If you play your cards right, rehabbing houses can be very rewarding and incredibly profitable. If you are a new real estate investor, learning how to rehab properties can provide you the best chance of developing a sustainable real estate business. It will also open other opportunities for you.
While real estate rehabbing could be an adventurous and lucrative strategy for real estate investors, it can also be an overwhelming and confusing venture that has a lot of moving parts. An excellent home rehab is similar to good plastic surgery: You should not notice the work, only the final result.
So, what do you have to know about real estate rehabbing before you dive in? Let’s break it down in five stages.
1. Inspect The Property
You would like to get to work as soon as you close on a property. Use your inspection period to schedule a home inspection. It is always better to spot issues and problems on the front end instead of being surprised down the road.
You first have to assess the property meticulously to ensure that all aspects and fine details of the real estate construction process are on course. Note which areas need work and which are in good condition.
A thorough home inspection is important before the closing, and you should prepare notes on each room. You should also create a real estate rehab checklist and check for issues with each item on your list. Some of the items on this list could include:
• Air conditioners.
• Basement water.
• Interior plumbing.
• Septic system.
During your initial visit, take a camera with you to get a more detailed assessment of the property. Photograph problematic areas and assess the repairs needed. (An expert will come in handy here.)
2. Hire A Contractor
Hiring a rehab contractor for your project is the most important decision you will make. A reliable and experienced contractor can do the difficult and tedious work for you. You can find qualified contractors through various platforms, such as websites, job boards, your local supply houses and the building department.
Then schedule a meeting with your contractor to get their input and finalize your strategy, including how you will handle specific repairs and whether or not you will make any significant changes to the basic layout of your property. As a contractor can either make or break your rehab project, make sure to hire a licensed, insured and qualified professional with referrals or online reviews.
3. Create The Scope Of Work
Creating an in-depth scope of work (SOW) document for your real estate rehab project is important as this establishes a clear and comprehensive project plan that your contractor can use to provide accurate bid proposals. It also gives your contractors a good idea regarding the extent of your rehab project. In its simplest form, a construction SOW is a to-do list.
To create your SOW successfully, you should:
• Go through your initial planning notes to list all renovations you intend to make, such as demolitions, floor installations and removals, etc.
• Estimate the cost of all projects. Note that you may do away with optional ones if they exceed your budget.
• Detail everything that you have to do for every single renovation or repair, down to the last faucet, fixture or piece of furniture.
• Finalize your SOW based on the cost estimates of each project.
4. Acquire All Necessary Permits And Paperwork
Although there aren’t usually specific property rehab permits, having all the required renovation permits for your work will help you save money and time. As a real estate investor, you may need to obtain some permits from local authorities before you can start the renovation work on your investment property.
Permits prove that workers are insured and professional, and this can help you avoid some serious headaches. Some of the tasks that may require permits:
• Working on a public sewer line.
• Changing the plumbing.
• Cutting down trees.
Failure to obtain a permit can lead to fines and penalties, and you may even be ordered to tear down the renovations you have already made.
Besides permits, you should have the following paperwork:
• Scope of work.
• Insurance indemnification form.
• Payment information.
• Form W-9.
5. Manage The Rehab Work
Rehabbing your property involves many crucial stages, and you will have to supervise the work involved in these stages. On the other hand, you can hire a project manager. Communicate with workers frequently by phone or in person, and have them send you photographs so you can see the progress.
• Demolition and cleanup: This entails cleaning out damaged items, like toilets, piping, floors and walls. Outside cleanup may include fences, decks, bushes and dead trees.
• Electricity, plumbing and HVAC: Building inspectors will come in after this stage in order to check if all installations are done right.
• Foundation and framing issues: During this stage, workers will fix basement issues, add beams and poles to reinforce the property and add a new roof.
• Trimming and painting: Trim work and painting are the last stages in the rehabbing process. After these stages are complete, you will start to see your vision come to life.
For many people, the overall real estate rehab journey may appear overwhelming and intimidating, especially if they have no prior experience. However, by breaking down the rehab process into different stages, you can make rehab real estate investing easier and more achievable.