How can I approach this deal?

General Real Estate Investing
1

Below is a listing at my local REI club. I have access to deals like this but am worried that it might be an attempt top take advantage of new investors. How should I handle this as a new investor? What chronlogical order should these steps be taken in? I am not going to attempt to make this deal but I believe that many newbs here have access to these deals and would like to learn how to handle them.
Thanks.

   <blockquote></blockquote>Great property to flip for quick profits! * 3BR/1BA * 1,024 Sq Ft * 2 Story Home COMPS in the area include: * 2120 Lambert St - Sold for 105,000 * 2114 AS Norwood St - Sold for 107,000 * 2063 Snyder St - Sold for $110,000 Estimated Profit Potential - $24,000+ Estimated Rehab cost of $13K assumes new kitchen, bath, carpet, heater & hot water heater and paint. If interested, contact either: xxxx xxxx xxxx<blockquote></blockquote>
2

maybe don’t focus so much on the deal. narrow down first, what you want to do (what do you want your investments to be - rehab/sells, rents, flips, etc.)

ask yourself if you’ve got the 13k for these repairs.

how do you feel about financing the rehab costs?

can you get the whole deal financed - rehab costs/closing costs included?

would YOU want to do that (are you comfortable with that)?

do you want to replace an entire kitchen, bath, and fix a heating system, etc. who’s going to do it.

then, maybe look at the property. it can’t hurt to look. in fact, it’s good because of the learning experience. it’s fun too. have you looked at the property?

then move to more general questions like the property and neighborhood, the seller, the actual comps, a realtor perhaps, maybe check the zip code for crime and other demographics and the school district. it’s really the basics of due-diligence. that’s if you see it and want to move forward with the possibility.

don’t focus so much on the seller and his motives. know yours first and be confident in them. from my personal experience thus far - it took me about 10 months to stop concerning myself with the “why’s” of others and just focus on myself and my goals…based on strengths, resources, etc.

i kind of look at properties now and say, “what can we do with this property?” “does it match our investment goals?” “how can we do this?” “if we could do anything with this property, what would it be?”
“what are our limitations?” “what’s stopping us from investing in it?”

i like to pick out construction sites and keep an eye on them. i like to see them from the very beginning. the process of development gives me an idea of what smart (or dumb) investors do.

hope this makes sense.

3

After I get enough rentals to establish (I have 0 now). I want to buy, rehab, refi, rent. Then hold until I sell later down the road.
I understand what you are saying about making sure the property makes sense as far as the location, then move on to see if it makes financial sense. I think you are saying to make use I can rent or sell it before I buy it.

I need to learn about financing the rehab because I don’t want to walk into the bank and ask what they can do. I want to know exactly what I want from them.

4

just focus on yourself - your needs, wants, goals, situation, strengths, weaknesses - know where you stand.

i think this will give you a good idea of what you want to do.

rentals, then BRRR - BRRR is easier said then done.

and you said you want rentals first…so you have cash to work with?

5

I will have a liitle under 10k in cash and a few k in credit.
Why is it easier said than done?

6

stoop,

in order to buy rehab refi and rent - you must buy at ridiculously low prices - these are reo’s or very distressed situations which you have your finger on the pulse. meaning, you know the neighborhoods, you have multiple contacts that can give you information, owners that recognize either your advertisement or you go knocking and finding info on properties…that are sometimes, not even on the market. vacant homes, burned out homes, etc.

for a property to cash flow - that means it provides you with some sort of income after ALL EXPENSES, including mortgage payments, taxes, insurance, HOA, and property management.

that stuff adds up - and if all related expenses generally run 45% of rental income - BEFORE debt service - it’s a challenge to find good solid cash flowing rentals. but it is CERTAINLY doable - if you are out there, searching, making contacts, advertising, etc.

now, when you buy rehab refi rent - you’re “refi’ing” to whatever…“put some cash in your pocket.” that little saying is used about 50 million times in rei packages like Sheets. “cash in your pocket”…blah blah blah.

can you do it? absolutely. does it take DEDICATION…YES.

i don’t think, at least not in my market - that such deals exist on your MLS…and certainly about 95% of realtors do not specialize in investment deals like this. they “think” they do…i always love to hear a realtor tell me how “good” a deal is…some say the stupidest things. they think appraisals are the end-all-be-all. like to your average realtor - a house for appraised for 305,000 selling for 295,000 is a “steal”…

anywayz, hope this helps. BRRR - is not as “easy” as it seems. talking about it and thinking about it, and reading about it, is much easier than DOING IT. lots of variables.

depending on your target market - 10k and a few thousand in credit may be pretty tight squeeze for rentals. it will depend ALOT on your ability to find quality DEALS.

i guess determine what you need to BRRR - go find those properties and ONLY those properties - make it your mission in life to find them…or for them to find you. :slight_smile:

7

Thanks.

