Wednesday, March 6, 2013

The Importance of Rehabbing Right the First Time

Getting it Sold

I tell every new investor that there are four pieces to the puzzle of flipping a house.  This also means you need four critical people on your team to make sure that you make money:
  1. Buying the property - having an awesome acquisition agent
  2. Financing - making sure you can pay for it and are getting the best terms
  3. Repairing the house - Getting the best quality for the most reasonable price
  4. Listing the house - Having a beast of a Realtor® to make sure you sell quick
It only takes one mistake in this chain to lose money on a project.  Periodically you will likely see me refer to this list identifying where I see investors make critical mistakes that either cause them to break even or even lose money.  This article is dedicated to my own personal experience in fumbling between stage 3 and 4

So you're rehab is done, time to list right?

Well yes and no.  Let me give you an example how you can shoot yourself in the foot as an investor.  The following picture diagrams the history of my house.
Listing SummaryListing History
MLS No:980543
Cur. Status:ACT
Type:Single Residential
List Price:$118,900
Orig. LP:$119,000
Sold Price: 
List Date:01/11/2013
List Agent:535649
List Office:RMAX00
Change DescriptionStatusLP/SPModified DateUpdated By
STATUS: BOM -> ACTACT$118,900 02/22/2013Call Broker
STATUS: AO -> BOMBOM$118,900 02/11/2013Call Broker
STATUS: PCH -> AOAO$118,900 01/28/2013Call Broker
LISTPRICE: $119,000 -> $118,900PCH$118,900 01/23/2013Call Broker
STATUS: AO -> PCHPCH$118,900 01/23/2013Call Broker
STATUS: NEW -> AOAO$119,000 01/18/2013Call Broker
STATUS: DRF -> NEWNEW$119,000 01/11/2013Call Broker

Being in the business for so long I was sharp enough to hire an awesome agent to list my house, Zachary Taylor.  In four days, 4 DAYS, Zach got an offer on my house. I priced it right but a lot of getting an offer falls on the on the shoulders of your listing agent.  Now had I not made a critical mistake between completing my rehab and listing it I would have 120 grand in my pocket by now. 

So where was the mistake?

I never got the house pre-inspected.  This was an 80's build house that had about 25 items pop up on the inspection report.  While all of these were minor things that I got knocked out in about three days it scared the buyer off when he saw the inspection report.  Now don't get me wrong, 99% of retail buyers act completely irrationally when buying a home and think that they're getting a new build house at a discount.  This particular lady thought that there was a possibility of mold in the house in the next ten years (WHAT?!?!?).  So I got it back on the market.  I got another offer in about another three days and had the same situation pop up again.

So how did I fix it?

First of all, make sure you put appliances in the house.  I never do a refrigerator but everything else is a must.  Most importantly, get the house pre-inspected. Granted, my contractor screwed up.  On a $12,000 budget I wound up spending an extra $3,000 to get someone in there who could clean up the mess he burned me with.  Had I addressed all the issues initially, I would have sold the house by now.  Another thing to do is to get your agent to the house and get their honest opinion about the condition of the rehab.  A good retail agent will shoot you straight because at the end of the day, they're the person that has to sell it.  

Keep in mind that your history on MLS can easily deter potential buyers.  If an agent sees that a house has been under contract and fallen out 5 or 6 times they're going to assume that there is something very wrong with the house.  You can always go down in price on MLS but you can't go back up.

Click here to view my latest rehab house.