DECISIONS, DECISIONS, DECISIONS…WHAT TO KEEP, FIX, AND REPLACE AS YOU REHAB YOUR INVESTMENT PROPERTY

So, you just closed on a great rental property for 60 cents on the dollar.  You’re ready to start rehab and get some tenants in there, but now you have some critical decisions to make:

• What stays?
• What gets fixed?
• What gets replaced?

The answers to these questions depend on several factors and circumstances, such as:

• current condition
• available rehab budget
• replacement time frame
• season

Generally speaking, you’ll want a fresh coat of paint throughout the interior, and the carpets will either need to be cleaned or replaced.  A cursory look at the walls and floors will tell you how to handle these components.  Both walls and floors should be neutral colors to accommodate the different styles your tenants may have.

But what about the roof, or the HVAC unit?   These are a little more costly to replace, but also more devastating should they fail to perform their expected roles.

Let’s say the roof is 20 years old and looks like it might need to be replaced.  If the roof isn’t leaking, then it does not require immediate action.  If it is leaking, you can always patch it until it absolutely needs replacing.  If you think it needs to be replaced, call 3 roofers out to the house to assess the condition, give you their opinions, and offer estimates for repairs and/or replacement.  (THREE IS KEY—for any work you want done on the house, until you have a solid list of vendors you trust.) Obviously, if all 3 tell you the roof needs to be replaced last week, then you’d better take care of it now.  But what if they think it needs replacing, but you have some time before it’s critical.  Think about the following to determine whether you should do it now, before your tenants move in, or wait until it’s really needed:

• Budget/Funds – Is it within your rehab budget to do the repair now and still have the cash flow you intended?  Do you have the funds available now b/c you used Hard Money to purchase the property and make repairs? Are you cash poor? Would you have to borrow more money or use a credit card to get the job done?
• Timeframe – Will doing the work now significantly delay getting the house make-ready? Will it substantially delay collecting your first rent check and cut into your profits? If you wait to do the job, how long will it take to get someone out there to do the work when necessary? Will your tenants be able to stay in the house while the work is being completed, or will you need to provide alternative accommodations?
• Season – If hailstorms and tornadoes are right around the corner, you might want to wait.  Your new roof could incur damage and have to be repaired anyway.  Plus, the current roof could incur enough damage that your insurance company will pay to replace it for you!
• Other options – Can you afford Home Warranty insurance to be there for when the repair must take place? Or, is the current roof (or A/C, or other item) currently under a transferrable warranty that you can take advantage of?

As you can see, you have a lot to weigh before giving your final answer, but it’s nice to know that you have some options available to you.  This type of analysis should be applied to any of the costly make-ready options you are considering.  In the end, make sure you are still going to have decent positive cash flow on the property and happy tenants who will want to stay and take good care of your house!

Please share some of your rehab decisions and advice for other real estate investors.

Looking for real estate in the DFW area?  Access REO properties for 50-70% ARV at:

http://www.DiscountRealEstateDFW.com

How to Rent a House Quickly

So, you’ve bought your first investment property and you’re all excited about getting in there and rehabbing it to make it ready for your first renters.  Unfortunately, at the same time, you’re scared to death that you won’t be able to get anyone in there, or that it will spend months unoccupied, or your screening process will fail and your first tenants will wreck the place and skip out.

Never fear—even though you’ve heard these horror stories, usually from people who have never invested in real estate or tried being landlords, it is not that difficult to avoid these scenarios.  Here are a few tips to help you get on the right track, and get that property rented to good tenants as soon as it is ready for move-in:

