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Sometimes, despite your best efforts to sell a rehab property to a homebuyer, you just don’t bring in a buyer who can qualify for a mortgage. Especially these days with new harder meet restrictions and rules set forth for homeowners looking to get a mortgage. It’s just a lot harder to get a good mortgage loan.

Seasoning Problems Make it Harder to Sell

Plus, there is the issue of seasoning when attempting to sell rehab property. The Federal Housing Authority (FHA) has created several new guidelines restricting the houses that can be purchased using loans from mortgage companies that use Principal Mortgage Insurance which is provided by the US Department of Housing and Urban Development (HUD).

The FHA passed these rules to help curb potential house flipping scams which were costing homebuyers a lot of money and ruining their credit. These rules also make it harder for real estate investors who earn a living by rehabbing property. Since they restrict mortgage companies with principal mortgage insurance from giving loans on property that been purchased within the last 90 days of its resale date.

As a result you’ll have homebuyers that may not be able to purchase the home right away from you.

Lease to Own or Renting an Option

If you do have problems selling your rehabbing houses to a homebuyer, but still have lots of people who are interested then you may start thinking about leasing out or renting the propriety. You’ll still get your money back on that real estate investment. It will just take you longer to get the return.

Lease to Own on rehab property is a great option for an interested homebuyer. It gives the seasoning issue a few years to fall out of the equation and also helps you secure a homebuyer for the property now, so it’s not sitting there empty. Plus, your homebuyer will have a few extra years to build up their credit and set aside money for a down payment with the mortgage company.

Lease to Own can be set up in any number of ways. The homebuyer may leas the rehab property for any number of years before a ‘balloon payment’ is required to pay off the rest of the amount owed on the lease. Typically, lease to own agreements last from 3 years, 5 years or 10 years with the balloon payment coming at the end of that time. However, it’s up to your discretion whether or not to include a clause in the lease for repossession of the property if the homebuyer can’t pay the balloon payment on the rehab property. Most investors simply allow the homeowner to remain in the property though and continue to make payments until a later agreed upon date. In rehabbing houses, a bird in the hand is worth two in the bush.

You can also opt to just rent out that property and keep it in your name. You’ll also be making your return in the long run, plus you’ll have additional property to add to your portfolio. However, being a landlord does have its drawbacks.

As a renting landlord you’ll be responsible for maintaining that property for the tenants, which can be a definite drawback. If you decide to lease to own that rehab property instead, the tenants will be the ones responsible for maintaining the property instead, since they are working towards buying the home from you. It’s all very easy to set up in the lease.

Be sure to consider the option of leasing out your rehabbing houses if you can’t find a seller who is able to obtain a mortgage loan. It gives the seasoning issue few years to clear. It gives the homebuyer a few years to increase their earning power and qualify for a loan. Plus, you are still getting some return on your rehab property investment in the meantime.

Now that you’ve got those fixer upper houses all fixed up and have an exit strategy in place, it’s time to start staging houses. Real estate rehabbing involves more than just remodeling houses; you have to sell that house to a potential buyer.

Buyers love homes that look classy, clean and comfortable. You’d be surprised how difficult it can be to strike the right chord with a homebuyer’s sensibilities. They just don’t want anything that seems the least bit garish or ugly. Yet, everyone has a different opinion on just what is classy, so you’ll have to go with styles and staging that appeals to a wide range of audiences.

Fixer upper houses in particular can be difficult to stage because every single improvement you make to that property has to appeal to the homebuyer. From the new cabinets in the kitchen to the paint on the exterior of the home, it all needs to appeal to the average homebuyer.

When you get started in real estate rehabbing you’ll be paying a lot of attention to how those fixer upper houses look in the final equation. Here are a few tips to help you on your way to the perfectly staged fixer upper house.

Good Looking Lawns

Every real estate rehabbing project needs the aid and services of a good landscaping company, or at least a local guy with a lawnmower. Before you start bringing in those potential homebuyers you should mow the lawn, prune the hedges, and trim the trees and so on.

Fix up the Front Door

Don’t neglect the front door when fixing up your property. It’s just the window dressing sure, but the potential homebuyers get their first impressions of a property from the front of the home and its front yard. They want to feel like they are walking into a nice looking home. Put new hardware on the front door, new paint, even a new front door. Freshen up the paint, and make sure the trim looks nice.

Show off New Carpet/Floor

Most real estate rehabbing jobs involve replacing old carpet and flooring. Pick a nice neutral color for carpeting. It also helps if the carpet is stain resistant. Pick lighter warm tones for wood flooring and white or light colors for linoleum and tile. Then, make sure you point out that all the flooring is new in your fixer upper houses.

Let in the Light

Avoid dark areas in your fixer upper houses. Dark spots with little light are uninviting for the homebuyer. Open all the windows to let in the light. Make sure you have lamps or fresh light bulbs in areas where there is little window light and turn them on.

Appeal to the Senses

Never underestimate the appeal of good scents in a home. Take the time to pick up some potpourri or fragrance oil to place in the house. It’s been shown that the right fragrance can influence a person’s mood. Try something refreshing like citrus in the bathroom and comforting like vanilla in the kitchen.

Stage Rooms in Sets

If you are the kind of real estate rehabbing investor that likes to bring furniture into the property more power to you. You may even be selling that furniture with the house as part of the package. When you do bring in furniture to stage rooms think of each room as its own separate entity. Staging different rooms in different styles is an excellent way to show a homebuyer what can be done with the property and it gets their decorating plans started.

Light Window Dressing

When you use curtains on a window in those fixer upper house make sure they are hung properly and that they are clean. Drapes should be light or neutral in color and not made of really heavy material.

Closet Systems

This isn’t necessary to sell a house, but it sure adds some appeal to the home for the buyers. Think about investing in some shelving for the closets in your fixer upper houses. They make storage a lot easier for whoever decides to buy the house.

Finally, you’ll have to pull together a floor plan to help refresh the memories of your homebuyers after they visit. You can usually make up a simple home floor plan on your computer’s drawing program. If you hired a general contractor for the work, he may have created a floor plan for your real estate rehabbing project on his own. If so, you can snatch that and print up several copies for potential homebuyers. These floor plans will go nicely on the back of the information sheet for your house.

