When real estate investing newbies first start out, they often start this way:
They go out and find a run-down house and they buy it. They intend to fix it up and sell it for a huge profit so they can bankroll their next bigger and better investment.
That's a bad idea
Rehabbing is a bad idea for 99% of real estate investors out there.
It's insanely popular as "THE" way to become a real estate investor because people see big dollar signs from TV shows about flipping. But those TV shows do a disservice to the inexperienced rehabber who assumes it's the only way to go. (Note: There are some investors who choose to rehab and are very profitable at it… but it's NOT the only way to invest… and it's not how The DM likes to invest).
Those shows often only show the success stories and they compress it into a half hour episode.
But here's what really happens: When the investor buys the property, they take on a HUGE amount of risk and lock up a bunch of their capital in the property. Then they have to juggle their time between working at their regular job (to pay for their life and to service their recently-acquired mortgage) and evenings and weekends at their rehab property.
More time is added to the timeline as they acquire permits, wait for inspections, assess what they need, and wait for the trades who need to show up and do the work.
They also have to pay for equipment, tools, construction materials, of any work that they want to do themselves. (And really new and budget-conscious real estate investors find that they have to do a lot of the work themselves).
Fast forward a few weeks (more accurately: months… heck, I know one investor who has held his rehab for more than a year as he navigates unexpected challenges). There are carrying costs on this property but no income. The time is ticking, stress is mounting. You have a ton of money going out and ABSOLUTELY NO MONEY coming in. (Do you see the problem here yet?)
Then it's time to sell. You post the property for sale, you maybe work with a real estate agent to show the house. You're putting up signs, showing up at open houses, and hoping to sell your house... paying carrying costs the entire time. If you can sell (which is extremely hard in this market since housing prices are so low and probably going lower in the near future), even if they “may” go up in price, it still holds to much risk , you're not going to get what you want because we're in a buyers' market right now.
What's the end result?
Trust me, it's way more serious than that nasty bruise from when you demolished the kitchen, and hammering on your thumb while you were shingling the roof.
You've spent HOURS of time commuting and working and selling the house. You've spent THOUSANDS of dollars in buying the property, carrying the property, and (of course) fixing up the property. You've probably added tons of STRESS to your life between the fatigue and tight budget and worry and frustration.
Put down your hammer
I don’t recommend rehab to anyone. I like to call myself a Recovering Rehabber...
I haven't picked up a hammer in years. I don’t spend my weekends price-shopping between Home Depot and Lowes. I'm not showing up at an open house every Saturday.
I'm investing in real estate but I'm doing it while I sip cappuccinos in Barcelona, float down the canals of Venice, relax on a beach in Maui, explore the town of Santorini Greece, or spend time with family and friends in the sunny Caribbean (which is where I am right now).
I can do this for two reasons:
First, I've chosen a type of real estate investing that minimizes my time/expense/stress and maximizes my income (with ongoing daily income!). That investing is called "wholesaling" and if you're new to the real estate investing world, it works like this: I find properties worth investing in, I present it to a list of buyers I have already gathered, and I use their money to invest in a way that ensures everyone wins.
Second, I've built my wholesale real estate investing business to run virtually without me having to do very much at all. I use email to maintain my relationship with my buyer-investors, and I use email to stay in contact with my team. Both of those elements are essential to running a virtual real estate wholesaling business...
... no matter where I am in the world.
... without ever lifting a hammer.
If you are thinking about becoming a real estate investor – or if you've started down the rehabbing path and want to find a way to actually be successful and achieve your goals – put down the hammer. Forget rehabbing and get this resource to help you get zeroed in on the wholesaling process.
Your wholesaling mentor and friend,
Mark Evans, DM, DN