Posted by Bill K. (AZ) on October 17, 1999 at 17:21:51:
Elizabeth,
There are two types of flips; wholesale and retail.
When wholesaling, you acquire a property, and immediately, usually with little or no improvement, look to sell it to another investor who will add value by improving the property for retail sale.
When retailing, you acquire a property and add the value yourself. Usually, you will be the one who sells to the next owner-occupant.
Not all properties lend themselves to successful wholesale flipping. There must be enough profit in the deal for all investors.
A few months ago I bought Ron LeGrand’s Wholesale and Retail course and am now in the process of finding my first wholesale deal. This weekend my husband and I went looking at potential houses from a list our realtor gave us. My question is on two of the houses that we saw. These houses were in good neighborhoods but needed some MAJOR repairs. One house did not have a complete roof and it looked as though someone had started to chip off the siding of the house. The house also dropped on one side(it’s on blocks). The second house had major foundation problems, it seemed to fold in the middle. The fold of the house is right where the bathroom is so we don’t know if there are any plumbing problems. Also, this is a brick house which has cracks down all the sides of the house(inside and out) with some of the brick coming off the frame of the house. This house comes with a garage apartment in the back which has holes in the roof of the first floor and the steps to the second floor are rotted out so we couldn’t inspect it. OK, to the question, is there such a thing as too many repairs or are these the type of homes that I’m looking for to wholesale to rehabbers? In LeGrand’s course he writes on how to estimate repairs but does not specify foundation repairs such as these or chipped off siding and a missing roof. If these are the types of houses I should make an offer on, how do I estimate these repairs? I’m anxious to get my first deal done but I don’t want to over estimate and lose my earnest money deposit. Am I over-analyzing? All advise would be appreciated.
Posted by Dave I. on October 23, 1999 at 11:41:28:
My advice is stay away from major repairs. The first thing I do when looking at a fixer property is inspect the foundation. My opinion is that any property has potential if it has a good foundation. You are buying a major pain in the neck if you start out with a bad foundation. You will have fewer interested buyers, other repairs are harder to complete, and it’s almost impossible to get regular (conventional) financing. I have bought propeties that need major repairs and properties that need minor (cosmetic) repairs. The homes needing cosmetic repairs are so much easier to work with. It seems that I actually make more money on the more simple cosmetic fixers. Like was stated earlier, “ALWAYS include an escape or contingency clause in your offer to purchase.” This might read, “This offer is contingent upon my approval of inspection of property within 30 days of acceptance of this offer.” So…if you look for investors to flip to, and don’t have any luck, then you have lost nothing. Good Luck…Dave I.
Re: Need help with 1st wholesale deal! (Long) - Posted by Jim Kennedy
Posted by Jim Kennedy on October 21, 1999 at 11:15:00:
Hi Leonor,
You have already received some very good advise from others. I tried to e-mail you directly, but for some reason the messages couldn’t get through.
I am a full-time real estate investor in Houston. In addition to other strategies, rehabbing is one of the things I do. I would be very interested in speaking with you about the two properties you wrote about in your post. As Jim Piper said in his response to you, roofing and siding problems are not a big deal to most rehabber but foundation problems are a little more serious. As an experienced rehabber, I will tackle projects that require even the most extensive foundation work.
I can be reached at 281-398-0505 (office), 281-398-7480 (home), or 281-222-6436 (mobile).
Read, “Buy it, Fix it, Sell it, Profit!” by Kevin Myers. He explains what to look for as far as the “wrong things wrong with a fixer upper.” He also recommends a repair estimate guide by Marshall & Swift.
First things first. All offers should be subject to your inspection and approval thereof. If you have this clause in your offer you will not lose your earnest money.
Perhaps a better question is whether these deals are worth your time. Unfortunately, you don?t provide enough information in order to comment particularly?.but here?s a few general comments.
As a wholesaler there?s a number of factors that are going to be important to you. The first of those is the question of WHO will buy your houses and WHAT do they want. If your stable of rehabbers is composed of people who know how to paint, clearly foundation problems are going to be beyond them EVEN IF the numbers would make the deal a good deal for them. In order to know WHO your rehabbers are and WHAT they want, you simply ask them.
The next factor that is important is the market value after repair. Clearly IF this value is too low, major rehab will not pencil out. Understand that major rehab (at least from my perspective) also carries major risk. Those that do it expect to be compensated. Therefore your numbers should reflect that. So the numbers become quite important in your analysis. There are some homes that are probably not salvageable due to market value.
Your first house without the roof and with some siding missing might not be as bad as you think, depending on the numbers. Rehabbers typically will re-roof. Siding a house is not that big a deal either. The question is if the roof is missing what OTHER damage has been sustained. This may prove to be a property that has significant interior damage. Again, people might take this task on, but the numbers need to be there to compensate.
The second house on the surface sounds like (from your description) huge problems. The fact that it?s buckled in the center has created the stress on the exterior walls undoubtedly. That?s going to take huge dollars to repair, and is probably going to be beyond the scope of most rehabbers.
What I?m trying to get to here is that you can tie any property up with a contingency and NOT lose your earnest money. Whether you want to spend the time searching for a potential buyer is another question?.as opposed to simply spending the time looking for deals that may be more marketable. This decision is going to revolve around the exact numbers, and whether you have rehabbers who take on major projects.
Posted by RRSmith on October 17, 1999 at 08:46:46:
Houses with major problems (structure, or financing) should be left alone by rookies. This will ensure that your first deal is a winner and a good experience and that you get a little positive feedback going.
Biding on major rehabs was covered in the last 4 days, with the conclusion that your should never bid more than 50 cents on the listed dollar for an offer. Follow LeGrands course work and work the FSBOs, save your money and resources (you wasted time looking at these (my first year mistake) is what I think) for flex. sellers.