So, you’ve bought a house and are ready to get to work on it. Thanks to a hard money loan from Socotra Capital, California’s premiere equity-based lender, you have the funds you need to do a thorough residential rehab, and get the house back on the market with an excellent profit margin. You have a firm strategy: you’re going to get new flooring, do some kitchen remodeling, and then figure out how to properly market your property for sale. It’s a good and solid plan, and only has one flaw: it’s based on nothing going wrong. And there’s never been one project where nothing goes wrong.
There are hundreds of issues that could possibly impact your rehab from small to disasterous. From the seemingly inconsequential to the potentially ruinous, anything can happen in a rehab project. Understanding what those potential problems could be, and planning for them, can save your project from going over budget, over time, and from being over your head.
Delay in the Permit Process
Bigger projects, like an addition or rehabbing a garage—even some landscape work—often require complicated permits. Depending on the jurisdiction, this can be done in an afternoon or it can take a week. Build delays into your project timeline. You might hit a stubborn bureaucrat, or paperwork might get lost, or things might just wind slowly through a large system. Plan on other work that you can do during that time. Make sure you are prepared to do non-permit work first. This requires advance planning, and doesn’t always work out (you might need to redo the kitchen before you install flooring), but it beats the frustration of sitting around.
Right now, we’re living in a time of incredibly low oil prices, at least relative to the last few years. This has lasted longer than people expected, but it isn’t going to last forever. Large jumps in oil mean large jumps in the price of shipping, which could include materials that you need for your rehab. This price jump can be prohibitive, and force you to spend far more than you had planned. Additionally, there might be shortages, either due to shipping costs or just the normal and natural fluctuations of the marketplace. It is best to buy your supplies in advance, assuming that you have room for storage and that they won’t be exposed to the elements. That way, you won’t be caught unawares by anything.
Imagine working on schematics, drawing them up, and then losing them thanks to a freak gust of wind. You’d have to start over again, costing you time and money. You might think this wouldn’t happen, since you do a lot of your work on the computer. It can, though. You make your workplans, collect invoices for work, hold receipts, phone numbers, contacts—everything—digitally. For a small contractor, the information on your computer is the lifeblood of your business. So while you may not think much about protecting it, in an age of hacks and viruses, and in a business where dropping heavy things is part of the game, you are at risk of losing your data at any moment. A spilled Coke could wipe away months of work. That’s why so many contractors and construction companies have data backup and recovery plans in place. Backing up your data, and having the ability to recover it easily, protects your business from a disaster.
In a previous article, we talked about the importance of preparing homes for natural disasters so that potential homeowners feel safer and, thus, are more likely to buy. That’s still a good idea, but what if such a disaster happens when you are fixing up a house? An earthquake, wildfire, or even just regular fire can happen at any time. That’s why it is so important to make sure you purchase insurance for your rehab project. Some people are reluctant to spend the money, but not doing so can leave you deep in the hole in the event of an unexpected catastrophe. You can get homeowner’s insurance even if you are just planning to fix and flip. There are also other kinds of contractor’s insurance available, which allow you to be protected for nearly any contingency. Don’t think it isn’t worth the cost because you only intend to hold the house for a year. That kind of thinking breeds disaster.
There is a lot that can go wrong, but, with solid preparation, you won’t be at the whims of fickle fate. A hard money loan from Socotra Capital, California’s premier equity-based lender, can get your house rehabbed and back on the market. It’s a two-part plan: work with the best, and plan for the worst.