These above tips for staging fixer upper houses will help you in the long run to create the perfect look. Of course, now you’ll have to decide whether you want to sell or rent your home?

Once you’ve got that property fixed up nicely you’ll need to sell it. That’s where your exit strategy comes in. Every real estate investor needs a good exit strategy to sell their fixer upper houses after having rehabbed their properties. That exit strategy is the plan you have set up to start bringing in homebuyers for your newly rehabbed property.

Now, there are several ways you could handle the sale of your rehab property. You could handle the sale yourself or hire a realtor. You could set up random open houses or wait until interested buyers call you to bring people into the home. Plus, there are all kinds of different advertising methods you can use to get the property out there on the real estate market.

In rehabbing, you’ll be attempting to bring in the traditional homebuyer in the sale of the property. This is instead of selling to another real estate investor as you might with foreclosures, short sales or wholesale property. Be sure to keep this in mind when creating an exit strategy for the fixer upper houses you buy. Everything you do should be aimed towards the homebuyer looking to live in your home.

Executing your Exit Strategy

After you’ve finished remodeling the rehab property it’s time to put it on the market. If you don’t want to deal with finding all the potential homebuyers yourself go ahead and sign with a realtor who specializes in rehab property. The realtor will have ready access to homebuyers interested in buying older, recently remodeled properties or lower cost properties that have had recent cosmetic fixes.

If you decide to sell the home yourself or just want to have more of a hand in the advertising there are plenty of advertising methods for you can use to get the home out there.

Bandit Signs: No matter if it’s ‘For Sale by Owner’ or a realtor sign, the bandit sign is really important for selling your fixer upper houses. Place a sign on the front yard of the property with your phone number on it for interested buyers to call. Also pick up ‘for sale’ signs and write the home’s address on them to direct people driving through the area towards the rehab property. Bandit signs are working for your twenty four hours a day!

Brochures: You can also make up a tri-fold brochure to hand out or leave in a brochure box on the front yard bandit sign. These brochures should provide enough information about those fixer upper houses to tantalize the homebuyers into looking through the property. List the price of the rehab property, along with the number of bedrooms, and any remodeling changes you’ve made to the property. Homebuyers like new stuff and remodeling so be sure to mention it! You can also leave those brochures around different places like Laundromats and local stores for people to pick up.

Classified Ads: Place an ad in the local newspapers and real estate magazines concerning your rehab property. Homebuyers love looking through classified ads on the weekends for likely properties. Make sure you list the address, a phone number, number of bedrooms and a selling price. These are the basics. If you are planning on having an open house make sure to place an ad starting in Wednesday’s paper going through until the day of your open house. This gives homebuyers plenty of time to mark the date of the open house on their calendars.

Setting Up an Open House

You’ll want to hold a few open houses for homebuyers to come out and look at your rehab property. It’s a great way to raise local interest in the home and get a bunch of people’s contact information at once. Even if they aren’t interested in this house, you may have some other fixer upper houses that the homebuyers will be interested in. Stage the home so it looks nice, smells nice and feels nice to anyone walking into the property.

Having a solid exit strategy and sticking to it will help you not only sell that rehab property, but get it sold faster. Get yourself a good realtor, set up plenty of advertising to bring in the interested homebuyers and make sure you have some appealing open houses set up so the homebuyers will really enjoy those fixer upper houses.

Many fixer upper houses have terrible looking lawns. As you can imagine, if the homeowner didn’t have the time, money or inclination to keep up maintenance on the house, then they probably didn’t keep up the landscaping either. As you work on the property you’ll probably at least mow the grass to get that property in shape.

Yet, you can increase the value of your fixer upper houses by doing more to maintain the lawn and even by adding to the current landscaping features. Most potential buyers want to feel like they are coming into a nice home as soon as they pull up to the drive. That means making sure the exterior looks just as good as the interior.

There are a variety of ways you can improve the landscaping of your fixer upper houses to improve their selling price. Just make sure you don’t go overboard and add a bunch of features that even the neighbors don’t have on their properties. For example, putting in a pool is nice, but only if the other surrounding homes in the neighborhood also have pools. Otherwise it seems out of place to the potential buyers and looks like an extra cost.

Yet, just a little bit can go a long way with your rehab property. According to the Turf Resource Center, a study conducted by Michigan State University and funded by the Horticultural Research Institute found that high quality landscaping adds as much as 5% to 11% to the property’s value. By just fixing up the lawn and keeping it maintained while you are selling the rehab property you can turn a $100,000 home into a $110,000 home.

That’s quite the profit in your pocket for just a few thousand dollars investment.

You don’t need to spend even that much either on your fixer upper houses to improve the lawns. Just a little planning, a few days work initially and some great looking plants will get you started. From there you only need to maintain the property. Below are a few quick tips you can use to improve that lawn now!

Fragrant Plants

The sense of smell is very important to a person’s mood and can definitely influence a person’s opinion. Get a bunch of fragrant plants and herbs to plant in the flower beds around the home. Plants like mint and lemon grass in particular around the kitchen or back yard area will create a fragrant scent that makes the rehab property seem so much nicer.

Do the Edges

So often the real estate investor neglects to edge the lawn and the flower beds when they mow. Get out that weed whacker and make the edges straight and clean along your sidewalks and flower beds.

Add Fertilizer

About once a month while you are working on those fixer upper houses get out there and distribute grass fertilizer. Invest in a broadcast spreader and you’ll be able to fertilize a lawn in ten minutes. Quick and easy, and it adds instant green to the property.

Water the Lawn

Don’t skimp on the water, especially during a dry spell. Get out to your rehab property and run the sprinklers about once a week to ensure that grass and plants all stay green and lush. Don’t forget the back yard either!

Add a Bit of Color

You can instantly improve the look of fixer upper houses by adding some colorful plants to the yard and beds. Pick plants that are annuals and flower at different times throughout the year, like lilies, tulips, petunias, impatiens, and marigolds. This way the yard will always have something flowering.