• Advertise your vacancy IMMEDIATELY: Don’t wait until you’ve completed every step of the make-ready process; put that red FOR RENT sign up in the yard the same day that yard comes into your possession.  When prospects call in, describe what the house will be like after renovations, available move-in date, deposit and monthly rent.  Start building your list of possible renters so you can CHOOSE which tenants to accept when the time comes.
• Pre-qualify prospective tenants: Know the criteria you have for renters, and as interested prospects call in, ask questions that lead into whether or not they qualify to rent your property.  (i.e. – how many people will be living there? monthly income?) Be sure to get the phone numbers of qualified prospects.
• Schedule viewings 3-at-a-time: You should know when your property will be ready for move-in.  As possible tenants call in, schedule viewings of the finished property with 3 prospects at a time.  Some will never show up; for those that do, seeing other interested prospects makes the house more desirable.  This technique saves you time and increases your probability of renting quickly.
• BEST PRODUCT / BEST PRICE:  Don’t be miserly.  The rental property should not be dolled up by an interior decorator, but it should be adequately updated with fresh paint, like new carpets, and no noticeable defects.  Your rental property should be the nicest in the neighborhood.  If the other rentals in the area are going for $1,000 per month, rent yours for $985.  You may think you’re losing out on $15 a month, but when it rents 2 weeks faster, you’ll more than make up for it. 
• Screen Tenants: Make sure you have a thorough application (borrow or buy one—do not try to make up your own) and use a company to screen your potential renter, such as National Tenant Network (http://www.ntnonline.com/).  You just put a lot of time and money into your property—make sure you trust the people you’re giving the keys to.
• Sign a contract: Have a legally binding contract drawn up professionally, or buy a standard form that you can tweak.  Do not try to create your own contract from scratch.  Make sure you discuss the main points with your tenant before you both sign the final agreement.  Make sure the tenant is responsible for any damage he creates on the property—you are only responsible for repairs/maintenance due to negligence and bad luck. 

This is a very basic outline to rent your property quickly to good tenants.  Please share any other tips you have in the comments section.  For additional info and resources, go to http://www.landlord.com/ . 

Also, if you’re looking for properties to rehab in the DFW area, go to www.DiscountRealEstateDFW.com .

Good luck!

Blog vs. Baby

Well, today is August 4th.  My due date is September 4th.  That’s only ONE month away.  I didn’t realize how little time is left until this morning, when Christopher and I had a mini-freakout about it.  When we were preparing for Sarah’s birthday party, I kept saying, “Once this party is over, I’m going to start getting everything set up for the baby to arrive.”  Since then, I’ve bought a diaper pail, and that wasn’t even planned.  I just happened to be passing a Toys ‘R Us that was closing, so they had people holding signs outside advertising “40%-60% off EVERYTHING.”  Well, being the bargain hunter I am, I had to go see what deals I might be missing out on.  So, I got a diaper pail for $9. 

So, why haven’t I been doing my “nesting.”  Honestly, it’s because I’ve been trying to figure out this whole social media marketing thing: how to blog, how to Tweet, how to Facebook, and I haven’t even touched YouTube, yet!  When I told Christopher that my time has been spent on the computer and research instead of preparing for Baby Pucci’s arrival, he told me that as much as he loves business, the baby’s a little more important right now, or as we economists like to say, “on the margin.” He is right.  (By the way, Pucci is in no way related to the baby’s actual name.  It is simply a nickname for “Poochie-Mama”–which is what Christopher named my belly when it got large enough to be it’s own entity.)  As I’ve thought about this today, though, I realized that a blog is sort of like a baby.  Many business owners equate their businesses to their babies, and a blog can be the same way.  Let’s explore the similarities between blogs and babies:

• Both can keep you up late at night
• It’s exciting to see both develop and mature
• Both require attention and nurturing
• You have a hand in creating both
• Friends, family, and colleagues enjoy keeping up with, and commenting on, both
• Neither will ever be completely independent of you
• Although there are several articles and books instructing you how to properly shape both babies and blogs, each baby and blog is unique and you ultimately have to use your own judgment to make the best decisions on how to proceed

Of course, the differences are very obvious, but I shall go ahead and name a few for you:

• Blogs do not require diaper changes!  Though I suppose you may have to clean up some of the comments every once in a while.
• Blogs don’t cry (but you might when you realize that no one is actually reading your posts)
• Blogs can’t snuggle or smile
• Blogs won’t beg to share your ice cream cones
• Blogs will never say anything that you don’t type for them–no impromptu “secrets”, “jokes”, or “I love you”s.

With that being written, I should really head to bed.  I’ve got a long day of “nesting” ahead of me tomorrow.  Of course, before I can nest, I have to “hunt” — hunt for my handy dandy ziploc bag of manuals for all our baby gear.  Some of that stuff is pretty complicated to put together!

Rehabbing Houses: General Contractor vs. Sub-Contractors

My husband, Christopher, and I, are part of a unique real estate investment group here in Texas called Lifestyles Unlimited.  This group focuses on RE investor education, offering many workshops, online training and documents, and even interactive road-trips to further member education and increase success. 

