Investing in real estate through rehab loans is unlike most other forms of investing because you are solely responsible for the work being done--and the return on investment is determined by the work actually being completed (and correctly). This involves a tremendous amount of planning, thus there is an initial skill set that all property investors should have to ensure that the deal gets started off on the right foot.
4 Skills Every Real Estate Investor Should Have
- Proper budgeting - The projected amount of rehab costs associated with your property are going to vary quite a bit depending on the initial condition of the house as well as the level you are looking to bring it up to. Properly budgeting a project is not only important for predicting the total costs for repairs but it will also help keep you from overspending on certain repairs. Additionally, putting together a budget sheet will allow you to quickly glance at the repairs you have planned and make sure you don’t forget any over the course of the project.
- Knowing what’s required - When first looking at a piece of real estate that might make a good rehab property, you need to have a solid idea about the types of repairs that are necessary to bring it up to the condition that will allow you to achieve your expected return. This means that you have studied the area of the potential property and compared it to other houses that have sold or rented around it. Be sure not to over-improve the property either--which is one of our top 5 common house rehab mistakes.
- Choosing the right contractor - Very few real estate investors have the time (or skill set) to rehab their properties by themselves. While this method would save quite a bit of money, it simply isn’t a realistic scenario in most instances. Therefore, you will need to outsource the work that needs to be done, and that means hiring a contractor. When choosing this person (or group of people) it is important to make sure that they provide high-quality work while staying within your set budget. You also need to be able to trust them that the work will get completed on time, as real estate investing is a very time-sensitive industry. You can read about our other recommendations for selecting the best contractor here.
- Calculating ARV - This is the most important financial figure when it comes to house rehabilitation projects. ARV (After Repair Value) estimates the amount of money you expect to earn on the fix and flip property once the project is done. And just how integral is ARV? Once this number is established, the rest of your budget can fall into place and the rehab costs start making a lot more sense. Without accurate ARV calculation, you could significantly miss your profit target with your real estate investment deal.
Have you looked at this list of skills that every real estate investor should have and see areas for improvement? Don’t worry: we all start somewhere, and mistakes are going to happen. Just make sure that with every road block you run into on your investing journey, you make a learning experience of it. And don’t be afraid to ask for help, whether it be from your hard money lender or just an experienced investor that you met at a recent conference.
Catalyst Funding is a hard money lender located in Houston, Texas and can help get you on the right track to accelerate your investing future. We invest in you, not just your property. Give Catalyst a call at 832.648.3626 and speak to one one of our professional team members today!