Investing in real estate is a fantastic way to supplement your income or to build long-term wealth. Like with every other business though you’ve got to keep your eyes on the profit. When estimating rehab costs you need to account for three major components: the price you’ve paid, the costs you’ve incurred during the renovation process and the sales price that your property fetches on the market. Our previous blog installment highlighted common pitfalls in evaluating the after-repair value of the property. Today’s article is focusing on major mistakes in evaluating the costs of owning and rehabbing your investment property.
In real estate your make money when you buy. What it means that you need to put a property under contract at a price that will allow you to make a reasonable profit after the costs of owning, renovating and selling that property. The process of estimating these moving parts might be better described by the former Secretary of Defense Donald Rumsfeld: “There are known knowns; things we know we know… There are known unknowns – things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” I’m sure he wasn’t referring to the real estate rehab business, but you get my drift.