I have found the "cure" for "Rehab-itis". - Posted by Jim IL

Posted by Terry on December 08, 1999 at 14:37:53:

Jeff,

Thanks for your response to my question. Any suggestions as to what courses and/or books on the subjects that you metioned. I am looking to purchase some books and/or courses in the near future. I would appreciate your opinion very much, perhaps as to which ones you chose and why.

Thank you very much,

Terry

I have found the “cure” for “Rehab-itis”. - Posted by Jim IL

Posted by Jim IL on December 06, 1999 at 14:13:14:

Hello all,
I am sitting here chuckling a bit today. You see, EVERYONE I know has at some point made a comment on how they’d like to get into investing with me. Most then proceed to tell me that “the way to make REAL money is to do a rehab.”

I of course TRY to stear them clear of them, as I have already learned my time and energy are better spent NOT doing any REAL WORK. (Hammers are not my thing.)

But, recently, I agreed to do a deal with my father.
We got a duplex that needed minimal work, and he agreed to “handle” all the repairs.
Here we are a few weeks into the deal, and most of the needed repairs are complete, but guess what?
Dad is frustrated, and keeps talking about, “Everytime I fix something, I find more to do!!”

Since he is my father, I cannot say, “told you so!” (although I am thinking it daily. Õ¿Õ)

So, dad does still want to do some deals with me, but he is now thinking that maybe his son was onto something with the idea of “pretty houses”.

So, the cure for “Rehab-itis” (the disease of wanting badly to try it), is to actually do one.

I can only imagine doing a FULL REHAB! This one we have is really a small job.

Just wanted to share that with you, and help you to avoid the temptation of getting into these “GREAT Rehab deals”.

They are definitely not for me, or Dad any longer.

Have a nice day,
Jim IL

Other side of the coin - Posted by Carmen_FL

Posted by Carmen_FL on December 07, 1999 at 08:24:27:

The examples I see here (except for Jim’s) seem to be the exceptions and not the rule. Rehabs don’t have to be nightmares! It’s all in learning how to do them, and buying houses with the “right things wrong”, as we hear over and over again!

I’ve bought 3 houses; have not spent more than $6-10K on any one, and usually had part of that financed. The spread was usually at least $35K before rehab costs; at least $20K after all costs. And we’re still learning, so it will get easier. The first were the hardest, since we had to do the work ourselves - but after doing a couple, we can afford to have someone else do most of the work.

The key is - you really do have to at least tolerate if not enjoy this part of the business. My husband is a closet carpenter, and loves doing the “touch up” stuff. It also fulfills some creative niche. Although we are not going to do only rehabs, this will definitely be one of our “tools” and a source of chunks of cash (we did 2 this year; hope to do about 6 next year), as we build our monthly cashflow through L/O or owner financing. For us, it’s easier than trying to find 5 flips a month! The only ones we have to answer to is ourselves - much more control.

Just another opinion.

Think twice before giving up on Rehabs. - Posted by Shawn M. Crawford

Posted by Shawn M. Crawford on December 07, 1999 at 07:43:13:

Jim,

I can understand your frustration in dealing with rehabs and anything else new to you.

As most people have found trying something new can be frustrating (especially when dealing with technical issues of home rebuilding).

I can tell you that several threads below this posting I have posted a message to Ray Alcorn about my frustratinon, hesitation and lack of understanding of how to handle a million dollar commercial deal. I would suggest you read that post for support on how to move forward on a deal you don’t have your arms and mind around.

But back to rehabs.

My most recent rehab worked as follows:

  1. I identified a neighborhood with potentially good resale values (85-100 sf).

  2. I identified several houses(3) made offers on all three and had one accepted.

  3. The offer accepeted was 20,000 with 250.00 down on a 10 year note with a one year ballon. This offer was made and accepted in 24 hours and was completely owner financed. I did this to tie up the property while I thouroughly inspected the property over the next two weeks.

  4. For the next two weeks I had the following crews offer bids on the project:
    carpenter
    mason
    electrician
    plumber
    hvac
    sheetrocker
    painter
    roofer

  5. Within that two week time period I had hard numbers from all contractors and was able to put to together a construction proposal for my banker. I also prepared a proforma for holding the house for 6 months using the banks funds while reconstruction was going on. My numbers are as follows:

20,000 land cost
76,000 construction cost
1,800 closing(survey,title,appraiser)
3,400 holding cost(debt service)

Total cost 101,200
total sf 1,800
rehabbed cost 56.23 sf

Fmv per sf 85.00

  1. The bank gave me an interest only loan for one year at 7.75 on drawn funds only with no fees associated with the loan. If I wanted to I could recoup my downpayment and one payment to seller at closing but I chose not to.

