picking out the tile, flooring, kitchens, vanities, etc.