Real Estate Investing

Real Estate Rehabbing 101: Know Your Costs

March 15, 2011

When it comes to buying real estate investment property, fixing it up and reselling it, the big variable is the cost of repair. Now, in following my Magic Pill of Real Estate Investing, the overall most important thing when you are buying investment property is evaluating the total cost of acquisition, including repair costs, and even looking into back-end costs when you sell; like closing costs, taxes, and even your time invested.

But again, the spot where you can really get hammered if you aren’t careful, is in the cost of repair. I remember when I was starting out in real estate investing, and I partnered with someone on a large home in my area. The home needed tons of repair, but we started out with a budget of only $10,000 for repairs.

Needless to say, the project was a complete flop, and we ended up turning it around as a “fixer upper” to the next buyer. We got far less than the property should have paid us, and we spent far more in repairs than our original budget.

The short story is, we lost a ton of time and money.

So just remember a couple of things when you are rehabbing property:

  1. Buyers have zero imagination. None. So fix the home all the way up before selling it, or expect to get less than the market says you should get.
  2. Be very careful, and count ALL of the costs before you even buy. You might even go so far as to put some money into your budget for “unknown costs” just to be sure you can still make the money you need to make, even if an unexpected cost comes up in the process.

I hope this was helpful to you, and if you have any comments or questions, just leave them in the box below.

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