The 7 Keys to a Successful Rehab

Flippers and would-be landlords want a magic tool that will estimate renovation costs and tell them exactly what to fix every time they find an opportunity. Unfortunately, such a tool doesn’t exist (yet). But there are steps you can include in your overall process to help you approach your projects more confidently.

Here are the seven keys to that discipline.

1. Be Realistic

Don’t get into a rehab project without getting eyes on it. They don’t have to be your eyes, but they should be experienced eyes you trust. Some deals seem great or too good to be true. As the old axiom goes, if it sounds too good to be true, it probably is. Once you’ve seen the project, you’re not home free, but you’re in a much better position to know what you’re getting in to.

If you have a real estate mentor or someone who has advised you in the past, enlisting their second set of eyes is also valuable. It’s easy to get emotionally invested in a deal. A trusted advisor, who will be honest with you, can add a splash of reality to the emotion. Pay attention to what others say, but also trust your gut. Head into every rehab project with your eyes open.

2. Budget

Having a solid budgeting tool can help you assess your costs.

Many tools on the market are wired into updated pricing from major retailers, but it’s always important to buffer. When you do your math, be generous. Make sure to always put real numbers behind everything that needs to be completed.

Another important part of budgeting is to account for all your costs. Make sure you include:

• Materials. Consider everything you must buy and the cost of getting it to your property.
• Labor. This is the full cost of the team necessary to complete the project. Make sure to account for everyone and, importantly, to pay them in a timely manner when they execute.
• Your purchase price. Whether it’s your money, a lender’s money, or a combination, the amount you spent to purchase the property must be included as you develop your budget.
• Cost of money. If you’re borrowing money, be sure to calculate what that money will cost within a realistic time frame.
• Other holding costs. You’ll need power, heat, air conditioning, etc. Don’t forget to count that in your budget during the time you will be responsible for those costs.
• Staging. If you’re going to rent the house or flip it quickly, you must ready it for people to see. Don’t forget to include the cost of staging the property.
• Permits and other regulations. Know what the city is going to charge you in permits and other fees to take the property from where it is to where you want it to be, and then put all those costs in your budget.

3. Build a Buffer

Give yourself a buffer, especially in today’s market. A buffer of about 15% of your rehab budget can help with any unforeseen issues. No one will be upset if you don’t use the buffer, but it will be painful if you don’t have a buffer and run into issues. Figure out what you’re comfortable with and add in that buffer to every project. You won’t regret it.

4. Create a Timeline

Just as your budget is important, timelines are critical to the rehab process. Make sure you know which parts of your project rely on other parts. There is an abundance of great software for managing timelines for rehab projects. At the very least, put a timeline in the calendar app on your phone to help keep everything moving. Creating and managing to a timeline will help you stay on time with your project, and it will also ensure your holding costs stay within the boundaries you determined as you were budgeting.

5. Match the Area

Your rehab will need to match the area where the property resides. You may be tempted to “overdo” a rehab, but overdoing it may not lead to additional rental income or a better sale price. Likewise, “underdoing” it could lead to a similar problem: Your cost to rehab will be lower, but your rehab will not show as well as other properties in the neighborhood. Although it may be nice to save on budget or to deliver a super high-quality rehab, make sure it matches the area. Some quick reconnaissance will help you understand the proper level of rehab.

6. Execute

So, you have your budget in hand, your timeline, your team in place, and you’re ready to pull off the best rehab you’ve completed to date. The only thing left to consider is sometimes the hardest: You must hold yourself accountable. Doing so is the key to holding everyone else who will be working on the project accountable too.

Keep everything in front of you, give yourself ample time to accomplish all the steps, and recalibrate each time something is missed. Meet regularly with your team to discuss progress, missteps, opportunities to improve, and overall progress. Don’t miss opportunities to improve as the project is in flow. Having uncomfortable conversations with your team about small mistakes ultimately will lead to process improvements and prevent you from making big mistakes.

7. Postmortem

Once you’ve completed the entire process—and sold or rented out the property you’ve rehabbed—it’s important to review the project to determine what worked and what didn’t. Don’t be afraid to ask tough questions, but be sure to create a safe space in which people are comfortable sharing honest opinions that can improve future projects.

Include these three important questions in your postmortem:

1. What went right?
2. What went wrong?
3. What should be changed?

In the end, successful rehabs—those completed on budget and on time—are within the grasp of every team willing to dedicate time to developing winning processes.