How to make money rehabbing houses even if you don’t own a hammer
Rehabbing houses is all the rage nowadays. It seems like the entire DIY TV Network is built around rehabbers. I both love and hate these shows. I love these shows because they bring awareness to my industry and they sometimes come up with some interesting ideas for me. I hate these shows because some of what they show on TV just won’t work. When I say it won’t work, what I mean is that they will be lucky to make a penny. In the real world, real estate investors can’t count on the income from a reality TV show to make up for the fact that they spent too much money rehabbing the house, or that they bought the wrong house in the first place. Mostly I hate these shows because they lure novice investors into an area of real estate when they do not belong. I have had way too many conversations with investors who either lost money on a rehab or made so little that it wasn’t worth the effort.
This article is directed at the novice investors out there who want to do a rehab but don’t have the fully developed skill set yet. I am here to tell you that you do not need to shoulder the entire load of a complete rehab to make money rehabbing houses. There are a couple of ways that you can still make money even without lifting a hammer.
The first and easiest way to make money rehabbing houses is to become a private lender. The private lender is anyone who has excess capital sitting in a bank, a CD, the Stock Market, an IRA account, or even under a mattress which isn’t earning a high rate of return. These days that is almost anyone who has a bank account.
A private lender lends money to an experienced rehabber. Rehabbers will pay much higher interest rates than banks. The reason for this is that the world of real estate investing moves lot faster than banks. So any investor who has to go to a bank for the funds to buy and rehab a house will lose the deal to someone with a private lender. If this sounds strange to you pull out any of your credit cards. If you have a credit card then you borrow money on a short term basis at a really high interest rate. The difference is that the credit card company doesn’t have real estate purchased below its fair market value as collateral like a private lender does.
If you don’t have any cash sitting around and you can’t swing a hammer, you can still make money rehabbing, sort of. There is one other way to make money in rehabs. You can provide the property and do a joint venture partnership with the real rehabber. This method requires you to own the right property, and to be able to find a good rehabber, but it is doable. I have done a few deals with people who had houses in need of repair. The key element is that the house needs to have a higher after repaired value or ARV than the sum of its cost plus improvements. The way this deal works in my world is that person X has a house, and places it in the deal; person Y does the rehab, and the profits are split based on a pre-negotiated percentage of the profits. This is also a good way to sell an ugly house without have to pour a ton of money into it.
As usual, feel free to ask me any questions by emailing me at PittsburghREIA@aol.com