I don’t get it. You guys are buying nasty homes, but the nasty homes I find cost too much to fix and I can’t sell it to my buyers. For example… The last house I looked at came back with 44 grand of work needed done. The house will only sell for as much and I can get it for 5 grand. I keep finding this situation. How do you make a profit on these nasty houses
Cut your repair expenses…looks like about all you can do.
I agree with Keith, your repair costs are the only variable left after knocking the acquisition price down. You may want to look at more expensive properties also. Bigger houses cost less per square foot to renovate for the same work and your discounts will be greater. As you go up in price buyers become gradually more discriminating. A $600k- $800k property in significant disrepair will turn off any retail buyer completely forcing the value down by half or more. Leaving you plenty of room to renovate and make a profit.
I have found a niche in hot neighborhoods where the home prices have soared but there are some homeowners who need to move and can’t afford to invest the money needed to maximize value or simply don’t want to bother. They are happy with $100 sq. ft. (heck most of them own the property outright) You have to invest $75-100k to fix up, but these homes are worth 200-225k sq. ft afterwards. Example:
sale price 425k
lots of room for error and price concession
How do you guys figure out the repair costs. For example. This house needs a whole new kitchen. Infact. It is down to the dirt. How do I figure out the costs both material and labor. I am having a tough time getting builders to give me a detailed estamite of this house.
There are a few good ways to get a preliminary estimate of repair costs. First, make sure your working with contractors where the owner is also a working employee. The components of any price consists of 4 basic things; labor, material, real estate (could be rent, land, land with improvements, etc.) and the most important one, PROFIT. If you work with contractors who pay themselves as labor, they require less profit and your price goes down. These contractors also care much more about customer satisfaction than most because their wages are contingent on a good name.
If you can’t get a good contractor to walk through with you prior to putting a contract on the property, you’ll have to know what the materials cost. Blow a Saturday at Home Depot or Lowe’s with a list of materials to price out by the sq. ft. or sq. yd. Then when you are going through your first walk through of a property, you can take some measurements and multiply them by the price of materials, then double it for a rough estimate of labor.
You’ll be able to give pretty good on-the-spot estimates after you do several rehabs and have dealt with a lot of the normal disrepairs.
So lets take double hung windows. if you can get then at $190 a piece. The house needs 18. So you are looking at around $6840 total
I’d say $6,840 is probably pretty close for 18 residential windows.
so what abour HVAC work. Would you double the cost to get their labor
HVAC is trickier to estimate. Your not going to be able to check all of the components without taking the unit apart. The best way to tell if you’ll need HVAC work is by looking at the age of the unit.
On every heat pump, furnace, A/C units ID plate, there is both the tonnage and date manufactured. They are “encoded” in the model # and serial #. I can’t remember off the top of my head which one is in which number but here’s how you break the code:
Tonnage- 1 ton = “12”, 1.5 tons = 18, 2 tons =24, 2.5 tons = 30, 3.5 tons = 36. The numbers will be somewhere in either the model # or serial number. The typical rule of thumb is 1 ton for 1,000 sq ft, so if there are multiple possibilities within the serial or model #, you’ve got to use common sense. Such as 124174306, and the house is about 2,400 sq ft, the 30 makes more sense.
Date Manufactued- Much simpler but also requires some common sense. It’s always the month and year or year and month, such as 902 or 029 would be September, 2002. These are usually (but not always) in the front or back of either the model or serial #. The manufactured date and the tonnage are not both in the same number either.
The reason these numbers are important is that if the unit is more than 8-12 years old you should expect some disrepair. In beach areas, the unit will need to be replaced every 4-6 years. If your planning an extention on the rehab, you have to make sure the unit has an adequate amount of tonnage to cover the additional square footage you’ll be adding.
Your not going to be able to know (unless your an HVAC tech) by the preliminary walk through if the heating/ cooling and water heater will need work. If the heating/ AC looks bad, I would budget 5-8k just to be save. If the water heater looks bad I’d budget 2-3k. Those numbers include material and labor.
on all of my deals I bring in a Gen. contractor to give me a price on rehab.