Many investors—well, many amateur investors—think that when they invest in a rehab property, they can increase their profit margin by doing the actual repair work themselves.  It’s a romantic idea, but it does not take long either to realize that this is not a profitable way to do business, or to fail as a rehab investor.  Here is why circumventing professional, certified repair on your rehab project inevitably and invariably costs more than it saves.

First of all, if you are someone who is an expert in every field of home and property maintenance and repair, if you are certified in each of those fields and have plenty of experience working in them, then please disregard this article.  If you are not one of these people—and let’s face it, you’re not—then read on.  In fact, almost no one is an overall repair guru.  If it were possible, then we wouldn’t have so many specialists (plumbers, roofers, electricians); if everyone could master all of the trades, then everyone would or they would be out of business.  So in fact, no one should be working a rehab project alone.

Since you’re not an expert in all fields, if you try to make repairs, the work you do will almost invariably not meet the standards of quality.  One of three things will happen: you will not be able to sell the home for the price you planned (eating into or erasing your profit margin); you will not be able to sell the property at all; or you will have to hire someone anyway to come and fix what you’ve done (which is what you should have done in the first place).  There is no winning scenario here, and all result in a loss of money.

Furthermore, committing to repair the property on your own is committing to spend an obscene amount of time on this project.  You are no longer an investor, you are an investor, contractor, laborer, inspector, etc.  Do you have time in your schedule to take up five or more new jobs?  Do you have a day job in addition to your investment career?  For some, devoting this much time to one project is impossible; for others, it is simply absurd.  Even if the time you spend working on the rehab is “free time”, you are clearly depleting a limited supply of free time, which you could otherwise be using to spend with family, friends, or whatever other leisure pastime suits you.

Put it like this: the amount of money you will save by avoiding hiring contractors and labor is far, far exceeded by the amount you will lose in the form of rehiring labor down the road, taking a price cut at the time of sale, or failing to sell while you retain the cost of ownership.  What you end up with could be any combination (or all) of those scenarios, and your project will flop.  Be frugal, not cheap—that means be smart with your money.  Spend it on proper labor, the first time around, and enjoy the benefits down the road.

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http://www.indianainvestmentpropertygroup.com

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Too many investors overlook the lease option as a viable investment strategy, maintaining that it doesn’t make any sense to pay rent for something that you ultimately plan to purchase and resell for profit, the logic being that every month you write a lease check, you are cutting into your profit margin.  However, the lease option provides the investor with considerable flexibility without losing too much money (flexibility is an option I would happily pay for).  Especially for start-up investors or those who lack the raw cash capital to make a down payment on a home, lease options can be a great way to secure the investment in a competitive market.

Almost every investor has had more than one great deal slip through their fingertips simply because they didn’t have available cash on hand to make an offer or down payment.  Although the seller was happy to do business with you, perhaps he was happier to do business with someone who could pay him.  What if there was a compromise?  It’s called the lease option.  The buyer, who perhaps can’t afford the full down payment on the home, negotiates with the seller to temporarily lease the home, with the option (legal right, actually) to purchase the home at a later date and for a specified price.  In many cases, that lease money paid can be at least partially applied to the eventual payment on the home, which means in fact you are not losing quite as much money renting the property as people presume.  The buyer is at no point obligated to buy, but the seller is bound by the terms and prices laid out in the contract.

This is a great way to secure your stake in a great deal that you might not be able to afford by conventional means.  The extra time during which you are leasing (but do not own) the property can easily be used to make the necessary repairs on a rehab project, and since you didn’t have to devote your resources to purchasing the house up front, now that money can be used to add to the value of your (almost) new home.  And don’t worry about the original owner recognizing the added value and jacking up the purchase price—he is bound by the contract terms.

After you’ve made your repairs, but before you’ve even purchased the house, you can use your extra lease time to line up a backend buyer to purchase your new home at its proper and newly adjusted retail value.  Effectively speaking, that means you could buy the home and sell it in the same day, even the same hour, and not have paid a dime to own the house during the period of rehab (because that cost will either be applied to the purchase, or at the very least covered by your profit margin).

Rehabs are an especially good opportunity to use the lease option, since the extra few months provide the perfect opportunity to get all of your business done before you spend any money: pool your resources for purchase, make your rehab repairs, and line up a buyer for profit.  When all that’s done, it’s just a matter of signing a few documents and cashing your check!

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

Are you looking to up size your home? Perhaps you have outgrown your first home, but have been hesitating to pull the trigger on a big new investment due to the condition of the economy. Or perhaps you have not quite been able to afford a larger, nicer home, until very recently when real estate prices fell through the floor. Whatever your reasoning, now may be the right opportunity for you to take advantage of historically low prices and mortgage rates, to get into the living space that fits you.

The first major obstacle to overcome will be selling your home in a buyer’s market. After all, the reason you are ready to buy is because prices are so low, so you can’t expect to be able to sell your home for some exorbitant sum. Be reasonable and practical about your asking price, and do not expect to be paid the actual value of your home. If you are feeling depressed about taking a loss, remember that you are moving into something more expensive. This means if you take a 5% loss due to market conditions on your old home, you can expect to get a 5% discount due to market conditions on your new home (and 5% of a bigger number obviously means that your discount exceeds your losses).

Make sure you know what you’re getting into financially. Speak with a mortgage specialist before purchasing the new home, and determine exactly how much your monthly payment will be—and make sure you can afford it. If you pull the trigger, and later realize your new home is too expensive, you will take a major loss trying to sell the house and downsize in a buyer’s market. Just as upgrading saved you money, downgrading will translate to a substantial loss. Mortgage rates are at an all time low, and they are meant to be taken advantage of, but that doesn’t mean they are free. Be absolutely certain that something bigger and better is something you can actually afford to pay for.

Generally when addressing real estate investors, you don’t have to advise them to remain emotionally detached. For the most part, investors are in it for the money, and that goes a long way in keeping them level-headed versus enslaved by their emotions. When dealing with someone purchasing a home to live in, however, it is a vastly different story. I caution anyone looking to upgrade their home to be hyper-vigilant about remaining emotionally uninvolved. Because people are looking for their next living space—a very intimate thing—people tend to be blinded by what they love at first sight, and it means they cannot negotiate with a clear head. Houses are one of those things where what you choose is important, but you can set up a comfortable living space anywhere. Don’t limit yourself to only one option; you will end up with a clouded head when negotiating prices, and you are almost certain to overpay. Instead, wait until after you’ve closed your deal to get emotionally involved—then you can enjoy both the house you bought and the money you saved!

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com