You can bet that fixing up the lawn of that rehab property will improve the selling price. A nice looking home is just as appealing as a nicely built home. So do make sure you add something to that landscape and your fixer upper houses will sell like hotcakes.

It’s easy to tell yourself one day that you want to get into real estate rehabbing and even easier to find a rehab house that you think is just perfect for the job. What’s not so easy is making the profits, selling that house or even fixing it up. In fact, it’s quite easy to make mistakes during your first few projects and lose your investment or at least your profits.

Yet, with a little preparation finding, fixing and selling those fixer upper houses will be a lot less of a chore and more like the other easy things you like around rehabbing. There are a lot of mistakes a rehabber can make, but in particular are five golden mix-ups that are sure to put a bind in any real estate investor’s day.

1. Paying too Much for the Fixer Upper Houses
2. Trying to Do it all Yourself
3. Not Getting the Right Contractor for the Job
4. Not Enough Money to Complete the Project
5. Bad Exit Strategy to Sell that House

Paying Too Much for the Fixer Upper Houses

Did anyone ever tell you that it’s important to buy low and sell high? Well the same rule applies in real estate rehabbing. You can’t pay too much for that rehab property or else you won’t be able to sell it for enough to earn your profit or break even.

Before signing papers to purchase a potential fixer upper, do your research, your due diligence. Check to see how much property is selling for in the surrounding neighborhood. Compare this to the asking price of the rehab property. Get an inspection of the property so you know what sorts of repairs it’s going to need. Ask contractors to figure up estimates for those repairs and any renovations you plan on making. Add all of that together, plus the carrying costs such as electric and utilities you’ll be paying while you own the property to the asking price. Is it still less than the average asking prices for similar properties in the area? If it is, is there still room for your profits of at least $10,000? Plus, you’ll need a good amount of wriggle room in case those contractor’s estimates are too low.

If it’s not, then you’ll either need to renegotiate the asking price with the homeowner’s or walk away. You can bring all of your research into the negotiations if you need. Show them how much it’s going to cost you to fix up this property, plus your own minimum profits as reason to ask for a lower price.

Trying to Do it All Yourself

There is a tendency on the part of some real estate rehabbing investors to try and complete the rehab all by themselves, especially first timers. Fixer Upper Houses are often in need of some tender, loving professional care. So, even if you are the world’s greatest carpenter and your cousin Fred knows a little something about plumbing, it’s a good idea to add a few contractors to the work list.

Real estate investors can take care of plenty of things on their rehab property, painting, stripping, landscaping, cabinets, flooring and even heavy labor. However, not every rehabber knows about electrical, plumbing, carpentry, roofing, and more involved elements of construction. These are things better left to experienced professionals so you don’t end up wandering the halls of your project with singed hair and a dazed look.

Kidding aside, take a good long look at the fixer upper houses you intend to buy. Establish beforehand how much work you want to put into each and what kinds of contract labor you’ll need. That way you’ll figure the costs of hiring some help into your purchase offer and it won’t seem like such a big expense to get that plumber or roofer for the work.

Not Getting the Right Contractor for the Job

Some might say that hiring a contractor is like bobbing for apples. They’re elusive, hard to snatch up and sometimes you’ll be left holding your breath for the project to be completed.

Not all contractors are bad contractors. Plenty of them are hard working, practical, stable individuals, probably overworked too. Since, these good contractors often have months of work lined up with other clients. So, you’ll see where the elusive part comes in as you may end up waiting a couple of months for the contractor to come out and complete a particular job.

It can be tempting to take on the first contractor that you find with time to work on the project immediately. This is a great opportunity if the contractor is a good one. Take the time to ask for references. Ask him or her if they are licensed in your state. This may seem like so much extra time wasted, but you’ll have to be the person to fire that contractor if their work goes sour. Are you up to firing someone?

All little research on your contractor for that potential real estate rehabbing project can greatly reduce the likelihood of having to fire a contractor for any reason. It also reduces the risk of hiring a contractor that’s going to do a sloppy job.

Not Enough Money to Complete the Project

A lot of first time real estate rehabbing investors make this mistake. As they sometimes say it takes money to make money. In the case of rehabbing property this adage is true. You’ll need to make sure you have enough money on hand, in credit or in loan form to complete the rehab once it’s started. There’s nothing sadder than a half finished house sitting empty for months at a time.

This is the kind of mistake that can really bring a real estate investor down. If you can’t pay for anymore work or to keep those utilities on or the mortgage on that property it’s going to leave you scrambling for options. One option may be to sell the house as is and hope for the best, another could be a hard money loan or worst case scenario, the property is taken back by the bank and you lose your investment capital and your credit.

Be sure to have enough money on hand to finish that fixer upper house, not just purchase it. There are a variety of ways that investors get money for the carrying costs. Many get credit cards with high limits, but this can be a bad practice with the rising interest rates today. Others have their own money saved up or earned from previous investments are able to take care of costs as they come. Most rehabbers get a loan like a construction loan from the banks or a hard money loan from private investors to take care of their daily costs and pay off the loan after the sale of the property.

Bad Exit Strategy to Sell the Property

You’ve got to market those fixer upper houses once they’re rehabbed and market them to the right people. The right people are your potential buyers and what is called the ‘target audience’.

It’s easy to forget who you are fixing up that property for. New real estate rehabbing investors may start adding renovations and styles to the house that they personally prefer. However, this house is not your home. It is a business opportunity and as such should be remodeled in such a way that it will most likely sell.

Since you’ll be selling a rehabbed property you can do well to place it on the traditional real estate market. A realtor can really help you in staging the home and bringing in the right clients to look at the property. The realtor can also help at the start of a rehab with suggestions on the right kinds of renovations and color palettes to choose when adding paint and final touches. Just don’t let the realtor take over.

Sometimes they get a little too involved even asking you to complete major expensive renovations before they feel comfortable showing the property. If it’s simply not in the budget, say thank you but no. If the realtor can accept it, move onto someone else.