  2. I placed a sign on the project 4 weeks into it. 6 weeks into to a ten week project I was offered full asking price (151,500) plus 23,000 in additional construction work.

Net return on 101,200. 101,200-151,500=50,300 plus 23% return on the addtional construction work.

NOW I HAVE BEEN DOING THIS FOR TEN YEARS. I know my markets(submarkets), constructions costs and crews and a good bit of what are commonly known as the unknowns(hidden damage). I do five projects of this size a year plus other re investing. This is currently where my cashflow comes from- as you can see from the posts below I am trying to expand my horizons.

I hope all this gibberish has helped and I am sorry I don’t post as eloquently as others(Ray, Ed, Eric C. Et al.) but again I hope I’ve helped.

Throw away you’re crutches you’re cured! - Posted by David

Posted by David on December 07, 1999 at 05:11:35:

I literally bought the worst house in town. It was a boarded up repo in a town that didn’t have a single other boarded up house. It stuck out like a sore thumb. It didn’t start as a major rehab, but it sure ended up as one.
The former owner had started rehabbing the house while living there and as is often the case with owner rehabs, it was of inferior workmanship. A friend of mine refers to this type of work as “done by kids”. I removed the cheap paneling, old wallpaper, and one room had rock oak paneling made from used pallets. I hoped that the walls underneath would be repairable. The 100 year old horse hair plaster was powder in some areas and crumbled when the paper was removed. The extensive repair required a professional whose estimate was more than the cost of all new drywall. The first of many big money expenditures, I decided on drywall. I removed all the old placter, burned the wood lath in the stove to heat the house that winter.
The water and heat were turned off to save on utilities and prevent freeze damage. All new plumbing was next followed by 50% new electric, refinished hardwood floors and wall to wall, all new baseboard and trim, all new windows, new siding, gutters, downspoats, sofitt, fascia, new bath and new kitchen, not to mention a 4 x 4 skylight in the 3rd bedroom.
Its easier to list the things I didn’t replace, the furnace and electrical service.
Only paid $12,000 for the house but total investment $50,000+, 1.5 years, sold for $67,500.
Bottom line, will NEVER do that again!
David

Re: I have found the “cure” for “Rehab-itis”. - Posted by phil fernandez

Posted by phil fernandez on December 06, 1999 at 20:33:33:

Jim,

I can relate to your story. Rehabs take time, energy and your equity line of credit can take a beating. Did the last one about a year ago. Had nearly $40,000 tied up in the sucker. Did sell it for $65,000 and made money but the time and stress were not worth it.

There are easier ways to make the $25,000 then doing a rehab. Education will show you how.

There is another side - Posted by David

Posted by David on December 07, 1999 at 15:08:43:

I didn’t mean to paint a bleak picture in earlier post.
For me I like little rehabs, not gut jobs. We’ve made money on every single rehab that we did, but I don’t want to do another 1.5 yr job. Some of better ones were:
paid $3k, rehab $3k, sell $15k
paid $3k, rehab $17k, sell $51k
paid $12k, rehab $3k, sell $42k
paid $75k, rehab $30k, sell $158k
paid $125k, rehab $60k, sell $290k
as we did more jobs, I did less physical work, which was fine with me.
I want to get in, spend enough to make the place look better, and get out as soon as possible.
There are other rehabs where we have kept for rental income.
David

You guys R doing great! (nt) - Posted by SusanL.–FL

Posted by SusanL.–FL on December 07, 1999 at 14:10:35:

nt

Could you expand on… - Posted by Chris (FL)

Posted by Chris (FL) on December 07, 1999 at 14:21:22:

some of those hidden damage situations. These kinds of things have the potential to really screw up one’s numbers. Also , in your experience , what kind of tricks or ploys do the less than ethical individuals ( the sharks ) try to pull off in your fixer upper ( or any other ) market? …And one more queston … do you have any tips for rehabbing fire damaged houses? … Thanx in advance.

Perhaps I should clarify - Posted by Jim IL

Posted by Jim IL on December 07, 1999 at 13:25:24:

Shawn,
Thanks for the post, it was quite eloquent and informative.
Nice deal you showed us.

