Most important Tips to plan your next rental rehab
“ If a contractor is reliable, they will be able to do the job in the shortest time possible to ensure you start earning from your property sooner than if the rehabilitation was delayed”
Rehabilitation is one of the most effective ways investors can add value to a rental property. Instead of buying or constructing brand new rentals, rehabilitating existing rentals has proven to be a great way to maximize profits in the real estate rental business. However, you have to do it right to benefit from this strategy.
In this article, we will share some of the crucial tips that you should consider while planning your next rental rehab. Let's dive in!
What is rental rehab?
Before getting into the tips that you can use for your next rental rehab, let me first explain what this term means. Rental rehab refers to a strategy of buying a cheaper property and improving it in order to increase its monthly rental income. Please note it is different from home flipping, which essentially involves improving the state of the property and then selling it at a higher price. With rental rehab, the goal is to increase the property's rental value.
Now that we know what rental rehab means, let me share the top 7 tips you should consider while planning your next rental rehab.
Tip #1: Hire a reliable contractor
One of the major factors that will determine how much and how long you spend rehabilitating the rentals you have just acquired is your contractor's reliability. You need to hire a reputable contractor with experience in rehabilitating homes. The best way to get such contractors is through recommendations from people you know or a trustworthy online platform.
If a contractor is reliable, they will be able to do the job in the shortest time possible to ensure you start earning from your property sooner than if the rehabilitation was delayed. The contractor you hire will also determine the overall quality of the job. Remember, the goal is to make the rental property as valuable as possible, so ensure to get a contractor who will do just that.
Tip #2: Make sure every stage is scheduled
One of the most effective ways to execute your next rental rehab plan is to have every stage scheduled. Planning for every stage will help you know how long it will take to complete the entire rehab process. While planning, always adds an allowance for unseen works that might come up during the process.
For instance, if you estimate painting to take about ten days, you can put in an allowance of 2 to 3 days, just in case there are some delays. Most contractors have project managers, so you should work hand-in-hand to create a realistic schedule for every stage involved in the rental rehab process.
Tip #3: Consider your target market
While improving rentals is a good move, you need to know how much improvement is feasible based on your target market. So, you need to consider the market you are targeting and how much they are willing to spend on your rentals. The improvements you make correspond to your expected rental income and whether the people you are targeting will be ready to pay it.
You should also consider the neighborhood of your rentals to get a clear picture of the kind of improvements that should be made to make the rentals match the neighborhood standards. Over- or under-improving a house could make it harder to find potential tenants to rent it to.
Tip #4: Consider the 2% rule
The 2% rule says, "your total monthly rental income should be at least 2% of the total amount you spent on the property." So, as you plan your next rental rehab, you need to, first of all, determine your estimated rental income and then use it to calculate the maximum amount you need to spend in rehabilitation in order not to violate the 2% rule.
Spending a lot of money on a rental property that can't generate at least 2% of the amount you spent to buy and renovate it is not a worthy investment. So, take time and do your math to avoid making wrong investment decisions that could, later on, haunt you.
Tip #5: Choose the best capital option
As you plan for your next rental rehab, we recommend choosing a reliable source of financing to avoid delays in the process. A delay in the project timeline could be much more costly than getting capital from a financer ready to give you funds faster but at a slightly higher interest. So, look at your schedule and choose a financer willing to fit in properly.
Tip #6: Track the expenses as the project goes on
You will most of the time realize that planned expenses are usually different from the actual expenses. Your prayer is that the actual expenses be lower than planned. However, this is usually not the case, so tracking the expenses as the project is ongoing will help you determine if additional financing is required for the project to be completed.
Tip #7: Supervision is key
The quality of work will largely rely on how well the people doing the job are supervised and guided. If you can't be at the site to ensure the plan is being well-executed, delegate a qualified person to help you supervise the project. Remember any mistakes at the site will lead to extra costs or longer timelines.
For example, if a worker fits in the wrong type of glass in a window, removing it and fitting in the right one means more time and probably extra costs on your side. If it requires spending some extra money to delegate a qualified person to supervise the project, do so because it will save you time and money down the road.
You may also consider using professional entities like us to help you do the job. We have an experienced team that knows exactly what to do at the least possible cost and time.
As you plan your next rental rehab, the seven tips we have just shared will help you lower costs and complete the project in the shortest time possible. The key takeaways are planning and making sure the execution aligns with what you planned. In case of any unexpected shortcomings along the way, make sure you have a backup plan for dealing with them.