These five ultimate rehabber mistakes are fixable, if you have enough sense to switch tracks or go back to the basics when you find that a rehab has suddenly gone wrong. However, it’s a lot easier to just know what the mistakes are beforehand and avoid them on all of your fixer upper houses.

Any real estate rehabber investing in fixer upper houses needs to keep a close eye on the budget to make their project a profitable one. There are two very important elements of ensuring a profit on any rehab. The investor always makes their profits on the purchase of the fixer upper houses and the budget is the last word on any remodeling matter.

Budgets are important in figuring the purchase price because they allow the investor to get a clear view of how much money can be allowed for the purchase of the property. So, it’s a very good idea to be able to estimate remodeling costs when entering the rehabbing business.

Need a Low Price to Make it Work

The rehabbing business is based on getting a good purchase price for fixer upper houses. The lower the price for the house the better. It creates more room for the remodeling budget and increases profits in the end.

A real estate investor should look for fixer upper houses that sell for about 65% to 70% of their current market value. You can figure current market value by looking at what other similarly priced homes in the area have sold for recently. Keep in mind these will be homes that didn’t need any fixing up and were in relatively nice condition when they sold. This allows you to get an idea of what the fixer upper houses will actually sell for when they are completely remodeled.

On top of this purchase price you’ll estimate remodeling costs to see how much money it’s going to cost you to get this property fixed up. If that estimate plus the purchase price is still below the current market value for the property then you’ve got a winning property. The larger the difference between the purchase price plus what you estimate remodeling costs are going to be and the current market value, the bigger your actual profits.

Examples of Costs and Total Project Cost of a Property

In order to make sure that final selling price on your fixer upper houses leaves you with a profit you’ll need to estimate what every little thing is going to cost you beforehand. This is a part of your budget and part accounting.

Every little thing in terms of the rehabbing project means everything from the purchase price to the carrying costs to the closing fees.

Things to include in your estimate:

• Purchase price

• Closing costs

• Interest on any loans

• Remodeling estimate

• Insurance

• Utilities

• Closing costs

Let’s say that you find one of these fixer upper houses for $75,000 at purchase. You do a little research in the local area and figure that after repairs are made and some remodeling is done the house will sell for $125,000. Since all of your work will be new when you sell the house you can probably tack on about $5,000 to that estimate for a selling price of $130,000.

Now, 75,000/125,000 is .6. Take .6 x 100 and you get 60%. That is a great purchase price compared to the current market value. So far, the rehab property looks like a good buy. Next, it’s up to you to estimate remodeling costs.

To do this you hire a home inspector to walk through the house and write up any problems with the property that need repairing. Plus, you walk through and note down any remodeling changes you want to make, such as knocking down walls to expand the kitchen. Take these repairs and changes you want to make to a general contractor and have him make you an estimate for each part of the project.

You can also go to a couple of different guys to estimate remodeling costs based on their average cost.

Let’s say you get lucky on this property and get an estimate of about $15,000 for all repairs and remodeling. To be on the safe side you’ll want to add an additional 60% of the estimate to the overall cost. This acts as a buffer in case you go over budget.

So, 60% of $15,000 is $9,000. Take $9,000 + $15,000 and you can estimate remodeling costs at $24,000.

On top of that cost you figure in the following expenses:

• Purchase closing costs: $6,000
• Interest on any loans: $5,000
• Insurance: $900
• Utilities: $900
• Closing costs: $10,000
• Total: $22,800

Now add your purchase price of $75,000, to what you estimate remodeling costs to be, $24,000, to your extra carrying costs, $22,800 and you get, $121,800 for your total investment in the property.

$125,000 minus $121,800 gets you a profit of $3,200, which is barely modest.

Remember that you added an additional 60% to your remodeling estimate for the house. So, if you stay in the budget that you’ve set up for these fixer upper houses and don’t go over you’ll get to keep that additional 60% which was $9,000.

Add $9,000 to $3,200 and you get $12,200 a much better profit.

In addition to this, there’s that $5,000 you could tack onto the selling price for your rehab property. So the total selling price goes from $125,000 to $130,000 giving you an extra $5,000.

Add $5,000 to $12,200 and you get $17,200 in profits on the sale of just one of your fixer upper houses!

Not every deal will go exactly as you planned it. However if you take the time to estimate remodeling costs and carrying costs before you pay the purchase price you’ll be certain to come in under the current market value every time.

Real Estate Investor.com

Do yourself a big favor when you start buying fixer upper houses. Pay for a home inspection before you sign the paperwork. Unless you are a certified contractor, you won’t be able to look beyond the cosmetics of a handyman special to see hidden damage. There could be all kinds of problems like termites, structural damage, water leakage and even dry rot in the support beams of a home. Little things like these overlooked when you purchase fixer upper houses, can lead to big money lost in the future.

Imagine looking through a potential handyman special on a dry and sunny day. The house looks a little worn down, in need of paint, floors, windows etc. but on the whole it’s not going to cost you a lot of money to get the property fixed. Then, about three weeks into the rehab you get a few day’s worth of heavy rain. Suddenly you find out the basement leaks, and not just leaks, but actually floods! That’s going to cost a lot of money to fix. Money that you didn’t place in the budget when looking at this particular rehab property. Money that is going to eat into your profits.

Home Inspections and Mortgage Companies

Many mortgage companies usually require that the home be inspected before they release funds for the purchase of said property. So, the homeowner or the homebuyer will have to pay around $400 for an inspection of the property. This may seem like a hassle, but in the long run can potentially save the buyer thousands of dollars, disappointment and lots of hassle.

However, a home inspection is not necessarily required for the real estate investor. They may be paying in cash or with a private hard money loan from other investors. Yet, I strongly advise shelling out the $400 for a home inspection even if it isn’t required on your fixer upper houses. In order to create a proper budget ensuring profits in the sale of your handyman special, you’ll need to know everything that is wrong with the property!

Before the Home Inspection on Your Fixer Upper Houses

If the homeowner of your potential handyman special offers to bring in and pay for the home inspector, make sure you both agree on and pick an outside party. In fact it would be best if you got permission to pick your own home inspector and pay for the inspection yourself. Many kinds of real estate fraud have relied on the use of a fake home inspection or appraisal to lure in a buyer, such as yourself.

