5 Reasons You Might Make a Good Rehabber
I’m assuming if you’re reading this article, you are a house flipper or at least have an interest in becoming one. When it comes to flipping houses, many start out wholesaling, as it’s the easiest barrier to entry. The idea is to get a deal under contract and assign that contract to a cash investor for a fee, thus never having to actually do repairs.
True wholesaling (in my opinion) is never touching the house in terms of doing improvements. Once you make improvements, cosmetic or otherwise, you have now entered the realm of rehabbing or what I like to call, fix and flip.
When I started out in real estate over 10 years ago, I wholesaled junkers in Detroit. This was a good fit for me because I was a hustler and had no interest in renovating. Most months I would wholesale 3-5 deals earning on average $5,000 to $8,000 per deal. I did that for 2 years before ever touching a rehab.
So, why transition from wholesaling to rehabbing and is it the right move for you? Here are 5 reasons why you might make a good rehabber.
#1: You Want to Make More Money Per Deal:
The reason I started rehabbing and why most wholesalers eventually do the same is to make more money. Instead of quickly flipping the deal for $5,000, why not keep it, fix it up and sell it to a retail buyer and make $25,000 (or more). It does require more patience, risk, and time, not to mention capital, but if you get good at it, the payoff is worth it.
#2: You Can Handle Roller Coaster Income:
When rehabbing, you can go long periods of time without any income. It requires proper cash flow forecasting to be successful. I remember one time, I went 6 months with no money coming in and then I had 4 closings pop at once and was suddenly flush on a ton of cash. The stress of not having steady income is actually the number #1 reason why most people would not make good rehabbers, especially if they’re coming from the 9-5 paycheck world.
I am frequently asked, “Should I quit my job and become a full time rehabber?” (Ironically, most who ask this question haven’t even done their first deal yet). I bluntly respond: “No, especially if you don’t have another source of income.”
When rehabbing was my only source of income, I made it a goal to a). Live below my means and b). Have a 1-year reserve of cash to cover my living expenses.
#3: Managing Contractors Doesn’t Scare You:
Rehabbing houses is probably most comparable to running a daycare. It requires constant babysitting of your contractors. If you can stomach dealing with excuses on a daily basis and you’re not afraid to hold contractors accountable, then you might make a good rehabber.
You must be willing to fire a contractor on the spot for non-performance or under-performance. I try to be fair yet tough and sometimes offer a bonus to complete work early and also have a penalty for not completing work on time.
Check out this Quick Tip on How to Keep a Contractor on Schedule and on Budget...
#4: You Can Raise Capital:
Let’s face it, without capital, there is no rehabbing going on. You must be vigilant about raising more and cheaper capital to fund your deals. If you don’t become proficient at talking to banks, hard-money lenders and private investors and good at convincing them that they should lend you money, you’re dead in the water.
I see a lot of investors who just don’t understand this. It requires learning the lending jargon, what they want to see and presenting deals that meet their criteria. For 10 years straight now, I have been building relationships and raising capital as a primary focus to grow my real estate business.
The quickest way to get started is to find a capital partner. I actually partner and provide capital for my coaching students (leave a message in the comments below, if you’d like to know more).
#5: You’re Able to Adapt Quickly to Change:
There is nothing wrong with just being a wholesaler but it’s difficult to progress as an investor. Growth only happens when you push out of your comfort zone. If you resist change and are reluctant to adapt with the market or try new things, rehabbing might not be a good fit for you.
As I mentioned I started out wholesaling junkers in Detroit and slowly progressed to rehabbing junkers, then rehabbing 1st time buyer homes ($150,000 sale price), then higher end homes and now building multi-million dollar spec homes.
Leave a comment and let me know if your goal is to become a rehabber.
Until Next time, Happy Investing,
Click here to get a FREE copy of Jerry’s best selling eBook, “How to Make a Million Dollars a Year Flipping Houses.”