How to Rehab Your Way Into Big Profits!
Wednesday, August 12, 2009 | Ethan RobertsRating:
Tycoon readers, I always enjoy the comments that I get each week after I write my articles. Sometimes a few may be critical of me, or of what I am writing about. Not only do I appreciate the discussions that arise as we share our experiences and viewpoints, but I absolutely do give considerable thought to what the readers are saying.
In last week's article about renters and their dogs, one reader commented that the stories and comments reinforced his feeling that real estate investing is just too time-consuming, and that it is easier to simply hold a good stock with a good dividend yield.
I thought and thought about that comment all night. ...
Ethan ponders the reader's provoking comment...
The reader is correct. It is a lot easier to just hold stocks. Real estate investing is a whole different approach to investing than the stock market. However, I don't believe that real estate is more time-consuming than stocks.
Stock Investing vs. Real Estate Investing
Ask professional stock traders like Chris Rowe, Teeka Tiwari and the other Tycoon writers how many hours a week they devote to looking at charts and studying the stock market. They probably put in many more hours each week than I do, in owning several rental properties.
In fact, sometimes weeks or months can go by where I don't do anything at all for my properties except to deposit the rent checks!
The main difference between investing in stocks vs. real estate is the amount of hands-on physical labor that one may have to put into work on an investment property from time to time. But I can tell you that it's the rehabbing that creates the catalyst for the biggest profits! That's why they call it "sweat equity."
Now how can this be, when rehabbing a property involves the cost of materials and sometimes even other people's labor? Seems like we are spending money, rather than getting a return!
A Small Investment That Can Pay Off Multiple Times Over...
You see, rehabbing is like planting seeds. You plant them today and, one day in the future, those small seeds produce beautiful large flowers.
Well, the seeds of rehabbing homes over time beget the flowers of dollar bills, as if they were growing on a tree!
Stock Investing vs. Real Estate Investing
Ask professional stock traders like Chris Rowe, Teeka Tiwari and the other Tycoon writers how many hours a week they devote to looking at charts and studying the stock market. They probably put in many more hours each week than I do, in owning several rental properties.
In fact, sometimes weeks or months can go by where I don't do anything at all for my properties except to deposit the rent checks!
The main difference between investing in stocks vs. real estate is the amount of hands-on physical labor that one may have to put into work on an investment property from time to time. But I can tell you that it's the rehabbing that creates the catalyst for the biggest profits! That's why they call it "sweat equity."
Now how can this be, when rehabbing a property involves the cost of materials and sometimes even other people's labor? Seems like we are spending money, rather than getting a return!
A Small Investment That Can Pay Off Multiple Times Over...
You see, rehabbing is like planting seeds. You plant them today and, one day in the future, those small seeds produce beautiful large flowers.
Well, the seeds of rehabbing homes over time beget the flowers of dollar bills, as if they were growing on a tree!
Ethan's real estate rehabbing tree produces flowers...
Now, there is no doubt about it, rehabbing a property is hard work. I know because I have done it many times over the last 14 years, and I'm certainly not getting any younger!
However, the interesting thing about rehabbing houses is that, after a while, many people actually begin to like or even love doing it, and feel a lot of pride in doing it well and seeing the outcome.
A Learning Curve Can Become a Labor of Love
I have never in my life loved, nor felt any emotional attachment to, any stock that I've owned. But I have definitely loved some of my investment properties!
Real estate investing is definitely a labor of love, and it's not for everyone. But many of those who try it, wind up "hooked" by its allure.
Let me share a personal moment with you.
Nobody in my family ever taught me how to fix anything, or even how to use simple tools to put things together. In a society where men are expected to know how to make home or car repairs, one's self-esteem can really suffer when you haven't a clue about anything mechanical. And in the mid-1990s, when I started investing in real estate, I swear I didn't know a wrench from a pair of pliers!
Wrench and pliers... 'handyman 101' class will now begin....
However, I did have one thing going for me -- my maternal grandfather was a house painter. Before long, I found that I had inherited at least one useful trait: I was pretty good at painting walls!
So, at first I just did the painting and left all the repairs to the hired help. However, over time I gradually learned how to at least make simple repairs, and a funny thing happened -- I actually found that it was improving my self-esteem to acquire skills that I had never dreamed I would have!
Up Your Property Value with Invaluable Rehab Skills
So this week I am at it once again, rehabbing one of my rental homes in Northeast Florida.
The tenants moved out at the end of July, having lived there since March 2005. Although some general repairs were made from time to time, when tenants stay for a long period of time, there is always a lot of rehabbing to do when the tenancy ends.
So when I took possession of the property, I walked through each room, as I always do, in order to assess the repairs and/or improvements that were necessary. All of the blinds needed replacement; the walls, trim and baseboards needed painting; a porch screen was torn; a porch door latch no longer worked; many bulbs were burned out; new door locks were needed; and the deck, porch and driveway were in drastic need of pressure-washing.