If the homeowner refuses to allow your hand picked home inspector to look over the property you might as well walk away from the deal. Something is either wrong with the property or the homeowner is just going to be difficult throughout the deal and it’s not worth it to bother.

You’ll also, of course, want to let the homeowner know when the home inspection is after you’ve made the appointment. Also, be sure to tell the homeowner if you plan on being present for the inspection too. You may also want to pass along any instructions the home inspector gives concerning preparation. He or she will want to be able to look into every area of the home and along the walls. So, the homeowner should be sure to clear out blocked areas and clean out closets for the inspector’s visit.

What Happens During a Home Inspection?

When you bring in a home inspector to look over any fixer upper houses, you are allowed to be present during the inspection. The homeowners are also allowed to be present, so the both of you will know exactly what is going on with the property.

You are allowed speak with the inspector about various aspects of the property. Ask him or her any questions you may have about the structure, exterior, roof and so on. They will answer your questions and point out any extra damage or deficient areas that have been over looked.

The home inspector will look over the property from the top to the bottom and from outside to the inside. They’ll want to go up into the attic to inspect the roofing and make sure there aren’t potential leaks, mold, and pests and so on. Then the inspector will work their way down through the house going from room to room performing a visual inspection of the property. Finally, they’ll check out the basement, looking for cracks in the foundation, leaks, signs of water damage, settling of the building, and pests.

You can take notes as the inspector points out problems with the fixer upper houses, but he or she will be marking off a checklist of their own and making their own notes to give you at the end of the inspection.

A home inspection is an excellent way to ensure your handyman special won’t come with any extra surprises. It’s relatively cheap and quick, and will save thousands of dollars in the long run on your fixer upper houses.

This is my first time blogging, so I guess the first thing to do is tell you about my background. I’ve only been in real estate for approximately 1 year now. I made  huge carrier change a while back  (that’s another story) that led me to the real estate industry. When I first starting working, the first couple months were going very well. I was learning so much everyday. We were purchasing about 7-10 homes every month. All of the rehabbing was going so smoothly. Everything appeared to be going well on the outside. Later I learned that this was only on the surface. As more time passed I start to learn more about this company, things were not looking so good.

Now I do want to make clear, we are not doing anything illegal. I feel compelled to tell you my stories because this very small, family ran company is loosing sooooo much money and is falling apart, mainly due to greed. Well, only one person’s greed….my boss…my broker.  Let’s call him Tony.

Mistake 1           Has anyone ever heard of a budget?

A house was purchased at one of the foreclosure auctions for $195,000, I know stupid…Half of it was burnt down. This house is in a very good neighborhood next to a gulf course and country club. It is approx 3000 sq ft. According to the comps the house fully fixed up can go for anywhere from $450k-550k. It really depends on what you choose to do to the home. Everyone was real excited about this house. The initial talk on the cost for rehab was $70k. The person handling this project is Tony’s son. Let’s call him Joe. Joe is not a general contractor. He has never handled a project of this size ever. Tony is compelled that his son is going to do a great job on the house. You can always hear Tony talking to himself  saying this is an awesome learning experience for Joe. Well Joe goes straight to work. He gets about 5 day labors ( you can pick them up at home depot here in Austin) and starts to do a trash out. He caves in the roof that was burnt down. Everything is cleared out fairly quickly. Here’s where the problem starts.

Even though this is Joe’s project his dad cannot help but get in the way. He needs the house to be measured so the architect can start designing the house. Now remember I told you greed is the cause of everything. Tony is trying to figure out where he can save money. The first place is the measurements. Instead of hiring someone to do it right he decides to do it himself even though he does not have the time to do it. He finally makes it out to the house at 8pm with one other staff member ( he just started working with us the week before.) The continue to work in pitch dark for a few hours getting all the measurements. The next day they were submitted to the designer and the plans were drafted and the house was supposed to be a 4200 sq ft home. Construction started. It wasn’t until the framing was almost done that Joe figured out there were problems with the design…All the measurements were wrong!!!  This naturally stalls the project. Mind you, Tony paid $2000 dollars to have the plans drafted. With all of the arguments that were going on it took about 1 week to get this resolved and an extra $1000 to have the place re measured and drawn back up. Oh yeah the house is now only 3600 sq ft. (There are so many other mistakes that are going on at this project, I’m trying very hard to only focus on issues that have to do with a budget. In my future posts you will hear about all the other mistakes.)

The house is still is process of being built. Construction started about  6 months ago and we are only at the insulation stage. We were supposed to be done 3 months ago. We are waiting to hear if we are going to pass our inspection. To date their is no budget. Remember I said the original number for the project was $70k. I just talked to him yesterday and he said it’s going to cost a solid $200k!!!!! Do I need to say it again?  It went from $70k to $200 thousanddollars in repairs. He spent $50,000 on the framing alone. Are you kidding me?! There isn’t even any freakin’ dry wall up yet. And he still doesn’t even know the real number, that’s him guessing. Joe pretty much over ordered everything and has no intentions on trying to return any items. As a matter of fact, most of those items have been left outside in the backyard and are now destroyed from the weather. The roof had to be put up two different times b/c the first time it was put on backwards. All of the solid wood doors have water damage on them b/c they were left outside in a storm ( he still plans on using them). They are soo many issues they are hard to name. BUT, to me the biggest thing issue of them all…there are only workers at the house for 3 maybe 4 days week. Joe is so busy with other projects he pulls  the contractors off to work on his personal rental properties.  Do you see the problem with that scenario? We are loosing money every day.

