Correctly Estimating Your Rehab Budget
As a fix-and-flip real estate investor, profit is made through rehabbing and increasing the resale value of a home. Completing a rehab project requires an investor to properly calculate a rehab budget based on sales comparisons for the area and how much rehab they are willing to put into a project. In this post we’ll explore how to correctly estimate a rehab budget to avoid costly mistakes and headaches that can cause investors to lose money on their investment deals.
One of the first things an investor can do when calculating their rehab budget is take sales comparisons for the area that the property is located in. Looking at the value of other properties in the same area can provide a sense of what their home will be worth once the rehab is complete. Using that information allows an investor to create their budget around an After-Repair-Value (ARV) that will give them a sense of the necessary rehab work and costs needed to reach that After-Repair-Value when it comes time to sell the property.
Understanding how much rehab an investor is planning to do on a property is another key factor in determining a rehab budget. The quality of the materials and appliances, such as kitchen appliances and countertops, they are willing to put into a project is a factor in calculating a budget. If the investor plans on adding a garage or back porch their budget will need to be higher to compensate for those larger additions. Having a solid design plan in place will make it easier to form a budget and provide structure to the overall rehab process. It is also important that investor’s prepare for the worst and over budget to cover any unforeseen issues that may arise during the course of a rehab such as having to replace electrical wiring or fixing a water damaged basement.
Fix-and-flip real estate investing is an exciting and when done right, profitable form of investing. Having a sound budget that details what work needs to be done and leaves room for unexpected problems that may arise leaves an investor with an excellent chance to make a strong return on investment without breaking their budget.
At Lima One Capital we are the nation’s premier lender for real estate investors. We make it easy to finance all of your fix-and-flip, rental properties, and multifamily projects. We are a national hard money lender lending in 41 states across the country including Washington, D.C. If you have any questions about Lima One Capital or our loan programs give us a call at 1–800–390–4212 or send us an email at firstname.lastname@example.org, we’d be happy to answer any of your questions! www.LimaOneCapital.com