Attended my first REI Club meeting last night after reading several books and am pretty pumped. I understand the potential profit margin on rehabs, but I’m trying to determine whether this is possibly just a part time side business for me, or whether I can do it full time.
After I do a few rehabs (maybe 2-3) while working my full time job to get my feet wet, how many deals can someone reasonably do in a year, given the following:
a) I will be using a General Contractor
b) Rehabs budgets will be approximately $50k (plus or minus $10k)
c) Capital is not an issue
d) at least for the first year, I will be a one man show
Under those conditions, is it reasonable that someone like me can do 6 rehabs a year? more? less? Have I given enough information?
With a general contractor, doing a couple simultaneously is not out of the question by yourself. If you’ve already got a full time job I wouldn’t do more than 1 at a time. Capital might become an issue for doing several come the time to sell. Your capital will be tied up for several months as the property sits on the market. If you can sustain this inevitabiliy while still purchasing and renovating, picking up 1 a month is not out of the question for a one-mand band. They’re not as easy to find as it might originally appear, this will really be what determines the frequency if your capital is as unlimited as you think.
If money is not an issue, then obviously you could physically rehab whatever number of properties you desired. The real question is with your market. Market forces determine the price at which you can buy and sell these properties; the length of time on the market; and ultimately your profit or loss.
If you can make a solid profit on each rehab using a general contractor, why couldn’t you do 1, 2, or even 5 each month?
Whether you can do it part-time, full-time, or not at all depends on the profitability. If you understand the profit margin, then you should be able to answer your own question. REI is a business. It all comes down to the numbers!
I started out doing one waiting until I got that one moved and then do another. After I did my second one, I realized I could do them a whole lot faster. Now I look for houses continuously. There is a natural lag between finding a property and closing that it spaces out the rehabs nicely. I am looking to do 6 this year. I am finishing one now and have 2 offers out now. This pace will get me a house every month and a half. I am not going to buy any after the last week in October (because nobody buys a house between Thanksgiving and the end of the year and it will be on my unsold list for a long time) unless I find a really great deal like I did in 2006.
I don’t anticipate doing more than one at a time while working my full time job. I guess my question is geared more towards the possibility of being able to manage multiple rehabs at once, as well as finding enough deals to do. I didn’t say my funds were unlimited-- I just want to take capital out of the equation. Even given unlimited capital for rehabs, I can’t imagine its feasible to do an unlimited amount of rehabs with just one person.
I can’t imagine finding capital is a problem. There is a ton of money out there. With average annual equity returns 7-9% over the long term, and with risk free treasury 10years @ 4.74 yield, I’m pretty confident I can get investors in a heartbeat as a HML with approx 12-14% interest AND points up front…
After having spent the last 10 years on wall street, I am tired of the relative risk I currently take for much lower margins. The business is changing and the “wild west cowboy days” are over, despite what most people hear on the news about exorbitant bonuses.
I oversee a lot of my rehabs from the phone and email. I don’t need to be in the house to know what’s going on if someone sends me pictures. If it seems like the photographer was trying to hide something, I get on the phone and yell for about 10 seconds, then 20 seconds later I have a new email with accurate pictures. If I’m dissatisfied with the progress or materials or whatever indictated by the pictures, then it’s time to light a fire under someone. As long as you have someone present to implement the changes and to follow up, it works pretty well. Since you’ll be using a general contractor, make sure it’s one who stays on-site and does some freakin’ work and not one is afraid to touch anything when they walk inside. If you have one of “them”, get the crew chief’s phone number and work with them instead of the prissy GC.
Hmm. That’s interesting. I was anticipating a lot more hands on and constantly having to be in the house. Do you typically use the same GC? Or do you have a handful of GC’s that you typically work with? I’d be nervous about work not progressing as quickly as possible.
Btw, thanks for the replies guys… this site is great… in my business, people are unwilling to share info as they see someone else armed with info as their likely competitor at some point.
Wow! the guys I use to do my rehabs may be able to take a picture but if I asked them to e-mail me the photo, they wouldn’t be able to figure out how to get the computer into the mail box. My guys are pretty low tech usually english is their second language.
