In the second part of The 8 Biggest Rehabbing mistakes we
look at three more areas that can swallow up your profits
in no time.
BIG MISTAKE #6: YOU PAY TOO MUCH WHEN YOU BUY
You make your profit when you buy. Pure and simple! I will
always tell my coaching clients at my workshops that this
is the most valuable advice that they will ever receive
from me. The added value from the renovation is the icing
on the cake.
Always research your market well and ensure that the
potential selling price is achievable when all costs and
profit margins are taken into consideration. Never, ever
let yourself be ruled by your emotions when buying. You
must always allow for buying, selling and closing costs.
Where possible, your purchase price must be sufficiently
below market value to at least allow for these costs. Even
better, the price should be low enough to allow for closing
costs plus rehabbing costs.
The following formula will allow you to assess the real
purchase cost of a particular home that you may have in
mind.
Starting with the final selling price, work backwards and
deduct selling costs, profit margin, renovation costs and
buying costs. This final figure is how much you should be
prepared to pay.
BIG MISTAKE #7: FAILURE TO UNDERSTAND YOUR TARGET MARKET
How often have you walked into a home and been totally
horrified by the d?cor? Yet this is another common mistake
made by renovators. They let their emotions get in the way
and decide what is good for them is good for everyone else.
There are two principles that I apply when renovating. The
first is the K.I.S.S. theory: Keep It Simple Stupid!
The second is to focus on the “WOW” factor. It is no
coincidence that a home sells quicker and for a higher
price when it possesses strong buyer appeal. You”re here to
make money, not win a home decorating award. Give the
market what it wants, not what you think it wants!
BIG MISTAKE #8: SPENDING TOO MUCH ON THE REHAB
The great temptation of renovating is to do too much.
Whilst the “WOW” factor is critical, you MUST keep your
emotions out of the equation and strictly adhere to your
budget.
Nothing goes exactly to plan when renovating, so don”t
panic if you exceed your budget by small amounts. Allow for
a buffer to cover any surprises (usually 10 to 15 per
cent). I certainly fell into the “do too much” trap during
my early projects.
Always have your costs estimated accurately prior to
purchasing a property. Later on I will talk about contract
of sale conditions. One such condition is to purchase
subject to having a builder inspect the property. This will
enable you to discover any unforeseen surprises. I
encourage you to renegotiate the price should the
inspection uncover any major defects – or better still,
walk away.
My budget parameters are 10 per cent of the purchase price
for houses. This can be stretched to 15 per cent if it
means that a great profit can be made. These are personal
preferences that have worked for me. They are in no way set
in concrete and readers should exercise their own judgment.
There is no right or wrong way in this business.
The percentages that I allow are in keeping with my
primary objective of obtaining the biggest bang for your
buck in the shortest possible time and with the minimum
amount of money possible.
Conclusion: Understand that things can and do go wrong in
this business. Now that you are aware of the pitfalls, you
will be better prepared from the outset. All it takes is a
little planning and there is no reason why you can”t join
the thousands of Americans who are quietly making huge
fortunes from their Fixer-Upper business.
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