The first 5 mistakes were covered in Part I. In the second part of The 8 Biggest Rehabbing Mistakes we look at three more areas that can swallow up your profits in no time.
Big Mistake #6: You Pay Too Much When You Buy
You make your profit when you buy. Pure and simple! I will always tell my coaching clients at my workshops that this is the most valuable advice that they will ever receive from me. The added value from the renovation is the icing on the cake. Always research your market well and ensure that the potential selling price is achievable when all costs and profit margins are taken into consideration. Never, ever let yourself be ruled by your emotions when buying. You must always allow for buying, selling and closing costs. Where possible, your purchase price must be sufficiently below market value to at least allow for these costs. Even better, the price should be low enough to allow for closing costs plus rehabbing costs.The following formula will allow you to assess the real purchase cost of a particular home that you may have in mind. Starting with the final selling price, work backwards and deduct selling costs, profit margin, renovation costs and buying costs. This final figure is how much you should be prepared to pay.
Big Mistake #7: Failure To Understand Your Target Market
How often have you walked into a home and been totally horrified by the décor? Yet this is another common mistake made by renovators. They let their emotions get in the way and decide what is good for them is good for everyone else. There are two principles that I apply when renovating. The first is the K.I.S.S. theory: Keep It Simple Stupid! The second is to focus on the “wow” factor. It is no coincidence that a home sells quicker and for a higher price when it possesses strong buyer appeal. You're here to make money, not win a home decorating award. Give the market what it wants, not what you think it wants!
Big Mistake #8: Spending Too Much on the Rehab
The great temptation of renovating is to do too much. While the “wow” factor is critical, you must keep your emotions out of the equation and strictly adhere to your budget. Nothing goes exactly to plan when renovating, so don't panic if you exceed your budget by small amounts. Allow for a buffer to cover any surprises (usually 10 to 15 per cent). I certainly fell into the ‘do too much' trap during my early projects. Always have your costs estimated accurately prior to purchasing a property. Later on I will talk about contract of sale conditions. One such condition is to purchase subject to having a builder inspect the property. This will enable you to discover any unforeseen surprises. I encourage you to renegotiate the price should the inspection uncover any major defects – or better still, walk away.My budget parameters are 10 per cent of the purchase price for houses. This can be stretched to 15 per cent if it means that a great profit can be made. These are personal preferences that have worked for me. They are in no way set in concrete and readers should exercise their own judgment. There is no right or wrong way in this business. The percentages that I allow are in keeping with my primary objective of obtaining the biggest bang for your buck in the shortest possible time and with the minimum amount of money possible.
Conclusion: Understand that things can and do go wrong in this business. Now that you are aware of the pitfalls, you will be better prepared from the outset. All it takes is a little planning and there is no reason why you can't join the thousands of Americans who are quietly making huge fortunes from their Fixer-Upper business.