Anyone here doing rehabs right now?

Rehabbing, Fix and Flip, Rental Properties
1

Please tell me your recent success stories…

I am interested in taking on a rehab project but this would be my first one and this market scares me. :help

I have done a few wholesale deals and I’ve been a realtor for five years so I know a few guys out here doing projects but they seem to sit on these properties for way longer then I’d like to. That hard money loan aint cheap!

I guess I’m just looking for a push. I figure a starter home in a nice area with quality work, priced below market value will move quick… I hope.

Hey, scared money don’t make no money! :beer

2

Hi,

I have been doing rehabs for 30 years, and we have done about three dozen in the last three years. We are rehabing in Las Vegas and Phoenix / Tucson area’s so were in the heart of “Bad Market” however buying right paired with acurate estimates, the proper materials and a tight schedule and we have managed to make pretty good money doing these homes!

We are staying in the market below $200k FMV / ARV as this is where most buyers are and were managing to initially buy between 30% and 50% of value. We have been doing fairly full remodels as our smallest rehab budgets have been around $25k and our largest budgets around $100k.

We have been averaging 10% to 20% clear after all hard and soft cost’s so we have cleared between say $15k and $40k per property! This is over our overhead and expenses as we carry and pay all of those cost’s as part of the project! We probable average around 15% profit!

The key thing is time as we know our markets have been falling the last 3 years and we have been rehabing and averaging a resale in between 100 and 135 days! Most of our construction / rehab is completed even on a major project in 8 to 10 weeks and on the market!

Pricing it competitively and offering perks is a plus as any marketing advantages are good at drawing prospective buyers, many of our homes have become bidding wars as we have frequently had buyers offer the price upwards of 10% above asking price!

You can do it, just be carefull and don’t bite off more than you can handle!

Good luck,

              GR
3

Wow Goldriver - I am amazed that you are rehabbing in this market, more or less in Vegas - LOL! Do you use your own cash? A bank line of credit? Hard money loans?

4

Hi,

Mostly our own cash, however were buying homes less than 30 years old that were gutted by the original owner in default (Foreclosure) so most of these properties are modern by housing standards and have no lead based paint, no asbestos and no or very little aluminum wire and no cast iron / clay piping or steel water pipe!

Upset home owners have just been occasionally stripping the property to the walls, which we like because there mostly rough in wise intact! We do about 75% of our rehab properties in Arizona! I have a couple of old friends partnering in these and we have them down to an art now!

                 GR
5

GR,

Great info!

I have one question. Are there other ways of getting funding for a rehab project besides hardmoney and my cash?

Thanks,

6

That’s too cool. Good for you. I hope to begin rehabbing big-time in a couple years when the market picks up in Dallas. Right now it’s still a buyer’s market so I am building a portfolio of a couple million dollars in debt-free rental homes and holding off on the selling part for now.

7

Just remember that you will be holding these homes for at LEAST 91 days BEFORE you can even ENTER INTO a sales agreement based on new FHA lending laws…In New England every bank I deal with (and everyone I don’t) follows this 91 day rule.

So…Just make sure you can hold the property for 4 to 5 months before you get paid.

Call your local mortgage brokers and bankers and confirm what I’m telling you…That 91 day rule is for entering into SALES AGREEMENTS…So you buyer won’t be able to start the UNDER WRITING process until you hit that 91 day mark. A 4 month turn, in my neck of the woods is almost impossible because I can GUARANTEE YOU that the under writing bank is going to ask for 2 APPRAISALS when they find out you’ve owned the property for just 90 days…This adds time to the process and the banks do not care about YOUR hard money lender.

You can make good money rehabbing houses…But you can make the same money or MORE by finding great deals NOT LISTED ON THE MLS and selling them to REHAB contractors for CASH.

I run the numbers on all my projects before I buy them…In almost all cases it doesn’t make sense financially to hold these properties for rehab. This is because it includes… Apply for all permits, waiting for engineering for new septic systems, demolition of outdated rooms, ordering all the materials for each phase, coordinating contractors, inspectors, deliveries, picking out finish materials, rehabing kitchens and baths, then staging the house for sale and dealing with the the BANKS and RETAIL BUYERS.

