Building wealth is everybody’s goal in the real estate investing business. Many investors know that profit is the name of the game, but, like in everything else, things can sometimes go wrong. Here’s a tip for successfully managing your working capital in your investing projects. If you are a perfectionist, you will find this one helpful.
One of the most common mistakes in real estate investing is failing to work out a detailed rehab budget before a project begins. Take the time to define your rehab expenses and profit margin before you start the project — you will be thankful for it. Many investors, including experienced investors, omit this step and then realize they have spent more capital than expected. This ends up affecting the bottom line and leaves room for (often unpleasant) surprises.
This is a common problem in real estate investing, and is usually the result of “falling in love” with the house, not the profit. Investors falling in love with the house often make multiple upgrades to the original rehab plan, and end up putting the profit into the rehab change orders. As an entrepreneur, think profits first, but also make sure you have made the necessary improvements to make the house marketable.
Bottom line:Carve your rehab budget into stone before you start the project and stick to that number, no matter how much you fall in love with the house.