In a recent post, how to purchase a rental property, a frequent contributor, Danielle, reminded me of her father’s experience. The real estate agent pushed him to forgo the home inspection so that he wouldn’t miss the hot deal. He took her advice, bought the house, and found himself over his head with maintenance and structural problems. Some things can be fixed; many things can’t.
Know when an ugly property holds potential.
As you purchase properties, start with easy projects. Buy a property that needs a fresh coat of paint, new flooring, and a bit of scrubbing. I can’t stress this point enough: it’s easy to get yourself into more than you can handle, but you have to start simple. Ever see those property flipping shows? The people who always go over budget and over their estimated time are the people who haven’t been in the game for a while; they’re the people who can only envision the quick buck. Focus more on what you’re capable of doing.
As you purchase more properties, you can become more comfortable with bigger projects’fixing a porch, redoing drywall and roofs, updating the electrical. Sweat equity is the way you make money in this business; hiring subcontractors to do projects for you is a huge expense. The liability and workers’ comp insurance alone are out of most restoration budgets.
But is the expense worth it to hire these guys? I guess that’s something you have to calculate for yourself. We’ve hired subcontractors to dig sewer lines, put gas lines in, and install windows. Of course, we’ve also done all of those same projects ourselves once we gained the experience.
Know when an ugly property means you run.
If your first property has too many projects, you’ll get discouraged. You won’t want to be in the business any longer. Projects as simple as cleaning the bathroom sink take five times as long as they do in your own home… that’s why these properties are so cheap. I spent over eight hours scrubbing a claw bathtub once. If every project in the first house is of that magnitude, your “quick project” will be nothing but speedy. Months will roll by… and roll by… and roll by. You’ll start to wonder when you’ll ever be done. And worse, everyone will always be bitter and quick to yell.
I’d never advise someone to skip the home inspection unless that person has enough skill to be a home inspector himself. If you read plumbing handbooks and electrical code books for fun, then you might be on your way to going without the home inspector. We’ve hired a home inspector who did a very thorough job. But like I mentioned in my last post on real estate investing, you’ve got to crawl through the attic and wiggle through the crawlspace yourself, too. (Or have your partner do it! My next point…) My husband found a bit of mold growing in the depths of our crawlspace. Did the home inspector do a poor job? No’our discovery was above and beyond the requirements of his report. Should you perform your own thorough inspection? Absolutely.
Have a partner
As a girl sponsoring poetry contests, you can guess that I’m not one to slip into a one-foot deep crawlspace. Luckily, I have a partner who will. I’ve got someone to carry my 5 gallon bucket of plaster and open jammed windows. But more than anything, I have someone who equally invests himself in the work that interests me. The support system of having someone working with you in your nasty looking property often makes the difference between wanting to work and not wanting to work. A blasting radio while you paint isn’t enough.
The perfect partner has a different skill set than you. But more importantly, the partner has to be as equally committed. Buy those easy-to-do properties first. Your team will grow together before getting stressed out (or divorced!).
