How to Be a Reputable Rehab Investor – And Still Make Money

Mike Chamberlain, a home inspector who wrote a blog post on Buying a Flipped Home for the International Business Times, warned consumers that purchasing a previously-foreclosed home from an investor can get them a rehabbed property with “lipstick on a pig” improvements.

That’s not the kind of investor you want to be. You’ll earn a reputation rather quickly if you sell a home with marginal repairs. Here’s the best way to get protect how to protect your investment in rehab properties and reputation as a seller.

Get your offer price right.

Ben Creighton, founder and managing partner GHD Denver, a real estate investment partnership,  and I go into deep dive detail in my Rehabbing and Foreclosure Investment Teleclass with all the steps you need to consider in calculating a great offer, so I recommend you check it out.

But here’s the quick gist of how you do it:

You’ll want to write (in pen) out all of your expected expenses and your retail sales price to determine your offer number. Your profit should always be about 10% or $20,000 to protect you against unforeseen repairs and contingencies at closing time.

Hot Rehab Tip: Leave yourself a margin of 3 to 5% to protect yourself in the case of a collapsed sewer line (older homes), electrical fixes or foundation troubles or worse.

When you calculate your costs right, you are foreseeing your profits on the front-end, not scrambling to recover costs when things go awry once the repairs start.

Here are three more tips for protecting your property investment and reputation:

• Get all of your costs down on paper to determine your best offer. Get repair costs down to the cabinet and square footage on paint and electrical to make it easier to cost during the walk-through.
• Decide on a niche for property investments to streamline your rehab package.
• Be cognizant of a home built before 1950. Check electrical, plumbing and foundation for problems – these are the costliest repairs.

This month on The Investor Insights, we’re looking at alternative financing. In the teleclass I mentioned before, you’re going to learn some of the strategies for financing these rehab deals.