I started out doing one waiting until I got that one moved and then do another. After I did my second one, I realized I could do them a whole lot faster. Now I look for houses continuously. There is a natural lag between finding a property and closing that it spaces out the rehabs nicely. I am looking to do 6 this year. I am finishing one now and have 2 offers out now. This pace will get me a house every month and a half. I am not going to buy any after the last week in October (because nobody buys a house between Thanksgiving and the end of the year and it will be on my unsold list for a long time) unless I find a really great deal like I did in 2006.
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Bluemoon-- how long have you been rehabbing? do you use a gc? wholesales or try finding deals yourself?
This is my third year. I have used a GC twice. Once when I first got stared and once last year. I found I can get subs and cut out the GC. My problem with the GC isn’t really cost, but control. It is my project not his. For example the GC I used last year decided that he didn’t want to remove the wall paper, just texture over it and paint it (although the contract said remove wall paper). This is a rule that every change that the GC asks for in a project is NOT to help you have a better project it is to save him time and money which is NOT in your best interest. I have found every deal myself that I have done. Remember that all real estate is local. What works here my not work in the NY, NJ area where you are.
Wow! the guys I use to do my rehabs may be able to take a picture but if I asked them to e-mail me the photo, they wouldn’t be able to figure out how to get the computer into the mail box. My guys are pretty low tech usually english is their second language.
I’m talking about the project managers, not the laborers. If the project manager is my employee, they have a low profile satellite antenna with mobile internet mounted on the roof rack of their vehicle. If the project manager is not my employee (RE agents, home inspectors, GCs, etc.), chances are they have a fancy cell phone that does just about everything you could ever want. The details of project management would be difficult to complete over the phone or internet. Managing a GC or project manager over the phone or internet is pretty simple though.
Do you typically use the same GC? Or do you have a handful of GC’s that you typically work with? I’d be nervous about work not progressing as quickly as possible.
I like to stay away from GC’s as much as possible, they are always a last resort for me. They all have their own way of doing things which kind of annoys me. I have project managers on staff, both full and part-time. I also have independent project managers that I use. The independents can be RE agents, home inspectors, code inspectors, struggling GC’s, appraisers, contractors, or anyone else who is interested and capable. It’s a part-time job to manage rehabs and I pay anywhere from $2,500- $8,000 for a residential project to the manager with the average about $3,500. The independents usually stop by a couple times a day during the work week to check up on progress, order materials, etc. and spend a good chunk of the weekend doing the same.
We plan the jobs out and figure out the logistics of contractors and materials before closing on the properties to make the project managers decisions pretty straight forward. They just have to make sure it’s all put together in a timely fashion and all of the “unforeseens” don’t get out of hand.
one of the real challneges is finding GOOD deals; there are plenty of houses out there to be rehabbed, some are worthy rehabbing, even fewer are good, profitable rehabs. it’s a Catch-22 becuase if you are in a big market, there will be more competition and margins will be thinner. I tend to work niche markets, but there are only a few good deals per year but I’m able to land a higher percentage AND have better profitability. I have a fullt-time job plus tons of other things going on so I only do a couple of projects per year. Usually I end up renting them out and then selling after a few years.
so, my biggest problem would not seem to be doing 6 or more in a year, but rather finding 6 or more worthwhile deals?
In the beginning, finding the deals is always difficult. If you’re limited on time, that doesn’t help your cause. It took me a while to figure out how to find properties consistently. It’s something you’ll have to fine-tune in an on-going process. Exactly what you do and how much of it you do will be important. Blowing time, energy, and money on dry wells will be discouraging and could eventually lead to the impatience of buying a no-so-good deal.
I use about 75 different avenues to find deals. Some I wouldn’t spend more than 5 minutes a week doing and others are my main focus. The entire list along with success rates of each is probably worth some money to the investors in my market who spend most of the time spinning their wheels…
I’m not even at the point yet to start looking for deals. However, when I do, I plan on looking at a ton. I am in no rush to do a deal, just for the sake of doing a deal. I want to know when I buy a deal, that not only will I make money on the rehab, but a very nice one. I won’t allow my success, or lack thereof, to be left to fate.
DannyTheGreat… is right …I do about 12 to 15 rehabs a year in Maryland, I live in Massachusetts…it took some time to develop the right system and hire the right people…but in this age of technology once all the ground work is in place …it is actually quite easy and profitable.
How many people do you have working for you? How long have you been in the business? Do you have a construction background? Trying to gauge where I can fit into this business…