Properties can be found in various conditions, and due to this many new investors make rookie mistakes. The biggest mistake most new investors make is overspending. Ironically, the second biggest mistake most new investors make is not spending enough. How much you put into the property is determined by what you are going to do with it once you purchase it. Are going to sell the contract? Are you going to fix it up and then sell it with owner financing? Are you going to rehab it and hold it long term as a rental? Once you answer that question, you can then start calculating the costs to fix it up.

Simply stated, the answer to these questions ultimately ends up being whether you decide to buy and hold or sell the property. You want to keep the rehab costs down and make it clean and safe for renting out when you buy and hold a property. You’ll probably need to spend more money if you decide to fix it up to be comparable to the houses that are selling on the market.

You won’t put any money into the property if you are going to wholesale it, but you still need to know what the costs are so that you can better service your customer, the rehabber. They are more likely to have confidence in your estimates and give you repeat business if you can provide accurate repair estimates. Once you have obtained the property and decided which strategy you will implement, the next question to tackle is how the purchase will be financed. If you have decided to buy and hold the property, then you want to keep the payment down so that it will generate cash flow. A fixed, longterm mortgage is a good option to consider for this strategy.

You may find it challenging to obtain conventional financing because of the condition of the property and the amount of work needed to bring it up to code. This may be a good time to pay cash or to use private money. Private money is more expensive than conventional money but has fewer requirements from the borrower. Plan on these added expenses as part of the costs of doing the deal. You will need to refinance the property once the rehabbing is done so that you can pull your money out and/or payoff the private money lender. Of course, if you are going to sell the house, then there will not be a need to refinance.

During my time as a mentor and instructor with the Wealth Intelligence Academy, I’ve seen many students overspend and fix up houses so they look really nice. They fixed up the property the way they would like it, not the way the market demanded, and in the process they spent all their profits. Working with an experienced Realtor can help you see what is selling and what the demand is in your market. It makes no sense to install granite counter tops in a lower-income rental. There are many Realtors that network at the local real estate investing club who specialize in working with investors.

You will be able to evaluate and make decisions quickly with a little experience, sometimes in a matter of minutes, and sometimes without ever seeing the property. Whatever your level of experience in rehabbing is, the Rehabbing for Profit class is extremely interactive and educational. Remember, if you are rehabbing, it must be for profit!

Tim Chaffin is the instructor of Wealth Intelligence Academy’s Rehabbing for Profit class.