I live in an area where3 br SFH can be found for under 100k listed and rent for $850-1100. Duplexes list for 109-140k wth
and rent for a total of 1500-2300… These are listings and I am confident that a distressed property at 70% of retail would cash flow. There is a property listed at 180k that is currently rented out at 2300. I would offer 120k and pay no more than 150k or walk away. I think that cashflows but have not worked out every detail because I am not ready to make a purchase yet.

The listing in my original post is a whole saler. I think. It is from a rei club that lets their members list on their site. From other posts on that site, they buy these house for 10-15k less than what they are selling it for. If the total of rehab + cost of property is less than 70% of fixed market value then I believe it would be a deal. If I am off on any of this please tell me.

How do I check the area for whether I should buy it or not? As far as the market?

I would brrr and hold for a few years. I would not refi unless I needed that money to get into another property. I may sit on 20 sfh’s with 30% in equity and sell them all in 8 years to roll it into a 1031 to buy a complex.

Thanks for everyone’s input. I appreciate your help for a newb.

8

Their rehab number is bogus, IMHO. new kitchen, bath, heater, hot water , etc. You could drop $10k in MATERIALS alone.

9

I thought that also. Only because I have never seen a 13k rehab cover that much. But I only watch flipping shows and ahve no real experience. I had not intention on buying this but this club has these properties listed by other investors and I may find a deal.

10

i think it’s important for the new person to stick to the basics.

if a property needs total redo on kitchen, baths, heater, windows, etc… for a first property, just skip it.

if it needs like paint, new vanity, some other odds and ends, throw in a nice new stove, some curtains yada yada yada…

stick to this stoop -

THE AFTER REPAIR VALUE X .70 - EXPENSES = YOUR OFFER PRICE

EXPENSES - should consist of rehabbing (material and labor if any labor costs), closing costs, advertising costs (realtor commiss) and any other related costs.

it’s basic and simple…the math part is.

the reality is another thing - you have to really do your homework - know the area. how do you do this? DRIVE AROUND. talk to realtors. watch for houses being sold. drive your target neighborhoods - write down addresses - get contacts and call on those properties every now and again. be an investigator. it is NOT hard to get comfortable knowing your local market…

now doing this in an out of town area presents challenges cuz you don’t live there per se. i think demographics (if you can get current ones) help, plus school reports (good schools)…and a good realtor can shine some light on the area - just verify what the realtor tells you by being an investigator - call business, chamber of commerce, get info.

keep it simple.

11

its not just about finding a deal, but finding the right deal for YOU! the same deal that is great me might be a mistake for you.

in thinking a bit more about it, you have to really go and see to figure a true rehab number. New kitchen to means take down to drywall and subfloor but they might mean new cabinet faces, floor and counters.

I have done quite a few moderate rehabs and one complete redo. I just finsihed selling one that I put $7k into a 1200 sq ft house (out-sourced all the work) and it was mainly carpet, paint, fixing holes, some new light, etc. I did not even touch the kitchen except for a new stove.

12

here’s an example of what aak is saying, in terms of the investment being “right for you”.

i was talking a woman who was thinking of buying a 2 bedroom and adding a third…without getting propert permits, inspections, etc. her boyfriend does construction.

so i painted the worst-case scenario of what could go wrong…say you rent it out, have a fire, someone dies and you don’t have permits, inspections, etc… who knows - but it would be BAD.

again, worst case scenario.

i told her, if YOU weigh all the risks and are comfortable with them, then by all means, do whatever you want - i DO NOT RECOMMEND code violations and informed her of my personal “stick to the rules” mentality, because i own a business and do not want that business compromised in anyway.

it comes down to you - do you want to personally guarantee a loan? put up your house as collateral on a seller-held mortgage?
buy with no money down…and no money in the bank?
buy a property with razor thing “cash flow” on paper?

keep adding to the list - then make DECISIONS of what you are comfortable with.