The value of a budget before closing
February 22nd, 2011
After all the hard work of finding and negotiating on a property to flip it’s now time to do some work before you close…… Look it’s very exciting to flip homes but do you really invest the right amount of time into your construction process before you close on your deal or do you just go with the flow and hope it’ll work out. The least amount of costly choices made during the rehab process the better. I often see investors making major choices on what to do and not do after closing and during the construction process. It’s funny to to see them close on their property not knowing the exact costs of the remodeling project at hand. This usually turns out to be a nightmare for both the contractor and the investor. Once you close there’s no turning back so I recommend to all investors seasoned or new to take the time to get their costs in place before closing. This will make your investment a smooth process and you won’t have to cut corners that may affect your bottom end sales price. There’s always room to save. But where? It’s pretty easy if you have all the options laid out in front of you before you start writing checks. Here’s a question to ask yourself before moving forward. Do you know enough about residential homes to really see all the deficiencies of a property and can you figure the costs to repair these deficiencies? If so, great. Put your system in place to speed up the process and start capitalizing and having fun in this great market. If not, I suggest building a solid relationship with a rehab consultant that can assist you on the road to rehab success. The worst rehabbing mistake is to have a set construction budget that is made based on what you want to make on the back end of your deal. The basis of a construction budget is to correctly bringing the property to the expectation of the retail market. Investors have failed to sell a home because their construction budget was to low and the rehab didn’t meet the retail standard for the area. Making up your construction budget based on your back end greed or as work is getting done seems silly and may work out for you, but when it doesn’t it’ll hurt real bad. If you can’t afford to do it right. The bottom line is the price paid for the home was probably to much in the first place. So,taking the time to look at the expectation of the retail market your planning on investing in before your purchase will give you an idea of what to do and what not to do. Your goal should be to provide the end buyer with the best possible product on the market priced at or slightly below current market value. This is easy to achieve when you plan your rehab and budget before you close.
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