Rehabbing a property is one of the many ways you can get burned in real estate investing. It can be intimidating when attempting to estimate your rehab budget on a property. Before we talk about what the big ticket items are, we must first talk about why having an accurate estimate is imperative.
Let’s face it, even professionals sometimes make bad decisions or encounter surprises along the way. Our goal is to minimize surprises at all costs and take that risk into consideration when making an offer. Surprises can be costly; not having a cushion in your budget can make or break the deal.
On the contrary, being too conservative in your estimate can hurt you as well. It is important to keep in mind that planning on too large of a budget makes your offer lower, thus reducing your chances that the seller will take your offer.
There is a delicate balance between making profit and getting more offers accepted. The bottom line is that having a precise estimate is essential to flipping real estate.
Now that we know why having an accurate rehab estimate is vital, let’s talk about what items specifically to plan for. We like to break this list down to five big-ticket items. Full transparency, this list is not the end all be all for rehabbing, but these are an excellent place to start. To get top dollar for your flip, you must consider these five factors.
The top five factors to consider when walking the property are the roof, HVAC systems, floors, windows, and electrical systems. Generally speaking, all of these can help improve the value of your home if you replace them. It’s important to know these systems like the back of your hand for a couple of reasons.
For example, if you ignore the fact that the furnace needs to be replaced, an inspector will catch that. We would go as far to say that an inspection can completely turn off the buyer’s interest in a property because certain things are not done properly. Making bad decisions when renovating can force a buyer to back out of an agreement, placing your property back on the market. When a property goes back on the market, some people may think there is something wrong with it. On the flip side, you do not want to over renovate the property either. Over renovating will dig into your profits quickly. Again, there is a balance between the two.
The solution to whether or not to replace a big ticket item would be to either know the ins and outs of each item yourself, or find someone who does. This is where having other members of the team is crucial. You can bring along a trusted contractor or even go as far as getting a full inspection if you are not sure. It helps to take as many pictures as possible. Having walked the property yourself, or with a contractor, and having many detailed pictures of the property can help you create precise rehab estimates that will drive your business to getting more deals accepted.