“Cookie Cutter Rehabbing” Part 2 : Real Estate Investing Renovations
Last week we went over how to increase your efficiency and profit through “Cookie Cutter Rehabbing.” This strategy entails using the same repairs and upgrades in the same way for every house in a given area, price range, and exit strategy. We also covered the advantages gained in estimating costs and shopping for products.
This week we’ll look at finding bargains, installing updates, hiring contractors, marketing houses, and making competitive offers.
Finding Bargains
You’ll remember last time we talked about how easy it is to shop for products using a cookie cutter approach because you know what supplies you need in each house of that type.
When you use the same supplies in every house, it’s easy to pick up bargains. All of the big box stores, many independents, and several of the smaller suppliers regularly put overstocked, slow-moving, and damaged items on clearance. You can really pile up the savings on these. I was in a big box store today when I noticed three-light bathroom sets marked down to $20 from $100. I bought every set they had. I’ll store them and use them in the next few houses.
Remember though, only buy what you know you’ll use. Otherwise, you end up with a corner of your garage filling up with the dreaded “Items-to-Go-Back-to-Home-Depot.” C’mon, we both know that stuff never makes it back.
I just took a load back that sat in my garage for two years and had to stand in that long, slow-moving return line. I stood there half-embarrassed when the clerk told me that they didn’t even carry about a third of the stuff I was trying to return (Oops…guess I got some of it at Lowes).
That’s where “Cookie Cutter Rehabbing” comes in because you already know what you regularly buy. When you walk by the clearance racks, pick up anything that fits in the plan. If not, move on.
Installing Updates
If you happen to have some skills or experience with renovations, you could take on some of the labor yourself. This is called sweat equity – you trade your sweat for increased equity in the property. If you’re going the hands-on route, using a cookie cutter approach will allow you to continually get more efficient as you go. Each time you install the same shower valve, or ceiling fan, or kitchen cabinet; each time you pick out tiles or countertops or paint colors, it gets easier and faster.
Hiring Contractors
What in the world does “Cookie Cutter Rehabbing” have to do with hiring contractors anyway?
Let me tell you; when I close tomorrow on my next project, I have a list of phone numbers to call. One is my dumpster guy, one is my general contractor, I have a roofer, a painter, and an electrician. These are all contractors who have done work for me before. I know the quality of their work, their pricing, and how reliable they are (or aren’t).
It takes a little while to build a team like this but is well worth the effort. Even if one of my guys doesn’t show up for the job, I have a replacement waiting in the wings. Knowing what I usually pay for certain jobs, how long they should take, and what it should look like when it’s done gives me a leg up when negotiating with the replacement contractor.
Marketing Your Product
In case you didn’t already know, there is a lag time in this business between when you start marketing a property and when you actually fill it with a tenant or sell it. If you start marketing the day you close (or before!) you have a tremendous advantage. I have it built right into my purchase and sale contract so that I can start marketing a property as soon as I contract it. Remember, vacancies are your biggest expense in this business.
As long as you utilize “Cookie Cutter Rehabbing”, if a perspective tenant or buyer walks through when it’s still under renovation, you can effectively describe the finished product to them.
Instead of saying things like, “Well, the kitchen cabinets will be new, but I’m not sure what color” or “I’m not sure if I’m going to replace that bathroom vanity yet,” you could say, “The kitchen cabinets are brand new light oak with Quartz Milano countertops. The bathroom vanities are also new in matching oak with Moen faucets on white cultured marble tops with built in sinks. The property will be available around August 1st, does that fit your schedule?”
Which description do you think will move a property faster? Here is an important secret: Most prospective tenants and buyers cannot see the potential in a property under renovation. Its best not to show a property before it’s in tip-top shape!
Making Competitive Offers
If you are about to make an offer on your first renovation property, I have some advice. Take the amount you think it will cost and the time you think it will take and double them. Trust me, costs and timelines can quickly spiral out of control. Therefore, it pays to be conservative on your first few projects. That said, if you’ve done a couple of rehabs and inked out your cookie cutter model, you can afford to get a little more aggressive with your offers.
You are bound to run into potential deals that several other investors have either seen or soon will. Oftentimes if you want to buy one of these, you need to have a competitive offer without giving away the farm. Your cookie cutter approach will let you know what you can offer with peace of mind. You’ll have a much more accurate estimate of what the rehab is going to cost and how long it will take. Oh yeah . . . a side benefit of this is that you can sit confidently in front of the seller and explain your offer to them (instead of squirming around trying to make the numbers work). Confidence goes a long way in persuasion.
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“Cookie Cutter Rehabbing” Part 1 : Real Estate Investing Renovations
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Patrick Riddle:
Dusty Keefe:
“Its best not to show a property before it’s in tip-top shape!” That is very insightful. Hasn’t really occurred to me that prospective buyers won’t be able to see the potential as well as you can.
I recently broke this rule because I had a couple who were in a hurry to move and I got seduced by the chance to lease the rehab project I just bought without actually rehabbing it. While the couple walked through the wife kept saying, “I can see the potential, I can see the potential.” She night have seen the potential but I never saw them again.
It’s good to paint a picture in someone’s mind when they are walking through a property that needs a bunch of work to help them see the finished product and where all of their stuff would fit. Sometimes you can even fill the property without having to do all the work by giving them a good deal.
“Sometimes you can even fill the property without having to do all the work by giving them a good deal.”
Good point Patrick. A few months ago I contracted a property subject to and was able to show it, get a lease signed, and get the option money in my hands before I even closed on the property. The property needed paint, carpet and some minor repairs, which my lease/option buyers agreed to take on in exchange for a reduced option fee. I didn’t do a single repair. Sweet Deal!