Hmmm…well, there are a couple of things that may help me be successful:
My wife has agreed to take a somewhat larger role and be head designer and stop in on the work at least 3 days weekly;
I generally travel from Sunday through Thursday so I can pop in Friday to see what has been done over the week;
As this is our first, we are looking at properties with asking prices from $30K-$50K and we can probably talk them down in this market; you know: start small, risk little and learn lessons without losing too much money
The properties we are looking at (three) need an estimated $20K-$30K in repair and have an ARV of $110K-$130K. The ARV are derived from average recent sale comps within 1 mile. Question here is whether someone looking for a house at this ARV will be able to get the credit in this economic environment?
Does it sound like we have weighed the risks and taken steps to manage them?
Go to a local building supply, or Sherwin Williams store and ask the guys there if they know the names of some of their regular customers who rehabs properties…(This won’t work at Lowes or Home Depot). Normally, these kinds of material suppliers build relationships with their customers and they know which crews are good.
Ask the rehabber to provide photos of work completed, and a few references…
If the rehabber is limited in the kinds of repair services he/she offers, yet you feel comfortable with them, ask if they would accept a fee for project management services. In other words if you have a good rapport with a painter, electrician, carpenter or lets just say plumber…Let’s just call him “Joe”…If Joe the Plumber is willing he can become your PM. Joe probably knows alot of good tradespeople that he can vouch for…Make sure that Joe has a good digital camera, knows how to use the Kodak photo gallery online, and can receive wired payments…Set up a progressive payment schedule, and payout on the project pursuant to the schedule…
Think about your out of state deals as a district manager would think of running a local Fast Food Chain…You can’t be everywhere at the same time cooking the hamburgers, making the fries, mopping the restroom, working the cash register, etc…You hire folks…You hire management…
I hear you loud and clear. This is exactly what I have been thinking. I appreciate the help. I am interviewing a couple of contractors soon. Thanks again. I will see about starting a blog about my (mis)adventures. :smile
I am surprised nobody asked what price point, margins you are dealing with. That makes all the difference! IF you are dealing with a 90K home that might sell for 130K re-habbed, remote management would be very tough. Thin margins require serious babysitting and a lot of personal sweat! I have dealt mostly with single family homes and townhomes that I can get for 300K to $400K and sell for 100K+ higher. It costs roughly the same to rehab a 300K home as a 150K home but often with much higher proffit margins. I hire out most of the major work to reputable subs and I don’t show up every day. I still do a lot of detail work and being there is important sometimes, like when a tile crew (scheduled 3 weeks ago) is coming tomorrow and the demo crew didn’t quite finish the prep work.
Having said that, I have a collegue who only deals with million dollar plus homes and he shows up twice a week but never even touches a lightbulb. His margins are big enough that a budget overrun of 50K won’t even make him blink.
Thanks for the advice. I am working on homes under $75K in areas where comps are in the $200K range. In fact, my top prospect is on the market for $32K and comps are coming in at the $200K mark on average. Sound reasonable?
No, it is not in San Antonio. With 121K purchase and 205K ARV, how much profit are you planning on making? Or, how much do you plan to spend on repairs?
Repairs will end up costing 50K - way more than we estimated. This is our first flip. We’re using cash so holding costs are very low. We had foundation problems after heavy rain. This was AFTER the inspection cleared us of any foundation issues. The inspection also revealed that the electrical needed to be updated and the roof needed to be replaced.
So lesson learned - get an inspection before you close and before you estimate your budget.
It’s a nice area so it should sell, and we should make a 17K profit.
Next time will be much better because we already have the vendors lined up and we know what everything is going to cost.
I Rehab properties as I rebuild my credit and save money to do my own propeties. A deal I have worked out with two different individuals was:
I look over the property give a detailed proposal of time and cost outlining ALL the work I plan to do. This sets our price.
In exchange for a small part of the profit I:
I manage all the subcontractors from the Electricain for new services or upgrage, HVAC, Etc.
I handle getting all the building permits and inspections.
If it is a rental I advertise and show the apartments, run credit and criminal backgroud if the owner wishes and of course giving him final approval of all tenants.
If the place is for sale I show it to potential buyers or work with the RE Agent to coordinate the showing.
I understand what is really involved in REI so as I work to transition into my own investments I try to make myself as valuable as possible to my investors as I work on building my own team. It also works good to build a buyers list for wholesaling properties as I can wholesale then rehab for the same person. I enjoy taking properties from eyesores to units the neighbors can't believe are so nice. I like the construction side of things.
I make good money doing what I am doing and enjoy it. So soon enough I will have the money to do my own projects. All with an education learned here, REI meetings loacally and through doing rehabs for others.
In conclusion what I would look for is someone hungry to get into the business with a knowledge of construction and have them come aboard and mentor them.
Well 99% of the reply is correct. Unless you know the person and willing to take the chance with this person don’t do it. My rule of thumb was stay within 1 hour driving distance of home. Example; a friend of mine hired a carpenter to do some work for him at his farm three hours from his house. He paid him 50% upfront (stupid) and the rest at inspection. Well he couldn’t make a meeting with the guy and sent him more money that totaled 80% of the fee only to find out the work was not done to code and failed inspection and the guy was never heard from again.
Be smart and don’t trust anybody without checking out references and suppliers the person uses.