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5 Tips for Managing an Out-of-State Rehab

Jun 21, 2020 by Liz Brumer
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Most fix-and-flip investors who rehab investment properties focus on buying properties in their local market. While this is no doubt an easier and more effective method of rehabbing properties, there may be times when it's more advantageous or required to invest outside your local real estate market. Managing a long-distance rehab presents its own set of challenges, but the right knowledge and preparation can help the investor avoid a lot of headaches.

Whether the property is a few hours from your home base or in a completely different state, here are five tips for managing an out-of-state rehab.

Get boots on the ground

When it comes to flipping a property, most investors choose to be the boots on the ground. This is the person monitoring the progress, communicating with contractors, and checking the quality of the work -- but it doesn't have to be you.

When you manage a property out of state, you're going to have to rely on someone to be your eyes and ears. This can be a local project manager for your company who lives in the local area, or if this is a one-off rehab in a new market, you can find an experienced Realtor who is familiar with working with investors and contractors.

Many Realtors have also invested in real estate, flipping houses, owning rentals, or working exclusively with investors. Make a few calls to find a qualified and experienced Realtor who can help you by referring contractors and monitoring the project and is happy to be compensated for the sale of the property once completed.

This can be a tough pill for some investors to swallow. They like being the one monitoring the project and have difficulty trusting others. But to have a successful out-of-state flip, releasing the reigns is key.

Receive multiple quotes

Once you find the right project manager or Realtor to help you with the project, it's time to call contractors. Just as you would receive multiple quotes for a local flip or improvement project, call several contractors in the area and get multiple bids for the various jobs.

The cost of certain repairs will vary based on the location of the property. So while you may be familiar with the cost for replacing a roof, furnace, flooring, paint, or other common repairs in your local market, it could be more expensive or cheaper in the market where you're flipping. Getting multiple bids helps ensure you're getting fair pricing for the market.

Do your homework on the contractor

One of my biggest tips for anyone entering a rehab project, especially one out of state, is to do your homework on the contractor or contracting company. Just because someone comes recommended does not mean you should work with them. To personally vet them, research whether they have open litigation with other clients, and if so, what for. Make sure they have positive reviews from other clients and proper licensing. A quick internet search or search in public records can save you from working with a litigious or crooked contractor.

Have an explicit scope of work and contractor agreement

Your contract and scope of work should be explicit. My contract clearly states exactly what I want to be completed, including paint colors, finishing or decor pieces, and maximum prices for specific items (like a toilet). Pricing is explicitly stated, and I never, ever pay for the project upfront. Instead, I pay for the total rehab project in installments, which could include a 10% to 20% down payment and two or three further payments after certain projects have been completed.

I also provide incentives to finish the project on time, with a bonus if finished before their projected timeline and deductions from total payment each week the project exceeds the original projection. The contract is your binding agreement, so make sure it's clearly understood by both parties and will stand in a court of law.

Follow up frequently

I require the contractor to send weekly progress reports, which can be a virtual tour with their phone or photos. I also ask my Realtor or project manager to drop by (randomly) once a week. This keeps the contractor on their toes, not knowing when someone will check in on them. However, communication and follow-up are essential to make sure the project is progressing as intended. If you don't hear from the contractor or Realtor, don't assume they'll call. The last thing you want is a contractor going rouge!

The bottom line

Many of the best practices for managing a local rehab or contractor are also best practices for an out-of-state rehab. The first time I managed a rehab out of state, I did just about everything wrong. A contractor stopped working halfway through (taking my money with them), and then the replacement contractor tried to file suit over loose terms in our contract.

However, with many more out-of-state rehabs under my belt, I've improved my systems and learned from my mistakes, and I have the rehab process down to a streamlined system using the tips above as the framework for a successful long-distance rehab. Hopefully, these tips will help you manage a rehab out of your market with confidence and success, too.

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