So, you want to flip or rehab a property. Where do you start? While some might encourage you to start by identifying a loan provider and getting the application started, others would encourage you to think through the entire process in advance. Have you already identified the property? Or what happens when you get the loan, and you only have a certain amount of time to complete renovations? Do you already have a contractor in mind?
The purpose of this blog isn’t to make you feel uneasy. It’s to help you hit the ground running once you close your loan. Every second, and ever penny count when you’re making renovations to a property. Peak Asset Lending has offered rehab and flipping loans for years, and we’ve managed to learn a thing or two about rehab contractors while we’ve been at it. So buckle up – we’re going to hit you with three tips to help make your rehab a success.
Tip #1: Don’t just automatically choose the lowest bidder. Look for the value in a contractor, not their pricing. How do you identify value? References. Ask bidding contractors for references on similar projects with similar scopes. This will help you connect with sources that can give you invaluable information. Pro tip: Not interested in re-inventing the wheel? Flip the script and go to trusted industry colleagues and ask them for Contractor referrals they would recommend.
Tip #2: It’s all in the details. This is where 90% of the problems occur in rehabs. In order to get what you want, you’ll need to clarify everything and set expectations up front. How do you do this? First, you’ll need to set the Scope of Work. Identify specifics in material quality and finish conditions, as they tend to be overlooked, left out, or poorly defined. Pro tip: Need help coming up with a thorough and detailed Scope of Work? Get a home inspection. Not only will you have the benefit of a second set of eyes on the project, the inspector will clearly outline deficiencies and issues that need to be corrected. Lastly, make sure you completely understand the contract, and the terms held within. If you’re not sure on something, seek the help of a professional.
Tip #3: Rehabs tend to be fluid – prepare yourself for change orders. Unlike new construction, where issues are identified early and can easily be avoided, rehabs have the element of surprise. Pre-existing conditions pop up partway through a remodel and can alter the original construction plans. While everyone does their best, even the most experienced rehab contractors encounter problems. Change orders are part of the deal and can help minimize the impact to the overall project timeline and budget, when handled properly. Make sure this process is clearly defined from the get-go. Pro Tip: Always budget a contingency for change orders. Financially accounting for likely changes will keep your investment projections on target.
Ready to pick up a sledgehammer and get started? Now that you’re set with a rehab contractor, contact Peak Asset Lending and work with our team of lending professionals to get started on the loan you need for your rehab project.