Guidance for New Real Estate Investors

by : Chris Parks

One comment that I hear over and over from new real estate investors is that they say they are looking for a "light rehab" or a "cosmetic only rehab". When I ask them why, many new real estate investors do not know why. Some do and they say that they would "feel more comfortable" starting slow, or they do not know any contractors, or they are not sure what to do first. Some new investors have actually admitted that they are too scared (even though they are not sure of what) to take on a big job in the beginning.

I continue to educate new real estate investors that generally speaking, looking for light or cosmetic rehabs is not how this works. And if you are looking to continually feel comfortable then you might want to look for another hobby or a different business. Most successful people will tell you that you must get outside of your comfort zone to excel.

Let me start with a few questions: How many books on real estate investing have you read say to go look at properties that need only paint and carpet? How many bootcamps have you attended teach new investors to look for 10 year old properties? How many infomercials have you seen that speak about cosmetic rehabs?

I will answer first, how about not many or even none, zero. While I continually see many new real estate investors say that they are looking for a light or cosmetic rehab to start, it is my belief that this is entirely based on fear and the feelings that this will make it easier.

In fact this is simply not true. That is not the way it normally works. And I am here to tell you that it is much easier to turn a profit and certainly a significant profit on junker houses that need significant renovations and/or updating than it is on houses needing very little work and zero updating.

To make money in short-term real estate investing, you need to buy low, renovate inexpensively (though not cheaply) and sell quickly. When homes only need paint and carpet, or even paint, carpet and roofing (for example) sellers simply do not need to discount them as low as we real estate investors need to buy them.

The Real Estate Investors that I know who are constantly profitable (no matter what the news says the housing market) are those who are looking for the worst house in the best neighborhood.

We are looking for tall grass, unkept shrubbery, damaged roofs, and fallen gutters. Investors like properties that have been condemned or that have code violations. We look for holiday decorations in the middle of the summer which might tip off an investor that there is probably differed maintenance on this home. This means the owner (who normally removes holiday decorations in January) may be ready to get rid of this property.

The bottom line is that if you are looking to make money investing in real estate, it is time you stop looking for light and/or cosmetic rehabs. The real profits are in the tired, old, smelly, fixer-upper type properties!