On the Horns of a Dilemma: Time Verse Rehab CostPosted on November 25, 2011 by
We bought a house at November’s foreclosure auction in Bartow County, Georgia. It needed a shave and haircut – by this I mean it needed paint, carpet, landscaping and some minor repairs.
We partnered with a new investor on this deal. We found the deal and put up the know-how. The new investor put up the purchase money and agreed to oversee the rehab. We placed the new investor in charge of the rehab so she could gain experience.
As the rehab began, the new investor found herself on the horns of a dilemma. This is a dilemma most new investors experience. Do you do the rehab yourself and save money, or do you hire a contractor to do the rehab and pay more?
Most new investors are so focused on saving money – on the nickels and dimes – that they totally ignore the dollar bills they leave laying on the ground. That’s what happened in this case.
The new investor got bids from several contractors. After studying their bids, she decided that doing most of the inside work herself and letting a professional paint the home’s exterior was the financially smart thing to do.
When she asked my opinion about her decision, I explained that if she did a lot of the rehab work herself, it would take a good bit longer than if she let a contractor do it all. Normally, when we do a rehab, we let the professionals handle the entire rehab. We’ve learned the hard way that contractors allow us to get the job done faster and better. This allows us to get the property on the market sooner – often much sooner!
She considered my advice and decided to do most of the rehab herself.
Let’s fast-forward two weeks and see if our investor made the right decision.
This morning, the new investor told me her decision had been wrong. If she could go back in time, she’d hire a contractor to do the entire rehab. This would accomplish several things. First, the rehab would have been completed by now. Second, the property would already be on the market. It’s near impossible to sell a property that’s not on the market. Third, because she’s been spending long days doing the rehab, she’s had no time to look for her next deal.
With this revelation, I took out a quarter and held it in my left hand, then took out a dollar and held it in my right hand. I asked, “Which is more valuable, the quarter or the dollar?” She answered, “The dollar, of course.” I explained, “That’s right. Remember this: The quarter represents money and the dollar represents time. Time is ALWAYS more valuable than money!”
When putting together a deal and figuring in the cost of rehab, always figure in the expense of having an experienced contractor do the entire rehab – not you. Pay a realtor to sell the property. Pay a contractor to fix the property. A real estate investor’s time should be spent talking to sellers and creatively structuring win-win deals – not painting walls, hanging doors and selling houses.