The 'after' picture of a patio deck that was completely slimy, with black and green mold before I pressure-washed it.
Then there was the ugly, dark wallpaper in the foyer that a previous tenant had hung. I decided it was time for it to come down.
So, I spent several hours stripping it off the wall, only to discover the real reason that she had put it up. Her angelic little 10-year-old had slammed the door so hard, he broke the door stop and put a large hole in the wall!
Looks like it's a patch job for me. ...
So, I spent several hours stripping it off the wall, only to discover the real reason that she had put it up. Her angelic little 10-year-old had slammed the door so hard, he broke the door stop and put a large hole in the wall!
Looks like it's a patch job for me. ...
Why patch a hole when you can cover it up with ugly wallpaper?
When Should You Spend Money on Rehabbing?
Problems like these are also common in most foreclosures and other types of distressed real estate. Most are inexpensive fixes if you do the labor yourself. But the returns on distressed real estate over time are phenomenal.
Spending just a few thousand dollars on these kinds of homes can return 10 times over in equity when the property is later rented or sold. During the four-plus years that the last tenant occupied this home, they paid out over $52,500 on my mortgage!
One should always focus the bulk of their rehabbing dollars on the kitchens and bathrooms, as these are the rooms that clinch the deal for both tenants and buyers.
The refrigerator and stove in my rental property are both from the 1990s, and so I have decided to replace them with new ones. The kitchen blinds will be changed, new fluorescent bulbs added, and I will relocate the ceiling fixture to a better place. My plan is also to spruce up the two bathrooms with new mirrors, medicine cabinets, toilet seats and fresh caulk.
Just to give you an idea of how you can transform a "blah" kitchen into one that can rent or sell a house quickly, a few years ago I remodeled the kitchen you see below:
Problems like these are also common in most foreclosures and other types of distressed real estate. Most are inexpensive fixes if you do the labor yourself. But the returns on distressed real estate over time are phenomenal.
Spending just a few thousand dollars on these kinds of homes can return 10 times over in equity when the property is later rented or sold. During the four-plus years that the last tenant occupied this home, they paid out over $52,500 on my mortgage!
One should always focus the bulk of their rehabbing dollars on the kitchens and bathrooms, as these are the rooms that clinch the deal for both tenants and buyers.
The refrigerator and stove in my rental property are both from the 1990s, and so I have decided to replace them with new ones. The kitchen blinds will be changed, new fluorescent bulbs added, and I will relocate the ceiling fixture to a better place. My plan is also to spruce up the two bathrooms with new mirrors, medicine cabinets, toilet seats and fresh caulk.
Just to give you an idea of how you can transform a "blah" kitchen into one that can rent or sell a house quickly, a few years ago I remodeled the kitchen you see below:
The 'before' of a kitchen I rehabbed 3 years ago...
The same kitchen after new countertops, stove, range hood, refrigerator, flooring and paint. The home sold shortly after being listed, and for a top price...
The total cost of the rehab project above was approximately $1,600. I'm sure I got every penny back that I spent when the buyer's appraisal was done, and the house sold very soon after I listed it.
I have to admit that, about halfway through all of my rehab projects, I start to have a real love-hate relationship with the house. It's about that time that the place is a total mess, with supplies, paint cans, ladders, parts and even occasional toilet bowls strewn about the living room. Ugh, I don't even want to look at the place sometimes.
But by the end of the job, when all the repairs are finished, the paint is dry, and the carpets are either cleaned or replaced, there is a tremendous sense of pride of accomplishment that I feel, and I start thinking about the next rehab project! In fact, I think I may need to go to rehab for my addiction to rehabbing!
Am I crazy or what? And you can be crazy, too. Yeah, crazy all the way to the bank!
By the way, I'm not even done with rehabbing this property, and already I have secured a tenant who will move in before the end of this month. I showed them the changes being made, and they loved the place!
How about you, Tycoon readers? Have you rehabbed any properties, either for yourself, or for investment? How did it turn out and how did you feel by the end of the project? I would love to hear from you!
But by the end of the job, when all the repairs are finished, the paint is dry, and the carpets are either cleaned or replaced, there is a tremendous sense of pride of accomplishment that I feel, and I start thinking about the next rehab project! In fact, I think I may need to go to rehab for my addiction to rehabbing!
Am I crazy or what? And you can be crazy, too. Yeah, crazy all the way to the bank!
By the way, I'm not even done with rehabbing this property, and already I have secured a tenant who will move in before the end of this month. I showed them the changes being made, and they loved the place!
How about you, Tycoon readers? Have you rehabbed any properties, either for yourself, or for investment? How did it turn out and how did you feel by the end of the project? I would love to hear from you!
Ethan's current project, command central...
See you next week!
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Ethan Roberts
Contributing Editor
The Tycoon Report