 

Yesterday, we took our 2-year-old, Sarah, with us on one of these educational road trips.  (We know she must have gotten something out of the experience besides her first donut hole.)  This road trip focused on purchasing and rehabbing single-family homes.  While we acquired lots of useful knowledge, and learned from the experiences of the many other investors present, the discussion we had at one particular property really piqued my interest.  As we were discussing the planned rehab work at the house in question, someone asked if the investor would be doing the work himself or hiring a general contractor (GC).  This sparked an open forum on when to hire a GC, when to hire your own subcontractors (SCs), and when you can literally do the work on your own. 

 

First off, the obvious disadvantage of hiring a GC is the COST.  Now, as an economist, I must point out that here we are talking about the monetary cost, not the total cost.  Hiring a GC may tack an extra 35-40% onto your final rehab budget.  So, when is a GC worth this premium?  The following conditions may make it worth your money:

• You’ve never actually rehabbed a house: the knowledge and experience of a GC can outweigh the premium.  One gentleman actually quipped, “If you’re married and have never rehabbed a house, being your own GC is a sure way to a divorce.”
• You’re working a full-time job as well as investing: you may not have the time to invest in getting the job done efficiently and overseeing all the SCs.
• Your investment property is not close to where you work/live: driving to and from the property is too expensive in terms of cost and time.  It will also be more expensive for the SCs you generally work with to make the commute.
• You’re in a time crunch to flip or rent the property: Using a GC can significantly shorten the amount of time it takes to get your property ready for the end user. 

 

With that in mind, when does it make sense for an investor to act as the GC and hire SCs to do the work, or simply do the work himself?

• You’ve already been through a rehab or two: You’ve learned by communicating with your GC, knowing which SCs he used, and have a better picture of how the process should go.
• You already have a background in rehab/construction: You know what needs to be done when, and you’ve already built up a list of reputable SCs to work with and/or have a crew of your own.  You also have access to discounts from suppliers, lowering your overall costs.
• You have time: Rehabbing is your full-time job, or your only activity.  You can be at the property to oversee the work and make additional trips to Home Depot as supplies run low. 

 

These are just a few circumstances to consider when deciding how to effectively rehab your investment property.  The main question to ask yourself is, “Am I an investor or a rehabber?”  If your main goal is to build your portfolio of investment properties, then you should probably hire a GC and then move on to look for and acquire your next deal. 

 

Please share your own experiences, comments, and suggestions on this topic so we can learn from what you have to say.

 

For additional info, see the following articles:

http://home.howstuffworks.com/home-improvement/construction/planning/why-hire-a-contractor.htm/printable

http://www.bankrate.com/brm/news/real-estate/20041123a2.asp

Utilitarian Household

As firm believers in basic economic principles, many decisions in our household are based on maximizing utility, or overall happiness/pleasure.  For example, when there are only 2 scoops of ice cream left in the tub, it doesn’t matter who gets to it first, the ice cream goes to whomever will enjoy eating it the most.  This principle also explains how this blog got started:

You see, my husband, Christopher, and I are always embarking on some new business venture.  He is 100% entrepreneur, and I like to think I’m an entrepreneur, but we all know that I’m a bit too cautious to truly be considered one.   Anyway, we are currently building a Wholesale Real Estate business, focusing on selling REO (foreclosed) properties to real estate investors (rehabbers, landlords).  As we researched our business model and mapped out the different duties associated with launching this venture, I quickly suggested that we institute a division of labor to increase efficiency and allow each of us to specialize in our respective areas.   He enjoys analyzing numbers, sifting through properties, and already has a good deal of experience on the phone with prospects and clients.  On the other hand, I was fascinated by all that we were learning about social media marketing and found the idea of blogging and educating online appealing.  In addition, as a stay-at-home mom, I wanted to make sure that my tasks were those that could be carried out at random times throughout the day and night, whenever I could get to them, as opposed to the duties that are more time-sensitive.  So, here I am, learning how to blog, hoping to be of interest and help to all those seeking entertainment and education. 

Please help me to serve you by giving me suggestions as to how to make this blog better.  I admit I’m a newbie, but I want to be an expert.  Your feedback is the most valuable tool to help me improve.

Thanks for your time!

Julia