Calling All Cows .... (cash cows) - Posted by Stacy (AZ)

Posted by phil fernandez on May 30, 2000 at 20:54:30:

Hi Stacy,

Interesting question. I think for the most part, the fact that you are offering easy qualifying financing, will be the big carrot for a buyer to pull the trigger. The upgrades, well being nice, would be over shadowed by the financing that you are offering.

Others may differ.

Calling All Cows … (cash cows) - Posted by Stacy (AZ)

Posted by Stacy (AZ) on May 30, 2000 at 18:40:43:

I’ve got a pre-foreclosure property I’ve purchased to do a cash-cow deal. I plan to sell on land contract at 10% down, 10% above FMV, as I’ve learned in Bronchick’s course. This is a 4br, 2ba house in a very nice neighborhood. The FMV after fix-up would be about 145K to 150K, and this is about the average price of a typical upper-middle class house in the Phoenix market.

I’ll have to fix it up, cosmetically. My question; how do you other cash-cow investors determine the level of upgrade for SFRs in this price range? For example, should I go for the low-end Berber carpet, or the high end? Low end Berber goes for $16.20 sq/yd installed, and high end is about $22.05. This is a difference of $2K for the house. Should I stick with formica counters and low-cost sinks, or should I step it up a little.

Since I need to sell fast, I’m thinking of these upgrades in terms of “pop”. I obviously want someone to fall in love with the place immediately, without wasting money on needless upgrades. But then again, I don’t want to be overly thrifty on the rehab and make the place look like a rental since these buyers will be paying over FMV. Or, am I getting this wrong…will buyers with a few credit dings be happy to just get a house?

Thanks in advance-

Stacy

Re: Mooooooo! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on May 31, 2000 at 17:57:04:

That’s cow-speak for “Thanks!”. “Udderly” great advice by all. I guess I’ll avoid treating this one like a “sacred cow” and skip all the “bull”. If I’m not careful, I “cud” over-spend. I “veal” much better now.

Stacy

(got milk?)

Re: Calling All Cows … (cash cows) - Posted by JPiper

Posted by JPiper on May 31, 2000 at 10:01:41:

A general comment first. What I find is that in the scheme of things, the price difference between the lowest level material or part and something a step or two up is fairly minor. Even on low end properties that I?m selling I will install things that 1) look good 2) may be a step or two up from the minimum I could have installed.

BUT, the two questions that always need to be addressed are:

  1. What?s the competition look like. In this case, the competition is the other houses in the neighborhood. I?m not going to put less than what someone would typically expect in that neighborhood. I?m also not going to go WAY beyond what would be in the neighborhood.

  2. As always, you need to look at the cash you have in the deal, plus the cash you then spend on the deal, compared to the cash you?re going to get out of the deal?.versus the cash flow.

I can usually find carpet places that sell Berber cheap, where I can get something a step up from the minimum that looks good. I like to go with a mid-level pad though, because it feels better to walk on.

I?ll get a more expensive sink as an example, or more expensive faucets, because these things aren?t all that expensive, and they cost no more to install than the cheap stuff.

But again, you have to look at the cash in your deal plus what you?re spending. If upgrading slightly means you end up leaving a lot of cash in the deal, I wouldn’t do it.

I sold a rehab house in one day last year?..BEFORE it was rehabbed. You should have seen this place. Front porch was off, NO carpet, NO paint, NO furnace, NO hot water heater, NO tile?.in short, it looked like the wrath of God, just as I had bought it. Why? Financing was one key. The other key was that they had looked at a completed job, and knew how it would look when complete.

I can make a big deal out of a faucet, carpet, even paint when I show buyers houses?because I know I put something a little better in.

But one more time?.look at the cash in your deal versus what you will get back out.

JPiper

They fall in love with the financing, not the house… - Posted by HR

Posted by HR on May 31, 2000 at 08:03:40:

Stacy,

I have a cash cow I’ve been playing with. It’s my first, so take my ideas/suggestions with a grain of salt.

I bought this bank reo for $2000. 5 bedroom, lr, dr, kitchen, 1.5 bath. Pretty nice. My original plan was to sink about 10k into it and rent it out section 8. Well, our local section 8 office is run by a bun of management dolts, and they are slow on giving me $900 for a 5 bedroom place. I’ve also put about 14k into it, and I’m shocked to learn its worth about 60k.

I’ve decided to unload it. So, I put a large, florescent orange sign on the front and in my handwriting wrote:

For Sale by Owner.
Owner will help with the financing.
Low downpayment. Low monthly Payments.
Cheaper than rent.
5 bedroom, living room, dining room, kitchen 1.5 baths, alarm system, termite contract, vinyl siding, lots of closet space, and more…
Call Bob Bob at nnn-nnnn for more details.

bob bob (not his real name) is mortgage broker I work with who is fielding all the calls and screening them for who will qualify for a mortgage. I hate getting the 250 million calls on these kinds of ads; I let him to it for the loan, and, since he’s also a realtor, if it makes it into the mls, he will also get a 3% commission. I have no problem with that; he gives me good service.

Stacy, we are showing the house now and it still is a few days away from being done. The carpet is used and I swear has more stains than original carpet color. No one that has seen it cares. We have tile work going on in the kitchen and bath, and its unfinished with grout lines, cracked tiles, etc lying everywhere. The prospective buyers don’t care. The back yard is our storage disaster. They prospective buyers don’t care.

This house, by the way, is also deep into an inner city neighborhood. Most New Orleaneans would not live here; it’s only 2 blocks to the projects. The buyers don’t care!

What has become clear to me is the only thing they care most about is the financing! Phil is right: they fall in love with the financing, but it allows them to own a home, not the ammentities of the home.

I’ve got some guy I haven’t met yet who says he will give me $10,000 down if I will hold the rest. Bring it on! I can’t believe it.

Anyway, this is rambling. In my very limited experience with providing owner financing, the financing certainly moves the property. Let me know your experiences.

HR

Pop for rehab - Posted by d.henderson

Posted by d.henderson on May 31, 2000 at 07:37:45:

Hello Stacy,
When we rehab, we fix, what’s broken that will cause problems later on. Usually always paint, using the newest colors (light colors) in the magazines. Replace carpet only if the colors or damage will not sell the house. We always go with commerical carpet in colors that don’t show wear or dirt as much as the others(low end).
Don’t sink too much money to fix it like YOU would live there. Spend the extra money on MARKETING. I would rather take a small discount because of carpet then, spend my time and money on putting it in the house.
This works well for us. We show the house with old carpet in place, asking them if they want new carpet, then show them samples of carpet that we can have installed for them, making a note. Win-Win…
Good Luck,
Dee-Texas

maximizing rehab return (RORehab?) - Posted by RR Smith

Posted by RR Smith on May 30, 2000 at 21:32:05:

Point of diminishing returns?..~~~~~~??.. I read a whole book on REI when I was very young (and still in the Stock Market) the only (whole?) point of the book was very simple.
Don?t fix up past the average house on the block. This can be expressed as corollaries for renting, additions, rehabbing and purchasing. You are fighting the trend, you are trying to rent for MORE THAN THE AVERAGE rent. So …if you have a collection of improvements to make …don’t go past the right shoulder of the bell curve for the neighborhood. There are books on the cents per dollar cost return of any re-hab (sky light the highest 80 something cents per dollar Not including the tax bennies))including new kitchen cabinets, new bathroom, etc etc. but the basic tenant holds, don’t fix up past the (above)average value of the hood.