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Selecting The Right Investment Property To Rehab

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  • Selecting The Right Investment Property To Rehab

    I am an investor, I have done 3 properties and I am still learning as I go. Basically I am trying to break out of the traditional handyman specials where you have to gut everything and try to renovate properties that are in pretty good condition and just need some minor repairs and updated cosmetics.It has been kind of hard to distinguish the difference between the decent fixer uppers vs the homes already in move-in condition.

    Thus, how do I avoid properties that are already in move-in condition and have been priced to reflect that value?
    VS
    How do I choose the right property that is priced below value and may be (dated or need some repairs and cosmetic fix up) rehabbed in order to get a good resell profit?

  • #2
    Good question. I confronted the same issues when I started RE investing in the early 1980's.

    I decided not to go into heavy rehabs because my wife and I both had professional jobs that paid well. What we wanted is buy properties as rentals and eventually have enough cash flow so one of us can quit working and do RE or pursue other endeavors full time.

    Fortunately, my wife worked as a licensed RE agent paying her way through graduate school. She had a theory which she calls the "100 house rule". Basically, if you look at 100 houses, there'll be a fluke, and one would cause it to be so underpriced that would make it a good investment, either as a rental, or a flip.

    At the time, I never heard of such a rule and don't know if it's even workable, so I asked "are you sure it works?" Her answer: "All you have to do is see 2 or 3 houses a week, that's 10 a month, and within a year you'll get to see 100 houses. Isn't that better than just sitting around?".

    So that's what we did. We scouted out almost 100 houses the first year for our first investment. Three family houses were selling in NYC for $200K to $250K in 1983. Strangely, one was advertised one day in the NY Times classified for $150K. We expected to see a wreck, but was surprised to find the house in good condition. We were even more surprised the owner was represented by a realtor.

    To make a long story short, the owner was an opinionated jerk who tried to sell the property for a year FSBO for 150K, but didn't realize prices went up 50K during the year. When he met the broker, and she tried to tell him he priced it too low, he went bonkers. His take? How could it be underpriced and not sell.

    As luck would have it, I was the first one to respond to the ad. She showed me the place right away, and made an offer almost on the spot. I said "almost on the spot" because I told her I want to go back and take a second look.

    When we went back, we saw the owner talking to someone outside the house. She shouted at this man and chased him away. After I looked it over again, I made the offer. She explained to me later the other man was one of her clients, and she got the owner to admit this guy tried to cut her out of the deal. She was so mad that she told the owner to accept my offer right away or she'll sue them if he went with the other guy.

    So I got the house under contract a day after it first appeared in the paper. The funny part of the story was when I asked why she let him sell the house for $150K. Her answer "If he (the seller) believes it's 150K, that's OK, I still collect my commission, and I don't have to pick a fight with him."

    I bought the second investment property the same way, another long and more interesting story, and then the third, all flukes, because I was at the right place at the right time. Then the real estate market crashed here in 1987, and hit bottom around 1993. At this point, in the mid 90's,I picked up properties at real estate auctions, including the home I currently live in.
    Last edited by Frank Chin; 12-10-2016, 07:28 AM.

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    • #3
      Selecting The Right Investment Property To

      I heard that property managers are paid by the percent of the rent roll. Is this true? What are the fees involved?

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      • #4
        Yes, that's true here in NY, where PM's who can legally operate must be licensed to do PM. Through the years, I've been quoted 10% for smaller properties I own, namely SFH and 2 to 3 family houses. For larger properties, I been quoted 6 to 8%.

        I've been quoted less, but that's usually from non-licensed PM's. Licensed PM's carry liability insurance, and if you're truly an absentee landlord, covers you in cases of negligence and other tenant claims.
        Last edited by Frank Chin; 01-21-2017, 06:18 AM.

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        • #5
          Actually now one of the best options for investment in commercial property is micro-apartments in Germany https://tranio.com/germany/commercial/ They perfectly meet the demand for one-person households among students, singles and tenants who commute to the city every day. And what makes micro-apartments in major German cities even more attractive for investors is that they sell for as little as
          Last edited by PeteCassidy; 02-16-2017, 06:39 AM.

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