Joe now has to cut back on the high end items to make sure he hits that $200k budget. Instead of real wood floors he is putting in engineered wood floors, he is planning on leaving real wood floor samples when the house is done thinking no one will notice. Now he is putting in imitation granite in the kitchen possibly granite tiles. No more energy efficient windows. Now he has the cheapest vinyl windows from home depot. The list goes on and on.  Oh yeah I never mentioned that this house was purchased on behalf of one of our investors. Tony also borrowed $100,000 from another investor at 10 points as a construction loan. Now if you were the original investor would you be pissed off?  With the cost of repairs shooting up so high we just  lost all of the profit. $100,000 in planned profit. Tony is still convinced Joe does not need to make a budget and I haven’t the slightest idea why. We are going to be forced to sell this house for about $550k so we can break even. WOW is all I can say. Freakin’ WOW. Has anyone tried selling a house over half a million in today’s market?  My hope is you can learn from these mistakes. I know I am. Until next time….

A real estate investor just jumping into the world of real estate rehabbing for the first time may wonder what the average cost of home remodeling is. After all, no one wants to pay more than they have to in any project. Costs cut into profits which cut down on job satisfaction. So, as an investor it’s important to be able to estimate remodeling costs on property before you make that purchase offer.

The average cost of home remodeling varies wherever you go. It also depends on several factors:

• The kind of home renovations the investor plans on making

• Whether or not the home investor plans on doing all or part of the renovations

• If the home rehabber decided to hire a general contractor

• If the rehabber is paying a flat rate to the contractor or on an hourly basis

Real estate rehabbers try to get as little renovations completed as possible in order to sell the home on the market. They want the property to look nice to the homeowner’s, not have any major problems and be ready to move right into. They don’t usually want to deal with major overhauls, fixing structural damage or leveling a foundation. So, if you’ve gotten involved in any fixer upper houses with these problems you’ve already gotten in over your head and will have to pay a lot of money to fix it.

Keep your renovations on a fixer upper less involved, like new paint, new carpet, newer appliances, new roofing and so on. Don’t go knocking down walls unless you have lots of experience and are absolutely certain that the extra effort and expense will increase your earnings tenfold.

Down to the Nitty Gritty of Cost

The average cost of home remodeling can vary between about $10,000 and $20,000. However, if you are inexperienced or working with a contractor for the first time this can increase the costs to $30,000 or more on the same work. This is because a contractor often quotes on the high end of his price scale for new clients that he or she has never worked with before. Plus, first time real estate investors are more apt to hire a general contractor and that increases the price. General contractors charge their owner fee to oversee the work, plus the fees of the contractors they bring in for different work.

It’s easy to see why many home rehabbers decide to leave out the general contractor when the estimate remodeling costs. If a rehabber has any experience at all in construction, building or real estate they’ll choose to oversee their contractors themselves, especially on a smaller home remodeling project.

If a home rehabber opts to do all the work themselves they can save themselves a lot of money in the cost of home remodeling. The rehabber would only have to pay 25% of the above costs in supplies and do the labor themselves. Although that is a lot of your own free time and effort to put in. Ask yourself, “how much are you worth an hour”, before doing it yourself.

Also a rehabber can save some money by offering contractors a flat rate for the job. An experienced rehabber has some idea of how to estimate home remodeling costs and will be able to approach a contractor with a fair flat rate offer per project. It’s up to the contractor at that point whether or not to accept the job or walk away.

Keeping the cost of home remodeling down is very important to that bottom line. If you aren’t familiar with how to estimate remodeling costs be sure to ask a few contractors to look at the work on a fixer upper you want and quote prices before you get too involved in the deal. This will help you in figuring how much to offer the homeowner and just what is the cost of home remodeling.

Getting started in the real estate investment business with rehabbing houses is surprisingly easy. You practically wake up one day and announce to the world that you are going to become a rehabber. However there is a lot of preparation involved before the purchase of a rehab property, especially that first property.

You know what they say; it’s 99% work and 1% inspiration. Well, the same is true for rehabbing houses and property. You’ll spend a lot of time looking around for good fixer upper houses to work on, talking with homeowners, doing research on local property values, getting repair and remodeling estimates and securing your own loans and mortgages to buy that property. Then, you get to start rehabbing houses.

It doesn’t hurt to have a few extra tips to rely on when rehabbing too. The process can take some time, about three months on average per house. So, you’ll encounter many unexpected needs and mix ups the first few times through. Here are a few tips that have helped me out along the way and I’m sure you’ll find them useful too.

1. Require the Realtor to Get Underwriter Approval

When you do place that rehab property on the market for sale it’s perfectly okay to place it with a Realtor. However, realtors can be tricky sometimes and you don’t want to waste your time with them. Have the realtor sign your contract with a special clause that requires them to provide a letter of underwriter approval for their buyers. This is a letter of intent from a buyer’s mortgage underwriter stating that the buyer is indeed approved for so much money in so many days for the purchase of the property.

It’s a practice that will really motivate your realtors to bring in solvent buyers and reduces the likelihood of a deal falling through at the last minute because they aren’t approved for the mortgage.

2. Don’t Advertise Until You’re Almost Done

Rehabbing houses isn’t like selling foreclosures or working on wholesaling property. You don’t want to start advertising the property at the beginning of a rehab or the middle even. Most traditional homebuyers want to see a house in its’ finished form and won’t even make an offer if the rehab property has holes in the walls, plumbers wandering around and roofers stomping around upstairs.

Hold off on the advertising part or the placing property with a realtor part until it’s about two thirds complete. This way the buyers know that there is a property available and you can start spreading the word in advance of your first open house when that rehab property is complete.

3. Get those Permits!

Sometimes working with the local government can be annoying. If you rehabbing houses on your own you’ll have to secure the necessary permits for the work. There are separate permits for roofing, electrical, structure, plumbing and even windows.

Plus, city officials have an annoying habit of dropping in on the middle of a rehab project to inspect. If you don’t have your permits yet, and you’ve already started on a certain area that official can hand you a nasty fine to add to your expenses.

4. A Gift Card Goes a Long Way

Some contractors will provide their own supplies for projects, others will expect you to reimburse them at the end of the project for supplies they picked up and others yet will expect you to provide all of the supplies while rehabbing houses. It’s always a good idea to check with your contractor before they start to make sure how they want to handle the supply situation.

