There are a number of things that kill profit in real estate investment, but one of the biggies is getting your construction costs wrong. The concept is simple, but serious: mis-estimate the costs to flip the home, hire the wrong crew that takes too long, or get overcharged, and your profit is going to suffer.
Here are a few tips to help you get it right:
Typically when you go to rehab a home, you’ve got a few options. You can find local “handymen” or fly-by-night people that are inexpensive, then spend (usually) more time managing them and making sure they’re doing things right. This would require you to have a level of expertise in construction, and you’re going to have to spend a lot more time on the site. Plus there’s also the chance that something goes wrong due to their lack of expertise – and costs more in time and materials. Our recommedation? Find a reputable contracting company you can work with. Check their portfolio, reviews, and even if they have experience flipping homes. Some, like Jaden Bodden of Bodden CGI are even well versed in the REI world. While he’s involved in real estate investment, the company’s speciality is residential and commercial construction. Contractors like Bodden may be solid partners who you can count on for accurate estimates and timelines, with the added bonus of professionalism they bring so you won’t have to babysit the crew.
Another idea is to partner or link up with a mentor, who can walk you through your first flip. Find someone with experience (even in your own market) who you can trust, and learn from them. You may even consider working with them for a while, before going out on your own. Even taking someone out to breakfast will allow you the chance to ask questions, learn more about profitable flips, etc.
Finally, there are probably loads of meetups in your area among fellow REIs. There’s no harm in going to those, building relationships, and asking other REIs who they use for their house flips. Getting recommendations is a great thing, especially if that REI has been in business a long time. Find someone who you can trust, who’s been successful, profitable, and been in business a few years or more, and then ask them who they recommend.
At the end of the day, there are plenty of other things that could kill the profit on your next deal: buying too high, selling too low, and a host of other factors. But when it comes to construction, find a partner in the construction industry you trust, you can deliver quality work, on-time, and on-budget.
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