Possible First Deal - Need Advice - Posted by Tom B.

Posted by Chuck (AZ) on July 09, 2001 at 12:12:02:

First of all, figure out the cost of repairs, then add at least 25% to cover the unforseen (repair that’s not apparent on the surface).

Then discount the asking price by this amount, then discount it again to allow yourslf a profit. Then look at that figure, and ask yourself if he would really sell it for that.

Then ask yourself if you really want to do a rehab.

The money (and time) your willing to invest here would go alot farther on another piece of property. I’d look into a small apartment building or check out Lonnie’s method of selling mobile homes first. Both of these would generate a income, instead of an outgo.

Rehab’s do not make good first deals. The turn around time can be months, all during which your money is tied up and isn’t earning you a profit.

Give it some thought.

Possible First Deal - Need Advice - Posted by Tom B.

Posted by Tom B. on July 09, 2001 at 11:37:50:

Hello Everyone - I have a possible first deal in progress. Here is the outline: 4 Bedrooms / 3 baths

  1. House was built in 1954 and everything is original, including the wiring (60 amps);
  2. Extension put on in 1988 and the wiring is ok in that section but the roof leaks where the section meets the original house (will require new roof, gutters, eaves, etc.);
  3. Asbestos siding in fair shape. I would have to paint if I wanted to resell;
  4. Three bathrooms, one of which will require a full make over and the other two minor fix ups;
  5. The kitchen would require all new appliances and flooring, I could strip the cabinets and paint the walls to make it look more modern;
  6. Hard wood floors in the living and dining room would need refinishing;
  7. New ceiling where the roof leaked into the house (by the new addition);
  8. New windows in 5 rooms (all double hung);
  9. Furnace is original (1954) and would need replacing;
  10. Hot water heater is old and would need replacing;
  11. Wiring in original house is for 60 amps and would have to be re-wired to bring up to today’s codes;
  12. The yard is outstanding - 2/3 acre of nice property in desireable neighborhood and school system;

Asking Price / Appraised estimate AS IS - $260,000.00
My estimated cost of repairs: $50,000.00 plus the re-wiring (I don’t know how much the re-wiring would cost?)

I ran comps for properties in the area which recently sold and came up with $290,000.00 to $320,000.00

This is for sale by owner and he is taking bids until the end of the month. I was thinking to bid around $195,000 to $200,000.00 but I figured I should ask some pro’s first and the crew here on CREONLINE are the only ones I really know.
The owner is asking $260,000 and he may get it in this neighborhood, but what do you guys think is a good bid where I could make some money without being too greedy? Is $195 to $200,000.00 too low? Let me know when you can and I appreciate your responses in advance.

Thanks - Tom B. - NY

Re: Possible First Deal - Need Advice - Posted by Alexander (Fl)

Posted by Alexander (Fl) on July 09, 2001 at 17:43:49:

Tom,

The first thing I would do is confirm with the zoning department that the addition on the house is a legal addition. It should appear on the most recent survey and show in the records of the tax assessor’s office.
If this checks out, then bring two professional building/renovation contractors and ask them for a detailed estimate of work for the upgrades you are contemplating.

When running your comps, always compare houses in similar condition in the same subdivision or area, then take the lowest amount you come up with which in your case is $290,000.

From this figure you want to subtract your estimated rehab costs and your desired gross profit. This is the ideal figure that you want to pay for the house.

If you’re in a seller’s market and prices are appreciating due to high demand and low house inventories, you can afford to pay more for the house.

By the way, if you are in this type of market, options work even better with less risk on your part.

Re: Possible First Deal - Need Advice - Posted by phil fernandez

Posted by phil fernandez on July 09, 2001 at 12:32:22:

Rehabs are a tough way to go on your first deal. Too many surprises and unknowns. I just had a guy call on my I Buy Houses ad saying he bought a house and got into the rehab on his first deal and now wants to unload. His reasoning is that there were alot of hidden repairs needed that he was not aware of when he bought the house. Now he’s a contractor type.

Also do you have money to feed the house if it sits on the market for 6 to 12 months. Some markets are starting to slow down with houses being on the market longer.

And you might have to enlist the help of a realtor. You will have to factor that number in.

Also being new you could miscalculate fair market value.

So you can see there are many things that could go wrong. For everything to go right you need a fast paced market, thorough knowledge of what the repaired house will sell for, no hidden structural problems and the like. How well can you estimate repair costs. With just one of these out of whack you could be in trouble.

I’d do some simpler deals to start out with than a major rehab, which this certainly sounds like.