Attention all Washington, DC Real Estate investors and potential Real Estate investors! When purchasing investment properties, watch out for rehab cash vacuums. These are properties that end up eating all of your investment monies because major components within the walls of the property, that a potential buyer cannot see, sucks up your rehabber loan cash flow.
The main goal of your cash flow should be to restore the property aesthetically and secondly to help reclaim its functionality. You don’t want to buy a property that has major dysfunctional components that will eat up all of the cash flow you have available to restore so you can resale for a profit.
There are three major components behind the walls of a property that could cost you a bundle to fix, yet a buyer assumes they come functional with any sell and they are plumbing, electrical, and heating. If you have to invest a lot of your cash flow in these areas then what could be spent to help the property become more pleasing to the eye gets sucked up like a vacuum.
These major components have to be fixed because it is usually mandatory in every state that you fill out a disclosure form telling the buyer of any defects. If you are considering private money for your loan, the property serves as collateral so the condition of the property is a big consideration. It could very well determine whether you get the loan or not.
There are three other major components that have to do with the stability of the property that you need to pay very close attention to when investing and that is the roof, the foundation, and the soundness of the overall structure. These 3 components can also become a vacuum to your cash flow. You have to be a good detective. You have to look up close, and far away. Most Washington DC Real Estate investors know to look careful and up close.
Try looking afar. Look at the property from across the street. What do you see? Does the roof sag? Is it a flat roof with nowhere for the water to drain? If you see that the roof has levels and a sloping roof drains onto a flat roof, go back inside and inspect for any spots on the ceiling that could indicate roof replacement? Does the property lean a little to the left or the right? Is the fascia of the house showing any signs of rot?
If you notice any of these things as you look afar, go back inside and look for hidden potential problems that can be lurking in the attic…like rotten wood. Also remember this, time is money as well.
You do not want to spend so much time on the refurbishing that your “hourly” wage becomes insulting on the day of closing. If you use private money, your interest is higher, so you want a quick turnover. Conventional loans have lower interest rates, but the approval process takes your time at the front end, if you are able to qualify. Be a good detective. Don’t let your rehab cash flow become a vacuum when you invest in Washington DC Real Estate.