If you are going to be the one providing the supplies it’s also a good idea to get your contractors a gift card for the nearest big hardware store. Workers are always running out of supplies at the worst moments on a project and sometimes you can’t be reached. That gift card with a few hundred dollars on it comes in handy when they can just run down to the store and pick up the supplies themselves. Have the contractors keep all the receipts for you and reimburse them with a little extra pay for making the run themselves.

5. Keep all Receipts

Every single stick of lumber, screw and bolt you buy is deductible on your taxes for this rehabbing business. Keep all of your receipts for everything from fees to supply to the purchase price of the house. A good accountant will be able to get you massive deductions for these receipts that you didn’t even know were available. The practice will save you a lot of money in taxes in the long run too.

6. Get a Good Accountant

At the end of the business year you’ll be accountable for taxes like every other person and more than you realize. Rehabbing houses qualifies as self employment until a corporation or LLC is established so you’ll have to pay your own self employment taxes on those earnings.

A good accountant who specializes in real estate can help reduce your income with deductions, IRAs, and those corporations mentioned above. You can even deduct the cost of hiring an accountant to do your taxes too. So it saves you a lot of money from all those rehab property profits.

7. Visit the Properties Daily

This is just a good idea in general. You don’t want that rehab property to get an overall uninhabited look. It invites trouble in the form of neighborhood kids looking for a place to hang out and the form of thieves looking to steal lumber, aluminum siding and the copper pipes in your rehab.

Plus, you’ll want to open up the house for your contractors. Check on their work and talk with the contractors to make sure they are staying on task. In rehabbing houses you become the manager in a way making sure that everything stays on schedule.

8. Check from Top to Bottom

When you first walk through any potential rehab property you’ll want to pay attention to any damage or cosmetic problems. Knowing from the beginning what kinds of problems are likely to pop up will help you prepare remodeling estimates.

Look at four areas on every rehab property to ensure it’s not going to be a major expense: Roof, Electrical, Plumbing and Structure.

The roof shouldn’t exhibit any sides of termite damage. You also shouldn’t be able to pull up any of the shingles easily. Make sure that the electric all works. Ask if there is any history of problems. Know if there is a fuse box or if the house has breakers. The plumbing definitely shouldn’t leak. Look in all of the cabinets for signs of leakage from pipes and from the second floor. Run water in all the sinks to make sure they drain quickly. Lastly, walk around the outside of the rehab property to see if you can spot any cracks in the foundation. Also look inside to make sure there aren’t major cracks in the walls that indicate settling to one side.

Eight tips on rehabbing houses and you’ve got eight little secrets to help you with your rehabbing business. It’s a good start but make sure you keep on learning about rehabbing houses as you go because there is much more to know and more secrets to find.

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And now you have to deal with city officials, insurance adjusters, contractors that never show up… forget it!

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Real estate investing works like any other business.  Investors put down money and time to buy and sell their ‘product’ which is basically real estate properties like houses.  They make their money by increasing the price of the home on each sale. 

This may seem like the kind of endeavour that would eventually make it impossible to make any profits on property.  However, the real estate market fluctuates each year in an up-and-down cycle.  Real estate investing is almost like investing in the stock market, you buy low and sell high.  Plus, homes and other properties go up and down in value depending on a range of factors. 

What Makes a Home Go Down in Value?

Properties will eventually reach the traditional home market where the buyers of potential homeowners looking to live in the property.  This is basically where the buck stops and that home may not ever be sold again.  Sometimes though, the property does end up back on the real estate market.  It may go directly to another homeowner, which means it usually retains its previous value plus some for inflation or it may be sold to an investor. 

Properties are frequently sold to investors when they are damaged, the homeowner hasn’t kept up maintenance on the property or the homeowner needs to get out of the property quickly.  All three of these examples are reasons why the property can go down in value.

Damage to the home means more work for whoever purchases it, so the homeowner naturally has to lower the price to offset the cost of fixing the damage.   The same can be said for a home with maintenance issues.  Plus, these homes are less desirable for traditional homebuyers who want to move into a property with as little effort as possible.  Lastly the homeowner who just wants to get out from under a property may have special reason for lowering the price. 

These homeowners may be in pre-foreclosure and are a few payments behind on their mortgage.  It’s easier for them to let the house go and loose equity than to get the bad mark on their credit from a foreclosure. 

Homeowners looking to sell quickly can also be someone who has inherited a property they don’t want or can’t afford the carrying costs on.  It’s also easier for them to close quickly on a deal and make some cash rather than trying to sell the home on a traditional real estate market.

There are other larger influences at play in affecting the prices of the real estate market, but these three examples are the reasons that most directly affect real estate investors.

How is it like the Stock Market?

Real estate investing is what happens when the investor decides to buy a home and sell it for a slightly higher price.  The investor is ‘investing’ their time and money for a profitable return on the sale of that property.  Again, this seems awfully similar to the stock market, except you are dealing with real tangible property.

Many investors make money flipping houses by purchasing a home with some maintenance issues and ‘flipping’ or fix it up and selling on the traditional market within a matter of months.  This kind of real estate investing offers a larger payoff because the investor is attempting to sell the home for full market value.  It also has a higher risk, because investors have to invest more money and time with no guarantee of a full return.

Others like to play it fast and loose by wholesaling property or even just assigning a contract on property.  These investors seek out homes with specific criteria for their buyers and get the homeowners to agree to sell the property.  The investor will then either sell the property to their buyer or assign the purchase contract to the buyer for a small mark up in price.  These kinds of deals can occur all within a matter of days.  To many of you this may seem a lot like the investment strategy of a Day Trader on the stock market.  They buy and sell shares all within a matter of hours and settle their accounts at the end of the business day. 

Investing in the real estate market may seem mysterious or difficult at first glance.  It is really very straightforward and just about anyone can invest.  It all depends on finding the right property and the right strategies that suit your business.

Being the perfect foreclosure investor may require very hard work. In fact, it is necessary for everyone to be more than a hard worker because foreclosure investors are gifted when it comes to investing. The last five years mortgage sector has rebuilt its strategy in order to go on earning money. They have seen the opportunity to buy those valueless properties which can represent an incredible possibility of making money. Naturally, foreclosure investors are the sovereigns of this new financial universe.

