Potential Rehab - Posted by Mark

Real Estate Investing
#1

Posted by michaela on July 02, 2002 at 07:43:27:

i agree with jim. let’s say you have to do one deal at a time. you buy a fixer for 20k and work on it yourself. you spend 15k in repairs. it takes you 4 months to finish the work. then you have it on the market for 4 months, get a contract for 90k, wait a month for closing. so, you have 35k in it, make 55k, it took you 6 months.
now you hire other people to do the work. you spend 25k for repairs, get it donw in 1 month, 1 month on the market, 1 month for closing, you make 35k profit.

comparing both scenarios: doing the repairs yourself you can do 2 deals per year, make 110k and work your butt off.
hiring others, you can do 4 deals, make 140k and do other things.

just some food for thougth

#2

Potential Rehab - Posted by Mark

Posted by Mark on July 01, 2002 at 08:43:45:

I found a house that is the worst house in a nice block that needs to be rehabbed. Lists for $32,500 with Rural Development but will go to highest bidder tomorrow. I?m guessing I could get it for 36k. Needs at least 25k of rehab work. The realtor says the property comps at 80k. I?m a newbie but this looks like a good property. I?d appreciate any insights you could give me.

Thanks,
Mark

#3

Re: Potential Rehab - Posted by Jonathan

Posted by Jonathan on July 01, 2002 at 12:43:03:

Only way I would do this deal is to get it under contract with a seven day inspection. Put a $1000 into escrow. Wholesale flip it to investors who rehab properties for $41K with an Assignment of Contract (assuming you get it at $36K). At closing, you get $5K.

Now, if you can’t find an investor within the 7 day inspection period, cancel the contract stating it does not meet with your approval. You get your money back from escrow.

I do this quite a bit and it works well for me.

Good luck!

Jonathan

#4

Re: Potential Rehab - Posted by JFinke KC

Posted by JFinke KC on July 01, 2002 at 11:28:30:

Mark,

As Jim Kennedy mentioned, this deal is too skinny as it stands, especially for a newbie. This might be a decent deal if you could get into it for $25,000. I would not recommend doing the work yourself. You’re better off spending extra and having professionals do it. Costs more, but saves a whole lot of time, which is very important.

Good Luck,

JFinke KC

#5

Too Skinny - I’d Pass If I Were You (nt) - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on July 01, 2002 at 08:47:41:

.

#6

Re: Potential Rehab - Posted by Nate(DC)

Posted by Nate(DC) on July 01, 2002 at 15:47:46:

The only problem is he’ll never find someone who wants to rehab that would pay $41K for it. Since he can’t make money rehabbing if it’s bought for $36K, why would someone else want to pay MORE for it???

NT

#7

Re: Too Skinny - I’d Pass If I Were You (nt) - Posted by Mark

Posted by Mark on July 01, 2002 at 08:57:04:

Jim, would this be a better deal if I did the rehab work and kept the costs to 15k? I think I could do it. . .

#8

Re: Potential Rehab - Posted by Jonathan

Posted by Jonathan on July 01, 2002 at 16:05:36:

Rick says the comps are $80K.

He buys it at $36K and advertises “Investor/Handyman Special” for $41K or any amount above $36K. He calls 10 investors in the local area. Investor and Rick agree at $38,500.

Rick gets $2500 assignment fee.
Investor has $38,500 + $25K + $3,500 (carrying costs) = $67K total into property. Retails it for $80K and makes $13K.

I agree that it is skinny but we are going on the assumption that the property needs $25K work and Rick is qualified to determine that. What if a rehabber does it for $20K. Now they have $18K profit.

The key here is the actual cost for rehabbing. This is why I suggest that Rick get it under contract, get rehabbers over to look at it and determine what the rehab costs will be. If it is less than the $25K, there might be a deal here. If not, Rick learned a valuable lesson in getting the property under contract, negotiating the price and having a clear cut exit strategy.

Jonathan

#9

Doing the work yourself. - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on July 02, 2002 at 06:59:23:

Mark,

Many will disagree regarding this point. I’ll give you my opinion and let others give you theirs.

I’m of the opinion that there are TWO profit opportunities involved in a rehab. One is the profit intrinsic to the “deal” - the investor’s profit. The other is the profit intrinsic to the “repairs” - the contractor’s profit.

If a rehabber does the work himself, he should expect to earn BOTH profits. Unfortunately, what I see happen more often than not is for the rehabber to give up one of the profits simply to justify doing a skinny deal. Basically, in this situation, there are two ways to look at it. One is that the rehabber is not an investor, but rather a contractor who is “buying” himself a job. The other is that the rehabber is an investor and is working for free as a contractor.

Neither scenario is acceptable, at least not in my opinion.

To take this line of thinking one step further, let’s consider the scenario where a rehabber does the work himself BUT insures that he earns BOTH profits. This, too, is a foolish way to approach the business, IMHO. Why? Because the contractor’s profit is so much smaller than the investor’s profit. And while the rehabber is pursuing the contractor’s profit (doing repair work), he’s not available to pursue the next investor profit (doing deals). To put it simply, I can’t afford to spend my time swinging hammers and slinging paint. It’s much more profitable for me to hire the work done than it is for me to do the work myself. This way I can spend my time doing that which is most productive - doing deals.

This is just my 2¢ - I hope it helps.

Best of Success!!

Jim Kennedy,
Houston, TX

#10

Re: Potential Rehab - Posted by Nate(DC)

Posted by Nate(DC) on July 01, 2002 at 20:34:44:

Fair enough.

Besides, one never knows if the “next guy” will think it’s a great deal :slight_smile:

NT