To Rehab or Not to Rehab? THAT is the Question
Many investors start investing in the Detroit real estate market with this idea in mind:
- Buy a property in need of repair
- Fix it up
- Put a tenant in it and collect rental income
On the surface, it seems like a sound idea, however, there are a few pitfalls investors should avoid.
PRINCIPLE #1: Managing a rehab project from far away is HARD. Really hard.
Most people would love to believe that contractors in Metro Detroit are all hard-working and completely trustworthy. This isn’t even true for all contractors in your own backyard.
Finding and vetting a team that you can trust implicitly takes time and experience. Several foreign investors have experienced getting fleeced by unscrupulous operators who took a depot (then ran away with the money).
So, no trusting people we don’t know, at home or abroad.
PRINCIPLE #2: No money is being made while you’re rehabbing.
Ok, so you found a low-priced fixer that only needs $20,000 in rehab. However, it ends up taking 5 months (or longer) to get the rehab done because of project delays, cost overruns, and shady contractors.
If the cost and the time of rehabbing a potential rental property don’t outweigh the benefits, ditch the idea.
Your time and peace of mind are valuable.
PRINCIPLE #3: In the Rental Property game, the money is made when the property is rented.
The faster you can rent and keep a property rented, the more stable your investments in Detroit become.
Headaches, vacancies and terrible tenants cost both time and money, so instead of trying to squeeze every penny when buying a rental property, try finding properties that are already rented and producing cash flow.
This keeps the money flowing and allows the investor to enjoy the benefits of the investment almost immediately.
Always get rent rolls, verify rental payments and screen tenants rigorously, but whenever possible, try to get a property that is completed or rented to maximize time and cash flow.
Good Luck and Happy Investing!