Due to the global financial crisis, lots of homeowners want to sell their properties. Basically, they cannot sell them at the present value of the loans, so foreclosure investors are the ones who really have the power of being involved in short sales. Being a professional foreclosure investor requires training and a special talent. You cannot learn how to be a foreclosure investor by watching a video. Remember that dealing with lenders, homeowners and short sales can be a real tricky and challenging situation.

There are some factors which always help foreclosure investors. They are generally related to designing a plan, investigating the market and methods of financing properties. These three basic elements are the most important and crucial tools for foreclosure investors who want to become renowned in the property market. Naturally, foreclosure properties do not appear magically. It is necessary for investors to perform a deep investigation. Real Estate agencies may be their best allies because they have information which is vital to find foreclosure properties. Additionally, the Internet can be the best supporter for foreclosure investors.

There are many companies online which offer paid foreclosure services. Investors must usually pay a monthly fee for this service and they will be able to make informed decisions. On the other hand, if you want to be a good investor, you must know that some Real Estate companies offer paid courses related to Real Estate inversions. This is an excellent way to become the perfect foreclosure investor… through education. This option can be vital for those who do not have any background in the field.

Some Real Estate schools are very expensive but you should not feel discouraged because the Internet can once again be your ally. Search over the Internet and you will find lots of Real Estate Institutes which will be eager to offer you the best related education tools. Remember that when you get your license, you will be prepared to obtain the best arrangements as a professional investor. In addition, the license will offer you the prospect of being considered a serious investor everywhere without having to show your skills all the time.

If you have dreamt about being a foreclosure investor and about being involved in Real Estate business, meet other professionals to know their opinion on the current market and to experience what they feel about their jobs. Being a foreclosure investor is a process, so do not give up when facing the first difficulties. For all you know you may be that gifted investor.

Making the most of your time is important for a real estate investor in order to make the most profits with the least investment of time.  The way to do this is by outsourcing your work and ‘To Do’ lists.  You can outsource a lot of the short sale negotiation process to short sale services. 

These short sale services are companies that offer to help investors with the process of completing a short sale deal for a nominal fee.  These companies are run by or employ experienced professionals, many of whom used to work as loss mitigators for the banks with which you are attempting to make short sale deals!  They have years of experience with the foreclosure process and short sale negotiations.  So, these services can quickly and easily help you put together a short sale package, find the right person at the bank to negotiate with and even negotiate with the bank‘s loss mitigator over the phone for you. 

You can find plenty of short sale services to help you in your negotiation process.  They are all over the web and even in the yellow pages.  Just make sure you do your research before signing on with a particular company.  A short sale services company can offer a range of services or even have a completely different focus from yours as a real estate investor. 

Some negotiation companies that help with the foreclosure process actually work with the homeowner and attempt to help them keep their home.  While this is an excellent company to recommend to the homeowner who isn’t certain they want to go with a short sale, it’s not a company you want to hire. 

On occasion, other short sale services companies have been known to take a deal out from under the real estate investor.  This is extremely rare, but every industry does have its bad apples.  A deal can be lost when you sign on a short sale negotiation service that also works with homeowners to save their homes from the foreclosure process or when you sign on with a service that also does investing of their own in real estate foreclosures.

To make sure your property stays safe in the hands of the short sale services company you pick, you’ll want to research them thoroughly to make sure they only offer the services you want.  Plus, be sure to enter into a contract agreement with them, stating that they’ll only perform the services you ask for and not approach the homeowner about a deal of their own.

All worries about the short sale negotiation aside, outsourcing your time consuming work to a short sale services company is an excellent way to ensure you make the most profits with the least amount of time.  As long as you do your research and use a contract you’ll be safe in outsourcing that short sale negotiation.

When looking for real estate advice be sure to head over to Realestateinvestor.com where you can find a great team of real estate investors dispensing valuable advice and lessons daily. This ‘Power Team’ is composed of seven members of investors who are highly qualified to provide real estate advice.

Each of the members of the power team specializes in a different area of real estate investment. These highly qualified real estate investors are available at REI to answer questions and provide tips and advice to other interested investors.

They offer advice ranging in a variety of different areas from short sales, to real estate law, rehabbing, wholesaling, and even online marketing of your real estate business. This is real estate advice you can really take to heart.

The REI Power Team

• Lamar Love – Lamar is a certified business coach who specializes in business development. He is certified with Action COACH, the company that works with business owners just like you to help them grow and prosper. He has been an entrepreneur for over 27 years and helps business owners increase their revenue dramatically.
• Sean Malarkey – Sean is a buy and hold real estate investor and he specializes in buying at least one property per week to fix up and then lease option to potential homeowners. He loves finding deserving tenants to give them the opportunity to achieve the American dream of home ownership.
• Justin Lee – Justin is a pre-foreclosure/marketing expert. He helps investors increase the amount of money they can make by advertising foreclosures through online marketing. He also helps homeowners who are in foreclosure through his own national company called Savemefromforeclosure.com
• Darren Dicke – Darren is a wholesale investor who specializes in wholesaling but he has done deals in rehabs, subject to, short sales, contract assignments and even lease to own options.  He has a new program called the Wholesale Mastery Program to help investors master the process of buying wholesales and selling them for profit.
• John Longest – John is a successful rehabbing investor who has completed over 900 deals. He has 30 years of experience in buying and fixing up properties.
• Jonathan Dever – John is a business coach and real estate attorney whose goal is to educate business owners about creating systems to aid them in their business, giving them real estate advice on how to invest wisely and how to remain compliant with the law in their real estate investing business.
• Pat Precourt – Pat is a real estate investing expert in short sales. He has been working as a successful investor for over fifteen years. Pat currently, besides giving real estate advice, also teaches investors how to complete their own short sales deals.

The Power Team offers advice to Pro Members of the REI website. However you can always check in to see the most current lesson and answers to other investor’s questions for free as a member of the web site. And standard lifetime memberships for REI are absolutely free.

These real estate investors cover almost every area of the real estate investing market. Next time you are looking for great real estate advice you might think about heading over to REI and see what the power team has to say.