If you’re considering switching careers and starting a business that buys and sells homes, it’s important to understand the different types of investment properties and the levels of repairs. This article is designed to help you get started on that journey.
A Fixer-Upper
A home listing that includes “fixer-upper” generally means that the structure remains intact and the interior needs work. Adding a fresh coat of paint, replacing flooring, carpets and other cosmetic repairs will restore the home’s desirability and raise its value for short money.
A Home Rehab
Home rehab can involve replacing all the major appliances, repairing foundational issues, electrical wiring, water damage, and fixing or replacing the roof. Because of the extent of the repairs, you’ll need permits and the home must pass inspections prior to a listing of the home.
The Need to Borrow Money
A total home rehab is not something that most companies do with their own money. Instead, they apply for hard money rehab loans. These loans are easier to acquire versus a traditional commercial mortgage through banks and credit unions. They also have a fast turn around, with many loans funded within a few weeks. If you prefer to use your own money to avoid interest and other fees, a fixer-upper with mostly cosmetic repairs may offer a more affordable option.
Hidden Costs Involved
A fix and flip property dispenses with many of the additional costs of a rehab. Unlike a home rehab, you won’t need to pull permits, hire contractors, and pass a final inspection prior to listing it. A fixer-upper in general needs TLC. It may be abandoned, a foreclosure, or simply neglected due to a lack of money. However, in most cases, a fixer-upper is a preferred choice over a home rehab for first-timers who want to keep costs down and who are handy.
Profit Margin
Whether you are buying a fixer-upper or one in need of a total home rehab, profit margins will vary. The location of the property will offer an assessment of what a similar home sells or rents for in the area. However, if costs consume the profit, it may not be worth the investment. This is where a unique fixer-upper that requires your time instead of a lot of money, works to your advantage. On the other hand, if the assessed value of other homes in the area is $60,000 more and the fees involved come close to or exceed the figure, the investment isn’t in your best interest.
Developing a System
Properties come on the market and often sell within the first few days of being listed. Having systems in place such as available funding, contractors ready to go, and a supplier eager for business, are all recommended. Prior to buying your first property, you should have all the resources you need lined up and ready to go at a moment’s notice. If not, you’ll end up losing out on potential moneymakers.
Time Constraints
A fixer-upper is something you can do at your leisure. You won’t have follow-up calls with contractors to see when they will complete their work. The only time constraints are yours if you need additional income through renting out the property or need a quick sale. With home rehab, you have money owed and deadlines to meet in order to preserve your profit. The sooner the home is complete and passes inspection, the faster you can list it, sell it, and repay the lender.
If you’re looking to start a new career, make sure it’s a good fit for you. There are several differences between a fix and flip and a total home rehab. Do your research to discover both processes and what’s involved prior to deciding on what types of properties to invest in.
