“Cookie Cutter Rehabbing” Part 1 : Real Estate Investing Renovations

July 8, 2008 | By | Reply More

A great way to increase your efficiency and profit when doing rehabs is to Develop a Cookie Cutter Approach. This entails using the same repairs and upgrades in the same way for every house in a given area, price range, or exit strategy. Applying this strategy makes it easier to estimate costs, shop for materials, find bargains, install updates, hire contractors, market product, and make competitive offers.

Determining What Level of Rehab is Needed

Most seasoned investors rehab their properties to a different level for each type of exit strategy used. For example, an exit strategy of selling a house at retail (for appraised value) would require a more expensive renovation than an exit strategy of selling on a lease option or renting. The same is true of houses in different price ranges as well. A house in a low income area wouldn’t justify the same upgrades as a mid-priced or high-end home. The logic behind your rehab strategy is to maximize profits by minimizing expenses while still maintaining attractiveness in the marketplace.

Estimating Costs

I have an investor friend who buys and rehabs houses in two very specific neighborhoods. He always guts and replaces the bathrooms (bathtubs, sinks, faucets, floors, everything) and kitchens (cabinets, countertops, floors, sinks and faucets), removes and replaces the windows, puts on a new roof, and repaints inside and out. He doesn’t even need to walk through a property to estimate his rehab costs. Once he has the square footage and number of bathrooms, and information on whether or not the property needs major structural or mechanical work (HVAC, electrical, or plumbing), he can quote a number that is extremely accurate. This is because he uses a cookie cutter approach.

Part of this investor’s cookie cutter approach is that once he buys a property, he, his air mattress, and his tools get dropped off by his wife, and he actually lives in the property until the renovation is complete. His goal is to renovate a house as quickly as possible with little to no distractions. As a side note, he also said it has improved his marriage.

I am not that hardcore in my approach. I sometimes do my own work, and when I do, I tend to spend long hours on the job (after all, in this business, time is money and everyday the house sits vacant, profits are lost), but I do like to go home at the end of the day.

This approach works for my friend and he makes a very good living at it. I would suggest that he might make even more profit with a little more evaluation when first walking through the property. For example, if the windows in the property are comparable to the windows in other houses in the area, and are functioning properly, it may not be necessary to replace them. The same goes for other upgrades as well.

Shopping for Materials

With the consistent game plan that “Cookie Cutter Rehabbing” promotes, buying materials and buying bargains becomes highly streamlined. Once you know what building materials you need, you can close on your next property one morning and walk into your building supply store that afternoon and order everything you need for your rehab. To save even more time, I prefer to have the supply store deliver the order. I get to walk out in half an hour without ever picking up a board or a box.

I don’t know about you, but when I have to go to one of the “Big Box” stores, I can pretty much write off a couple hours. And often times I only end up with one or two items. I already get enough of this when chasing additional supplies that didn’t make it onto the first big delivery. No matter how good you get at planning, something is going to come up and you’re gonna go to Lowes more often than you planned. Your goal is to limit that though “Cookie Cutter Rehabbing.”

In Part 2 of this post, we’ll cover how “Cookie Cutter Rehabbing” helps in Finding Bargains, Installing Updates, Hiring Contractors, Marketing, and Making Competitive Offers. Make sure to check back next week.

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