Every place is different Rob, in the rust belt where I am, .5 - rehab is not uncommon. Not every house out there, but not uncommon.
25k a deal on 60-80k is not impossible, particularly if you don’t have to go hard money in my market.
In fact I have purchased houses using HML’s 60% LTV with a 10pt fee, and not only bought the house, put more than enough in escrow for repairs, but walked away from the hard money closing with cash in my pocket. Obviously not every house out there sells that cheaply, but in my area, getting a good deal on a junker is not difficult… they are everywhere. There are about 400-450 foreclosures a month in my county right now… finding distressed fixer uppers in this area just isn’t that difficult.
All markets are different, my market, 25k a rehab is realistic, perhaps not standard, but doable, and .5-rehab is doable as well. Obviously not every property goes that cheaply, but there are enough of them out there if you are looking to do well enough.
There are people who operate on a lower threshold of profit, personally I am not going to rehab a house for a 10k payday… I’d be better off just making 3k-4k a wholesale flip than investing my time and energy in a rehab if its only going to make me 10k.
How many people buy rehabs using the equation - Posted by Rehabber101
Posted by Rehabber101 on September 14, 2003 at 22:23:04:
FMV X .70 minus rehab cost?
It seems that it is key to get this or you have no shot at making a profit…since most of us are using HML’s…and using a HML, 2 set of closing costs, taxes, insurance, utilities etc…you are into a rehab almost 15-20k before you step out of the car.
How many really buy at this ratio? I live in a part of the country where investors are crazy…all over the place and deals are not there. Add homevestor being on nearly every billboard, tons of ads in the paper.
So I would like to hear who finds these kind of buys, if not how can you make a profit if you dont buy at that price?
Re: How many people buy rehabs using the equation - Posted by Rob FL
Posted by Rob FL on September 15, 2003 at 13:45:18:
That equation is a good rule of thumb, but it shouldn’t be set in stone. Closing costs vary from state to state. Also some markets are hotter than others. If a house sits on the market for more than 3 weeks in my area right now, it’s overpriced. Knowing that, I can afford to pay more for houses because holding time should be alot less than the 6 months most people figure on.
Re: How many people buy rehabs using the equation - Posted by Dee-Texas
Posted by Dee-Texas on September 15, 2003 at 07:00:14:
Don’t just use the listings. Figure out where you want to buy and make that your farm area put out signs or mail to everyone in the area. Over and Over, people need to see your name often.
Your letter should just say something like: We are buying in your area. If you would like to sell your property quickly please call…
Don’t go into telling them HOW you are going to buy in the letter. Wait until you can talk to them and see if it’s something you can make a deal on…WAIT again until you can get face to face with them on all the details. Most people don’t want to know the terms or how you will solve their problem…just that you CAN solve their problem. Answer their questions honestly and if it doesn’t work always ask them if you can call them in a week. AND THEN CALL THEM.
Remember…everythings NOT a rehab, use all the tools in the toolbox.
Great $uccess,
Dee-Texas Rehabber 102
Well personally I WANT to be at no more than FMV X .5 - repairs or better.
However individual markets dictate different needs… if you are in a hot market, and junkers aren’t all that common, you may have to go higher because the junker market has a higher innate value because less supply… if you are in a market where junkers are a dime a dozen, you could probably get even lower.
If you are using hard money as your only financing, you really need to be shooting for .5 or better of ARV-repairs… unless you want to come out of pocket some.
If you have never done it before, I would not PLAN on holding less than 6 months, no matter how hot your market is… Because fate has a way of proving what you believe to be an immutable fact completely wrong when its your pocketbook on the line.
Posted by Rob FL on September 15, 2003 at 20:47:52:
I can only speak for my own Central Florida market, but looking for deals at 50% of ARV would put me completely out of business. They are so rare, I don’t think I’ve seen one in years. There is a frenzy of competition throughout my area that make 50% nearly impossible.
I remember about 2 years ago, hearing a well known guru say that he only wants deals that earn him 25K net profit or more. Alot of the experienced investors sitting with me agreed that he has been giving seminars too long and needs to come back down to earth. What works in some areas doesn’t work in others.
As for 6 months, it’s good on paper and a seminar, but I try to deal in the real world. I haven’t seen a 6 month holding period in my area in over 3 years for any house – except when it’s overpriced.
Personally, I keep rules of thumb in mind, but I also base me strategies on the current market and not seminar material.