A Project Has An Initial Cash Flow Of 600 FREEhabbing For Fun and Profit – How to Renovate Real Estate the Right Way, the First Time

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FREEhabbing For Fun and Profit – How to Renovate Real Estate the Right Way, the First Time

With a loud shrug I open the front door. Like an intruder, sunlight penetrates a dusty townhouse, spreading cockroaches across the dusty floorboards. I entered, my eyes taking in the scene. Some may focus on crumbling walls, pigeons flying in, or the time and resources required to renovate. But I envision a salary of $120,000.

Property renovations can be frustrating or rewarding – the difference is preparation. To generate income by renovating real estate I created a system I call freehabbing, which allows me to renovate quickly, easily and for less money. Here’s how it works:

Project “Eyeballing”.

Critical to your pre-contract negotiations with the seller is your ability to identify potential cash flows or determine equity. Find Deficits in Value – Deficiencies in the property that create value for you, the buyer. On a yellow legal-size pad and clipboard, list the items that need attention and their estimated cost. By doing so, you will better understand the scope of the project and gain a negotiating advantage. Consider bringing someone with you to the renovation until you develop proficiency in estimating costs.

Control over property

If you determine rehabilitation. Profit potential, your next step is to control the property with contract. The easiest way to do this is an outright cash purchase, but there are also creative options such as negotiating a lease with an option, short-term annuities, partnerships and/or deferred settlement. Using these methods, you can stop paying the property until your rehabilitation is complete.

Project planning

Once your purchase or option contract is approved, you’re ready to start FREEhabbing! Start by purchasing drawings and a “book of specs” from a local architect. The drawings will give your contractor a guide to the layout, and the specifications book will tell the contractor exactly what materials will be used, paint colors, etc. For standardization, I use the same spec book for all my projects. (Buy for $99.)

Choose a contractor

Your spec book is an essential tool because it allows you to collect apples-to-apples bids from contractors. Schedule an on-site appointment to meet with three to five general contractors. Give each contractor a copy of your spec book and drawings, a project deadline, and a two or three week deadline to submit their bid.

As bids come in, do your due diligence. Research each contractor carefully. Is their bid complete? Was it presented on time? Are they professional and polite? Do they have business cards and stationery? Visit their current project. Note the condition of their clothes, trucks and tools. Call references and explore past relationships in detail. Check their license and complaint history with the licensing board and their bond with their insurance company. Ask for a copy of their credit report. Run detective to find criminal background. You’ll be married to a contractor for 2-6 months, so be sure before you say “I do.”

In addition to the above due diligence, the best way to protect yourself from financial loss is to pay on completion. “Would anyone do that?” People ask in my seminars, “What about the third up front?” Actually, payment upon completion is standard in the field of commercial contracts; The investor can simply refinance the property when the contractor is paid off – no money required. At most, I would consider paying after completion of milestones. Ignore this advice at your own peril!

A final tip about choosing a contractor – don’t be your own GC You may save some money, but you’ll lose time that could be used to put other deals together.

Project Management

Once your contractor is on board, hold him or her accountable through diligent project management. Verify exactly how the work will progress and make both scheduled and unscheduled attendance at the job site.

Usually, the work schedule for building security starts with the alarm and roof phase. An alarm can be installed without a phone line. Install ground level windows to keep out thieves.

Next, go to the demolition stage. Create a clean and efficient job site by removing all debris at once. If there is a significant amount, the cost of a dumpster is usually cheaper than paying per truckload. Some municipalities will provide and remove dumpsters for the block at no cost. Once the walls are “open” assess the structural condition of the sub-floors. If the floors are not level, it may be necessary to repair or replace the joists to form a solid foundation.

Heating, cooling, ducts, plumbing in rough and electrical phases are combined. As for heating, radiant heat is the most efficient so if it’s brand new, there’s no need to replace it. If you’re adding central air, you’ll need to install ductwork and possibly upgrade the electrics. Make sure the A/C unit is sized correctly, (1 ton effectively cools 600sf). Convert fuses to breakers and test plumbing before closing in walls.

When the house can withstand temperatures of 65 degrees, the joint compound can cure, so begin framing, drywall, doors and interior painting. When you get to the floors, stairs, trim stage, you’re halfway done! Since I rent my projects, I prefer hardwood and tile to carpet and vinyl; They look better, are more durable and add more value to the property.

Kitchens, bathrooms, fixtures and exterior stages can be completed at the same time. Be sure to ask your architect to design the kitchen with pre-built standard-size cabinets in mind. You can consider using tile on the countertop which saves money and looks better than laminate. Unless you’re planning a landscape, the punchout is the last step and includes any items that still need work.

Use again

Whether you intend to lease or sell, consider signing a contract and getting a deposit from your tenant or buyer before completion, so that when the work is done, you can make an immediate profit.

He says renovation projects always take twice as long and cost twice as much as estimated. If that were true, Mr. Trump, Mr. Rockefeller, and Mr. Rouse would be poor people indeed! But look at the colossal failure of “The Big Dig” subway project in Boston – millions over budget and years behind schedule. The difference between the two is preparation. So the next time you walk into a collapsed building, what will you see?

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