I specialize in wholesaling my properties to rehabbers…My holding time is DAYS…My CASH is constantly WORKING, and in the end, the overall return on investment is much higher than what the rehabbers manage to achieve.

I’ve done BOTH and have rehabbed dozens and dozens of homes…Here’s my bottom line advice…

If you can manage to find numerous low cost, OFF THE MLS properties…REPEATEDLY…Then wholesale them and just keep turning your money over…If you can only find 2 or 3 deals a year…REHAB them if the numbers make sense.

PS…I buy all my properties with MY cash. The more CASH you have, the more CASH you can make which leads to making even MORE CASH!! The KEY to this is DISCIPLINE, because as you get good at this, MANY temptations will be placed in front of you as you suddenly realize…I can pay CASH for that vacation house, or that PORSCHE…The KEY to this is NOT letting those temptations WIN…SAVE YOUR MONEY…At a point further down the road all those things will come to you…At the START you need to WALK AWAY and BANK YOUR CASH…There is no cheaper way to buy property than with YOUR OWN CASH.

At some point your BANKER will become VERY INTERESTED in the large amount of $$$$$$ you have in his institution and at THAT POINT you can work out TERMS which are favorable to YOU and allow the use of THEIR MONEY to fund SOME OF YOUR DEALS…The key to this is BORROWING money you really DON’T NEED to borrow. As you get bigger the balance point becomes SELF CONTROL…That means…NOT BORROWING more than is HEALTHY for YOU…I’ve seen a lot of very successful builders go belly up because thewy got HIGH on CRACK MONEY (bankers money!) Don’t make this mistake.
Have a plan, and FOLLOW IT!!! Use credit when it’s SMART to use it! An example of SMART borrowing is using the banks money when you have opportunities that would make your cash position “TIGHT.”

In my experience properties always come in GROUPS…It’s never one at a time…It’s always multiples in the same week…be smart about WHICH properties you use credit to buy. If you can leave $100,000 in the bank as a cushion and use your credit to buy a $50K property, that’s smart use of credit…Worst case scenario you pay off the credit with your 100K cash…BEST CASE…You make ONE PAYMENT on your credit line on that $50K and pay what amounts to $250-$300 to borrow $50K which made you $20K profit in 2 weeks.

Oh…and THAT $20K on a $50K purchase is a REAL WORLD NUMBER…Just did one this week…Purchased it for $40K, sold it 3 days later for $75K…DID NOTHING TO IT…Literally NOTHING, not even a clean out.

8

@CT Investor - yes, still rehabbing, although being very selective. Nothing wrong with being very picky about the deal (you should be in this market) just don’t get stuck in concrete by analyzing so much. I rehab/wholesale and am an REO agent - my theory works for any business in any market (especially this one!) – SELL A BETTER QUALITY PRODUCT THAN YOUR COMPETITORS AT AN EQUAL OR LOWER PRICE.

@EnigmaUS - absolutely. you can partner with a money guy. this takes experience from you, a good deal, and an investor with money to invest. I’m happy to split a deal 50/50 with a partner - I may pay more in the end, but I don’t have the same financial pressures.

@fdjake - great points! and they do come in groups. great advice about when to use credit vs. cash - as my business partner and I like to say, “the deal of the year happens once a week.”

@GoldRiver - you’ve got it down to an art.

9

Happening all over this great country. I made 18K yesterday. Making 11K today on a home that I will have owned for 4 days.

Also you CAN still do fha loans before 90 days. Waiver or no waiver. That is still happening. The key is to know the broker who has an investor that still wants to do buy those types of loans.

I know an investor in my area that just did this. Bought and flipped in 70 days to FHA buyer. The buyer needed 2 appraisals and I believe there were some other hoops to jump through.

Keep this in mind folks,

Nate-WI

10

Hello Gentlemen,

Great Information thus far. I’m a newbie investor. Does anyone advise or know of any great Boot Camps or Webinar in San Francisco Bay Area in California on flipping and buying from courthouse steps.

