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Taking Personal Responsibility - The Best Way To Ensure Your Rehab Real Estate Investing Success

Mar 1, 2008
There are a lot of factors that are involved in a successful rehab real estate investing transaction. You need a property, a reputable appraiser and contractor and a funding source to purchase the property. Depending on what you plan to do with the property, you may also need a good mortgage broker to refinance you, a motivated REALTOR to sell the property or a good property management company to locate and interview tenants and manage the property for you. This doesn't include other possible service providers, such as a surveyor, landscaper or handyman..

A good real estate investor will make sure that they have all of these components line up. However, you can't forget the most important part of the equation - YOU!

Isn't this a No-Brainer?

You would think that it would be. Purchasing an investment property is serious business. However, many real estate investors actually abdicate responsibility to everyone else who is involved in the process. They assume that, because they are surrounded by professionals, that they do not have to concern themselves with the details. Nothing could be further from the truth.

As creators of the Ultimate TurnKey Real Estate Investing System, we know first hand the value of setting up a system. This is why we did it. If you have ever spoken with us in person, you will know that we created the system to make real estate investing an easier process for other real estate investors. We didn't see any point in other real estate investors having to re-invent the wheel, and start from scratch. So, we put together a team to help ensure our clients' success. Again, if you have spoken with us, you know the story.

The System was created as a support for real estate investors, not as a replacement for their active involvement in their own transactions. We have talked to other wholesalers who have experienced the same phenomena. The funny thing is, they do not even offer the support system that we do, but they have run into several clients who want to push responsibility back onto them.

Whose Responsibility is it Anyway?

Simply put, it is your responsibility. Probably 99% of investment properties are sold AS-IS and earnest money deposits are non-refundable. This means that, if something is wrong with the house, or needs fixing, it is the responsibility of you, the buyer, not the seller. This differs greatly from transactions where you are buying a house to live in yourself. Those types of homes are typically not fixer-uppers. If they are, they are probably sold as is, and you are going to get the house for a lot less than you would if it did not need fix up.

Of course, the fact that the property needs repairs is what makes it a good candidate in the first place. Remember, your best investment properties are ones that need repairs. So, you should go into the project with the mindset that you will be painting, replacing carpet, fixing drywall, and possibly even adding on bathrooms or replacing kitchens. The key here is to know all of this when you go into the purchase. This is your responsibility.

So, how can you do this? You might be a new investor who has no idea what repairs would even be involved. Or, maybe you don't have time to get that involved. We would suggest that you take the time to find out, and you educate yourself where needed. This is not because anyone is going to try to take advantage of you, but because you need to have your knowledge base intact before going into your endeavor. If you still feel like you don't know enough, or you are still too busy, you are probably correct.

However, if you are ready to get started, make sure that you have a quote on hand from a licensed contractor and see what repairs they are going to do. Make sure that you walk through the house or see interior photos. This way, you will know if there is something else that you think should be done or that you just want to do. This way, you can have the bid adjusted before you begin the process. If you wait, any increase in repair funds will have to come from your pocket, because they will not have been escrowed in the beginning.

What Else Do I Need to Know?

You really need to be involved in every aspect of your transaction. Of course, some things will have greater bearing on your success than others.

You definitely need to know how your up-front financing works. The vast majority of rehab real estate investors use private funds or hard money to purchase their property. But, depending on the lender, the programs vary. Make sure that you know your interest rate. What is the term of the loan? Are there any pre-payment penalties? Do you have to make mortgage payments during the life of the loan? If so, how much are they? These are questions that you need to know the answers to. A reputable lender will go over all of this information with you. However, it is your responsibility to make sure that they do. You also need to make sure that you remember what you agreed to. You shouldn't allow yourself to be surprised later by something that was explained to you at the outset.

Something else that we recommend is that, if you plan to refinance your property, that you get qualified for your refinance at the same time that you get qualified for your purchase loan. Why? Because you want to make sure that you will be able to refinance and get out of your loan. Remember, if your goal is to do a cash-out, you need to make sure you will be able to do so.

You also need to make sure that you stay in touch with your mortgage broker throughout the process. This way, if anything changes, you will know about it right away. For example, you can make sure that you know what programs that your mortgage broker has, and what you qualify for. There may be a new program that comes out that is more advantageous for you, or the program that you may have thought you were using may no longer be available. Either way, you need to be informed of all of your options.

By the same token, if anything changes about your financial or employment situation, you need to let your mortgage broker know as soon as possible. The changes may not affect your ability to close on your refinance, but they may. You may have to pursue a different strategy, and it is good to know this in advance, rather than at the last minute.

This Actually Makes Sense.

Yes, it does make sense to be informed when you are purchasing an investment property (or any major purchase). But remember, you should be proactive, as well as informed. Legitimate businesspeople will not have a problem with you asking questions or being involved. In fact, we welcome this. It shows that you are concerned, involved and take responsibility.

While everyone involved in the process does what they can to ensure that everything runs smoothly, this is not guaranteed. But, if you remain involved, there are few surprises and you are well equipped to handle anything that does come up.

Because, at the end of the day, this is your property.
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