Part of my lifestyle as a Real Estate Investor, of course, is finding projects to rehab. I just picked one up over the weekend and the last thing that I told my newbie partner was, “get ready for the 2 weeks of Chaos.”
Here’s what it boils down to.
You have a VERY short window of time to pull all of the moving parts in place for the rehab before your earnest money deposit (EMD) goes “hard” and you can’t get it back if you need to back out of the deal. Hopefully you will never have to back out, but as some point you probably will. I’ve had to do it a few times myself. Obviously, it’s never the best feeling to come to such a conclusion, but losing money might be the only worse feeling for an investor.
So, exactly what do you need to do during these two weeks of chaos?
First, you have to realize that two weeks is a ballpark timeframe and not necessarily an absolute number. When you signed the contract with the seller, you signed off on a period of time in which you have to do your due diligence. The California Association of Realtor’s form defaults to 17 days. I always shorten the time period to a maximum of 14 days (hence, the two weeks of chaos) or even less if the situation warrants it, i.e., Multiple offers. Sometimes you want to position yourself with the seller so that you are the most attractive bid, and not necessarily the highest bid.
This is where your Power Team comes in.
You need to get into communication with your Team to make sure that everything is done in a timely fashion and that everyone knows his or her role. You have phone calls to make and emails to write. I personally prefer the phone calls just to make sure that things are in place as quickly as possible, but some people are significantly quicker on an email than they are on the phone or when they have to return a phone call.
My first phone call is always to my Contractors.
Yes, plural. Call them and get them to walk the property with you to give you a hard bid on what it will take to rehab the house. You should already have a good idea about what you want to do, but sometimes Contractors will give you an idea that you hadn’t thought of. Most of my rehabs are fairly identical, but each house is different. I don’t even mind if two different Contractors are there with me at the same time. That keeps them aware that you have options. Yesterday, I had two Contractors at the house simultaneously. It keeps them honest and hungry.
The next phone call would be to my gap funders.
By this point, I have have put together a presentation package on the house to show the gap funders. These packages include pictures, an estimate of the scope of work on the rehab, the ARV on the house, the comps and the potential profits. I have a few that I use on a regular basis, so I figure out which one works for the deal. Each has different criteria for the deals and they have different comfort zones for the deals. Figure out which ones work for this particular deal and blast out the presentation to see which one wants to make some money with me.
Next is the remainder of the money.
Compare the rates and structures of hard money lenders and figure out which one best matches this deal. MOR Financial offers different programs for different types of rehabs, so make sure that you find the right program to fits your needs. They will ask for paperwork on the deal, so be sure that you get it to them as quickly as possible. There is a clock running on this!
Insurance Agents are sometimes forgotten in the mix of things.
Anytime you have a project where there is construction, you MUST have insurance. It can save you if, goodness forbid, something happens to one of the workers. Remember, you own the house right now, so any liabilities fall directly on your shoulders. Contact your Insurance Agent and get him to give you the quote so that you can put it into your figures. Once the house is yours (after the two weeks of chaos), you need to have it activated immediately.
This may not sound like two weeks of grueling work but unless you have done this a few times it can take a lot longer than you would think. I have a checklist for my work and you should too. Plan your work and work your plan. That is the true secret to success. Above all else, enjoy the process. Can it get stressful? Sure. Can if get difficult? Absolutely. But the things in life that are truly worthwhile are rarely easy.
If anyone has more questions or wants more one-on-one coaching, don’t hesitate to contact me. This is a passion for me and I truly enjoy sharing what I know with others. Thanks for coming by the REI Blog and getting a bit of the education. Until then, remember that you, too, have that inner warrior that it takes to achieve greatness and success. Feel free to drop me a line at Coaching [at] BaileProperties.com.
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