Posted by Gerald-DC on October 21, 2002 at 14:49:42:
Forget about scenarios 1 and 2, both of those scenarios are unlikely to happen. Are you a licensed contractor? Even if you are, as a seller, I am not going to take my property off the market and hope and pray that you can come in and fix it in a timely and professional fashion. If I don’t like your work and don’t want to pay, you you can then put a lien on the property. No way baby.
You have so little control in your deals that these deals can take a life of their own. What if you spend a month of two rehabbing a property and then the owner decides they don’t want to sell. What if the market slows down and they have to sell the property for 10K less than what you projected? I like to be in control of a deal as much as I can. Your scenarios invite confusion and problems down the road that you cannot do anything about except go for the ride.
You alluded to a better solution in your post. "A fixed up property will sell for more than one that is not fixed up. So go after the UGLY properties that you can buy for a serious discount and fix them up. (or wholesale them).
How about busting your butt and find a property that you can make 15K to 20K after ALL of your costs including rehab, closing and the like. (
Is it possible? YES, YES, YES!
In fact, a couple of weeks ago, someone turned down a property I was going to wholesale to him because he figured he would ONLY make 25K off of it. For me personally, I like to make at least 20% of the sales price in profit or 20K, whichever is higher.
The truth of the matter is that you can make way more than 10K-20K from a rehab without going through all of the hoops you propose. The number one task that you have to do is find a good deal.
If you are in Baltimore, there a few investment clubs that you could check out and there is a web site owned by a leading Baltimore investor that I will be happy to share with you upon request.
Posted by vern vaughan on October 21, 2002 at 10:39:15:
I saw a house that I would like to rehab and flip in Balt, MD. The asking price is 80K needs 10K in repairs and the comps are at 110K (with avg of 120 days on the market), it can be priced for a quick sale at 100 - 110k.
The problem is that I am in Maryland which has expensive closing costs.
Is there a smart way that I could sign a contract with the seller and make the repairs to the house and with the original listing agreement (or without) in place, the current owner would sell the house at the higher price and give me money back at closing. I would save money and time instead of having to pay costs and go through closing two times, I could do it once. And It would only cost me the repair money
What do you think. Isn’t this kind of similar to having an option on the property?
Vern,
Take this little bit of advice…don’t EVER put money into a property you do not own, or have TOTAL control over.
I agree with everything else said to you already.
The “Deal” you mention is not a deal in my opinion, and you would have no security with this.
What if you complete the work, and the seller simply looks you in the eye and says, “thanks Vern, my house looks great”…not paying you a dime!
What do you do then?
I’ll tell you, you lose the repair money you have into the place.
Try reading more here to learn some ways to make money investing.
It is not easy, but can be done with hard work and persistence.
Posted by michaela-ATL on October 21, 2002 at 13:30:29:
vern,
first of all, in my opinion this deal is too skinny. there’s no profit. for one thing rehab usually costs more than we estimate, even if you’ve done a lot of rehabs. you’re talking about buying at 80k, putting 10k in it, selling at 100k - that’s only 10k potential profit. that would get eaten up in a heartbeat , if an agent is involved, if the buyer asks you to pay for closing costs, if you go over budget, if you have aquisition cost, if you have holding cost.
as to your idea - that would only make you a contractor, that would get paid for the work you did. and not even after finish of work, but only upon sale. boy, what a great deal for the seller, he probably wouldn’t find anybody else doing that. what if the seller suddenly decided to take the house of the market after the work was done?
The profit is skinny. That is why buying (paying closing & costs) and selling (paying closing & realtor costs) isn’t an option. Is there legally a way to position myself so that I would have a lein on the property. You are right…it is a good deal for the seller. If I was a seller, I would be happy to hear this deal. I am attempting to make money off of the inevitable…the sale of the house.
Scenario 1…The seller sells to someone for 80K.
Sales price 80,000
Sales Costs 7,200
holding costs 1,000
Net to seller 71,800
Scenario 2…The seller agress to let me rehab it for a profit after closing.
Sales Price 105,000
Selling costs 9,450
Holding costs 1,000
Payable to me at
closing 20,000
Net to seller 74,550
Here are some things to consider
-The seller nets an additional $2,700 using this method
-A house that has skinny profit will not sell quickly (or at all) to an investor
-A house that needs repairs will not sale as quickly as a house in good condition
-Rehabbing the house should reduce the time on the market and reduce holding costs that the seller would have been paying anyway.
-The house could sell for 110K and still come in ahead of the comps. If the house sells for 110K the seller could recieve and additional $1000, meaning they would have netted $3,700 more than if they would have sold at 80K.
-My profit would be $10,000 and I would not have had to go through 2 closings. I only limit my exposure/risk to $10,000 that could be protected by a lien (at least I think so?). My profit would increase to about $13,500 if the house is sold for an additional $5,000 ($110,000 instead of $105,000)