The decision on whether or not to rehab houses as part of our annual revenue plan should begin with a study of the market. Personally, I believe that I can sell a rehabbed house even in a slow market as long as it is in an area where there are at least some buyers. I understand the Buyers’ Value Proposition and I leverage it in my favor.
Having said that, even I will concede that it is easier to be a rehabber when the market is expanding. And right now – it is expanding monthly. For years during the recession housing sales were down largely due to a buyers’ lack of confidence in the economy compounded by stricter lending guidelines. This resulted in a pent-up demand for housing which is being expressed in the market today.
The National Association of Realtors announced that existing home sales are at their highest annual pace – with median home prices 5.6% above last year representing a 31 month consecutive year-over-year price gain. The market is hot! Now is the time to take advantage of demand and rehab houses.
Now that we have confirmed the market is strong, the next question is WIIFM (What’s In It For Me)? The first reason is that you can make some serious money rehabbing houses. Depending on the size and scope of our rehabs, my wife and I have made $25,000 – $40,000 – $50,000 on houses.
One of my Clients wrote to me about a rehab she did. Using just $4,000 of her own money, she netted $70,000. Net = Profit after all expenses (except payment to her partner: the IRS). Margie and I made $38,000 on our first rehab (I’ll tell you more about that deal in a future post).
So besides big profits what else is so great about rehabs? Well, they are readily available in every city – and if you can’t find one a wholesaler will hand you a deal on a silver platter. Since you are buying an asset, funding is readily available regardless of your credit.
Financing for profitable rehab deals is so readily available that you can finance 100% of your total project costs and get money back at closing when you buy! When I say 100% of the project costs, I mean purchase plus rehab plus closing costs plus miscellaneous expenses. In fact, my advice is to never put your own money into a deal. It’s not necessary (I even questioned Carol about why she put $4000 of her own money into that deal I mentioned above).
Last, but certainly not least, is a sense of pride when you complete a rehab. You took something old and dilapidated and breathed new life into it and made it a beautiful home for a family. When you see the excitement in their face you can’t help but beam with pride.
As a rehabber, you’re an asset to the neighborhood. My wife, Margie, and I have often been thanked by neighbors for ridding the neighborhood of an eyesore. Not only does a family get a new home, you also raise overall property values for the neighborhood.
By the way, if you’re also a wholesaler, this is a great way to raise comps. I have often used my own rehabs as comps for wholesale properties in the same area.
I’m proud of our rehabs and pretty happy with the profits too. If you’re not rehabbing, I encourage you to add this profit stream to your business plan.
Expect abundance,
Lou Castillo
