Rehabbing a house is not an easy task whether you want to tackle the work yourself or hire a contractor. I have 14 rentals, have flipped over 100 houses and I am a Realtor. I have dealt with a lot of rehabs and I have a lot of experience fixing homes myself and hiring contractors. The best way to rehab a house will depend on your goals, why you are rehabbing and your budget.
For more information on my rental properties, flips and becoming an agent, check out my complete guide to purchasing long-term rental properties.
Why are you rehabbing a house?
The first step when deciding how to rehab your house is figuring out why you are rehabbing it. Are you an investor looking to flip or fix up a rental or are you looking to make a few repairs on your personal residence? I think investors should almost always use a contractor to make repairs, because of the time and money it will save them in the long run. I discuss why investors should use contractors in much more detail here. Investors have to look at how much time it will take them to complete a rehab versus what their time is worth doing other activities. I completed a rehab a few years ago and it hurt the rest of my business, because I ran out of time to get everything done.
If you are repairing your personal residence a lot of your decisions will be based on your budget and available time. I make many repairs on my house, but they are usually pretty minor and fun to do like painting. For major repairs that require a lot of skill or time, I always use a contractor.
How does an owner occupant decide whether to do a rehab themselves?
When I am looking at doing any work myself, I look at the cost of having the work done compared to the value of my time. I had a playground installed for my kids last summer, which I could have done myself. However it would have taken me hours to understand the instructions and then install the playground.
I was able to hire a contractor to complete the job for about $20 an hour, which actually saved me money. The reason it saved me money was I can make much more than $20 an hour working on other things. By spending time working and earning, I made much more than the $20 an hour I paid a contractor. Plus the contractor was able to complete the job much quicker than I would have been able to complete the job. I also make a good living from my flips, rentals and real estate business and I can afford to pay the contractor.
I don’t always look at every home repair with the idea that if it costs less than I make, have someone else do it. I like doing some house repairs like painting or building shelves. I am not always working every hour of the day, so if I can do a job in a couple of hours and spend time with my family at the same time it is a fun experience. When you are thinking of doing a large home improvement yourself, think of these things:
- How much time will this project take and do you have the time? Remember you can’t use every spare minute of your free time on a project. You will need time off and time with your family. If you have no free time, do not start a huge project that will take 50 hours to complete. Figure how much time you can realistically dedicate to the rehab and how long it will take to complete.
- How much money do you have to spend on your project? If you don’t have the money to hire a contractor to make a repair, then think about doing it yourself. You have to consider your time, material cost and if the savings is worth it. You also need to decide if you have to have this rehab completed or if it can wait until you are in a better financial position.
- Are you capable of doing the work? A professional contractor has many skills and can complete a job faster than a person without rehab experience. Contractors also have the right tools, which can be very expensive. It won’t save you money if you don’t repair things correctly or have to spend thousands on the right tools.
How do you start a rehab if you decide to do the work yourself?
If you want to do the rehab yourself, you need to have a plan. Contractors have plans and schedules to make the job stay on budget and finish on time. Plan out when you will work, all the tools you will need and all the materials you need. Give yourself a budget and a timeline for finishing. This will make the job go much quicker than winging it and hoping it gets done sometime in the next year. Don’t be afraid to call for help if you get stuck or run out of time.
How do you start a rehab if you decide to hire a contractor?
I use a contractor on every major job and even most minor jobs, because it saves so much time and hassle. However, contractors bring their own headaches and hassles as well. The first step to hiring a contractor is finding one, which I wrote about in detail here. It can take time to find a contractor and get bids, so start as soon as you can.
If you are an investor looking to flip a house or fix up a rental, start looking for contractors well before you buy the house.
How do you decide what to repair on a house?
The tricky part as an owner occupant is deciding how much to rehab and how far to go. Over-improving a house will cost you money when you decide to sell, but going too cheap on rehabs compared to your neighbors will also cost you money. Try to view homes in your neighborhood to see what materials they use and what quality the materials are. Common sense usually tells us the more expensive a neighborhood is, the higher quality the rehab should be.
How to keep an eye on your contractor?
Once you hire your contractor you have to make sure they are staying on budget and on time. If you hire a contractor and let them do their job without checking on them, you are asking for trouble. The best way to keep your contractor honest is to ask them a lot of questions, check on them often and let them know you are paying attention. Here is another article I wrote on how to make sure your contractor is doing a great job.
Making changes to the budget and design during a rehab
Very few rehabs go according to plan or budget. Many times repairs are needed that could not be seen until the rehab is started or you have a new idea for an improvement to the project. Making changes will happen, but make sure you and the contractor know the cost of those changes. When you hire the contractor you should have a written bid for work to be done. Any changes to the bid should be discussed before the work is done so that everyone is on the same page. Make sure your contractor knows this beforehand as they love to make changes and charge more without telling the homeowner until the final bill comes.
Why do rehabs almost always go over budget and take longer than expected?
Almost every rehab I have done has taken longer than I thought and costs more than I thought. I add $5,000 to the cost of any estimate I get, because I know things will pop up that were not thought of when the bid was made. The biggest problem with rehabs is you do not know the extent of the repairs needed until the rehab is started. Even in newer houses you will find things not done correctly like wiring or plumbing that cost a lot of money to fix right. When you tear into walls is when your budgets usually skyrockets, because you will expose wiring, insulation, sometimes mold or other issues. It is impossible to know exactly what will have to be done until that job is started.
The other issue is once the rehab is started and in progress, you get a better idea of what the changes will look like. Those changes may not look the same once done as they did in your head or in a drawing. When you are spending big bucks to remodel a house, you want to make sure it looks good and is functional. If you have to spend a little more to make things look right it is usually worth it as long as you do not go overboard.
Completing the walk through on a rehab
Once the work is done you need to walk through the house with your contractor to make sure everything was done according to plans. Don’t be afraid to point out things you think should have been done better or make changes that will help the house sell or rent better. If you see problems the first time you work with a contractor and you do not point them out, the contractor will think he can get away with those shortcomings over and over.
How to pay the contractor on a rehab
Every contractor has a different way they want to be paid for a job. Some want money upfront and some do not. On the first job I would expect the contractor to want some money upfront or the materials paid for by the homeowner. The most I have ever paid for a job upfront is 1/3 of the cost of the job. When I pay any money upfront, I check references for the contractor and get everything in writing. I have never had a contractor skip out on a job after I paid him, but it happens to many people who blindly trust someone without checking references or getting everything in writing.
Completing a rehab usually goes over budget and takes longer than you think, but if you take the time to plan the project and vet a contractor, the results are usually worth the headaches. You will run into problems with contractors and probably even more problems doing big jobs yourself. I wonder if wholesaling is not a better business model at times because of the problems I run into with contractors on my flips. But when you make $50,000 on a single flip it makes you feel better about dealing with the rehab.
For more information on flipping houses, including how I average over $30,000 profit on each flip, check out my bestselling book Fix and Flip Your Way to Financial Freedom on Amazon. It is available as a paperback or eBook.