Thanks in advance for your input.

Best Regards,

DT

11

So where do you find the properties that are not on MLS? Do you have access to REO inventory? Sorry if this is a stupid question, just a newb.

12

I find ALL my properties by PAYING OTHER PEOPLE to find them for ME!!!

Case in point…

I go out of my way to make sure UPS, Mailmen, and Home Heating Oil delivery drivers have my cards and know that if they bring a property to me that I purchase they get…$3000.

It takes a long time to get this up and running but it is worth the effort.

I talk to people who SEE other people on a daily basis. I tell them this…

If you talk to someone, see a property, or know of a property that someone wants to sell FAST and it needs work…HAVE THEM CALL ME or even BETTER…GET ME THEIR NUMBER…If I buy that house…YOU get $3000.

The beauty of this is the first time you put $3000 in a UPS driver hand for GETTING YOU A PHONE NUMBER???

You’ve got a set of EYES out there looking for properties EVERYDAY!!!

13

Gotcha. Seems like a good strategy.

14

We just picked up two distressed buildings that are four-plexes and hadn’t been cared for in some time. So far we blew our budget on rehab’ing the first one by about 40% but we are now complete with it and moving onto the 2nd one.

A couple of things learned, and YMMV…

  1. Your choice of contractor is a BIG deal. If you can get a general contractor who is reasonably priced, takes real care in their work and isn’t trying to rip you off, then you are set.

  2. If you can break the project up into smaller sub-projects, and award them to different people/companies, etc. you’ll keep your sanity and allow multiple workers to work in parallel.

  3. Never trust one ‘company’ to do it all for you - they won’t and they will see you as an ATM machine for their own income.

  4. We’ve been burned by contractors that have their own ‘personal issues’. We’ve had alcoholic contractors, those with warrants, drug habits, etc. You won’t know this when you give them work up front, but if one doesn’t show up for work one day because he is now in prison, that’s not entirely abnormal. You should run the same background checks on your contractors as you do on your tenants, IMHO.

  5. Don’t trust the retail hardware chains for supplying materials. Home Depot, Lowes, etc. will look really attractive as a ‘one stop shop’ but they prey on that to make money. Find local building & paint suppliers who can cut a deal. Use the Internet to find materials where it makes sense and allocate yourself enough time to get product shipped in - you’ll probably save 50% there. For example, I had to bulk purchase electrical outlet covers. Local hardware store wanted about $1.00 each. I needed 100 of them. Ordered on the internet and got the total order with shipping for $32. Same with door knobs, etc.

  6. Don’t be afraid to offer cash to contractors to get discounts. Sure, your accountant will hate you for it, but you’ll probably find in this economy that even taking a hit on paying a bit extra in tax by not being able to deduct some of those expenses will be far cheaper than dealing with a big company and writing a big check.

  7. Don’t let the contractors take over the project on you. They will do that. They live in the world of big egos, testosterone and lack of project management. Be willing to say NO and mean it. They will respect you if you do that, and you’ll likely not have them try and rip you off without thinking twice.

  8. Where possible, spend a bit more to save 5 yrs from now. Flooring that lasts longer than carpet can be a very wise investment if you are in this for the long haul. Same could be said for long lasting countertops, etc.

That’s about all that comes to mind that’s fresh in my head right now. I’m sure there are plenty more, but most is just commonsense.

Good luck, and don’t be surprised to blow your budget on the first one while you are getting your feet wet. Just have reserves around to protect your own sanity.

Myles

15

WOW haven’t checked back here in a while. Thanks for the replies everyone! I’m open to taking on a light rehab if one comes by but I will continue to focus on the wholesale deals until I have more capital to play with. Borrowing the hard money is what scares me. I agree with the post about using your own cash. OPM is great but nothing is cheaper than when you cut the check.

By all means keep the success stories coming. I find it is easy to get discouraged in this business but hearing about others deals gets my mind back in the game! :beer

Much Success.

CT