I have been looking at homes with my contractor/brother/cobusiness partner for that last week, and I have gotten a feel for how he estimates rehab costs…
Now with that in mind you have to look at the area.
There are many things that need to be looked at and by no means is this a complete list…
What is the home ownership rate in the area (look at us census records or wherever else you can get them)…
Same records should reveal the rental rate in the area.
The area is rather small, what other rentals in the area how many, and how much do they cost.
I know you may be selling the home, but if the majority of the area is renting in such a small population it should tell you something about the area.
YOU MUST GET A CONTRACTOR IN THERE TO GIVE YOU A DArN GOOD ESTIMATE OF THE REHABBING COSTS, you can then use this to your advantage…if it costs 10k to rehabb, then you can go to the seller and say the most I can give you is 2k for the property, it is going to cost quite a bit to remodell it.
I personally wont touch any deal unless there is 10k to be made from it, other investors I know wont touch a deal for less than 20k.
I beleive when you are working in such a small populated area that you can get burned pretty easily…I like the idea of a large population of buyers.
Could you make this profitable?? - Posted by Kevin (OK)
Posted by Kevin (OK) on July 29, 2001 at 09:17:07:
I can buy a beat up 2 bedroom home for the land value, which is about $6,000. 2 BR homes in the neighborhood in this small town, when they’re in fair to good shape will sell in the upper $30’s.
Seller lives in another state and doesn’t want the headache. And there are headaches! Believe me…the place is rough!! Major work to be done if it is to be brought back…
Old, wavy roof, clutter everywhere. Hasn’t been lived in for about 1 year, porch falling apart on the front, some fondation issues too…hideous apearance.
My wife says it should be knocked down, doesn’t see any way to make a buck here. That’s why I’m turning to you guys and gals…
I don’t want the property…I don’t want the vacant lot. I want to learn from this situation, buy it and flip the home somehow and come out on top.
By the way, the seller will probably give me 100% financing too!
Kevin please enlighten us… - Posted by Brandon Treat
Posted by Brandon Treat on July 29, 2001 at 18:42:52:
Kevin just wondering if you wouldn’t mind explaining how exactly you came across this situation? Sounds exactly like what I’ve been searching and hoping for but with no luck… Is this an abandoned house you came across and looked up the owner of record or is this something where this seller called you from one of your marketing efforts?
I dont see how you could lose if you take Ed Copp’s excellent advice. You have the possibility of either a profitable flip or a lease option with only a little marketing time for you. Be sure to get 60+ days before your closing and a weasel clause in your contract, then market the Heck out of it!!
Posted by Ed Copp (OH) on July 29, 2001 at 10:38:07:
Now you did not say if the property has public utilities available. This would have an effect on the profitability of the deal.
That said this is the stuff that cash flows are made of.
Get the deed, with no money down. Pay the seller on a note, with a regular payment (monthly, quarterly, or annual, etc).
Then either sell on a contract, or lease with an option to buy (let the new buyer clean up the mess). You collect the payments from the new occupant. Get a big payment from the occupant, and pay a small payment to the seller. Whatever you do don’t get the big, and small mixed up.
I would offer the seller something like $100 monthly for 60 months ( as full payment, no interest).
Then I would find an occupant using a lease/option situation. Perhaps $300 non refundable option consideration and then clean up the mess for occupancy, and perhaps $200 monthly rent. So a L/O occupant can move in for $500.
Posted by Kevin (OK) on July 29, 2001 at 21:59:50:
This is a home in a small city (pop. 20,000), near where I live. This home was bought by a girlfriend of a co-worker of mine about 6 years ago. She wanted it for her partially-disabled son. It was a marginal piece of property back then.
The coworker/friend of mine and this woman married, and moved to another state. I’ve contacted them about 3 or 4 times over the past 4 years to see if they wanted to sell it. The son was still making payments to them for the home, and wanted to keep it.
I was actually looking at another piece of property on the same street recently, and noticed the continued decline in the 2 bedroom place, so I contacted them again. This time they say they want to sell it, but haven’t put an ad in the paper because of “the hassle”. After all, they live in another state.
Now…I’m new to the ideas here at Creonline, and just trying to get started. But it seems like I may be able to make something happen here!!!
Thanks for all the tips. By the way, I’m still working towards the other one too!! Kevin (OK)
There are hundreds of homes like these scattered throughout the country; as you mention, they are often found in smaller rural or semi-rurual areas.
There’s good money to be made here. Most of the time, your approach will need to be tweaked to fit your investment style, your local market (on both sides of the deal), and your needs.
In his post,Ed mentioned something that has worked well for me over the years – just finance the house “AS IS”. Normally, I use very low interest rates and great terms to get their attention: 30 year ams (there will be a balloon in 60 months), 5 per cent interest (seems to be working right now), and they can work for their equity (work must be completed before they move in). Did I mention the house price? Usually, about $15-20K.
Of course, there are some wrinkles here and there. But this works.
If you want more, just ask.
Good luck,
Eric C
PS - one more thing, don’t be surprised to find that there are RE investors out there in your rurual markets. They may not know the latest technique or guru, but many have been buying and selling houses for years. If the town has more than $5,000 pop, I’ve usually found there will be at least one person owning a hundred houses or more (and a lot of the time, these are free and clear).