As far as my desire to “do rehabs”, it is not that strong.
I was basically saying that the method employed on this one is not my first choice, and I should have known better.
I will do more of them, but will not be the one completeing the work.
I would much rather prefer to hire out the repairs etc.
But, in this case, my father insisted that “we” could do the work, and that it would not be a waste of time.
I disagreed, but went with him anyway.
I did this for two reasons:
1.) He is my father, and I figured, "I have some time now, why not try it his way?"
2.) I have more time than money, and the deal is still good, even after the “unexpected” expenses, and headaches.

And of course, the added incentive that my father is paying for, and doing the majority of the work needed.
PLUS, he is now starting to come around to my way of thinking.
He sees that I make just as much money on “pretty houses”, and do so with a TON less work.

So, I am not giving up on rehabs, just going back to doing them the way I have in the past.
No hammers for me thank you.

Thanks for the input, and happy investing to you,
Jim IL

Newbies AND Pros: Textbook example of doing your homework. - Posted by Perry IL

Posted by Perry IL on December 07, 1999 at 10:38:03:

Shawn,

Touche’

May I compliment you on a fine post, and an obviously successful net gain. The particular steps taken and the desired outcome achieved, is about as close to perfection as one might find in a deal such as this one.

Additionally, if you had the inclination to perform a fair percentage of the manual labor yourself, the net gain would be even greater.

Of course, with the nice profit you’re showing us, using your individual style here, what would be the point ?

This example is an excellent model for teaching those bent on rehabbing. The lessons are not lost on yours truly either.

Again, thanks for contributing, and a job well done.

PS As far as eloquence goes, line for line, your message is as valuable as any other great post that I have read on this site, and that goes for expert postings, and newbie postings alike. Again, a job well done !

Thanks, Perry, IL.

Man, what a JOB! Guess you R glad it’s over. - Posted by SusanL.–FL

Posted by SusanL.–FL on December 07, 1999 at 14:06:29:

Ahhhhhh memories??and hindsight.


Your post dredged up ?memories? of my FIRST (and last) exposure to rehabbing a property.


(First husband) Bob and I lived in Center City, Philadelphia in the mid-70?s. (He was easily influenced by any little ?scheme’ that appeared on the horizon.) Without warning and on a WHIM, he decided to buy a vacant (handyman) building in the Germantown section of Philadelphia (so that he could eventually turn it into a FISH MARKET)!! (The building was in an urban-renewal type area.)

For starters, he took the last red cent from our savings account in order to buy the building (which was all of our wedding money…and then some!) Then he put the property in his and his friend?s name!!!(the friend?s only income being a monthly WELFARE check!!! My money and his name on the title…Is that a kick or what??? (Trust me, that matter was corrected quickly.)


One Saturday we went over to the property to try and size up the ?situation?. Don?t remember if we had a car at that time or not but that particular day we had to take a bus and a trolly to get there (1 ½ hrs. one way) through foot-high snow. Freezing cold and no heat in our building.

When we finally got there, I can remember him just standing there in the middle of the room staring blankly at nothing in particular—not really knowing WHERE to being. Old Bob-o didn?t have a CLUE about renovating.


We eventually wound up borrowing the money from our Fathers and then hiring a contractor to do the job.


If I remember correctly, he paid around $4,500 for the building and we made around $13,000 profit.

Re: I have found the “cure” for “Rehab-itis”. - Posted by Terry

Posted by Terry on December 06, 1999 at 23:06:36:

Perhaps you could expand upon the other ways to make the 25,000 you speak of. Please excuse my ignorance as I am a newbie in this business. Thanks for your help!

Yeah…Dads can be fun… - Posted by Shawn M. Crawford

Posted by Shawn M. Crawford on December 07, 1999 at 14:43:23:

or a real pain in the a**.

My Dad use to be my partner(10 years constrution and real estate, and my boss when we owned a car dealership.)

I wouldn’t do it again…although he did teach me a hell of a lot ie how to structure deals. He was the one who discovered crei for us.

With age and health reasons he slowed down(at 33 I’m ready to speed up). So here I am on my own-sort of- and my bank, and two other investors.

It was a pleasure to read your response and if I can ever help with a construction question don’t hesitate to call (803)261-7960.

Shawn

Thanks Perry, I still would feel better if my words where coming from Ray Alcorn. (nt) - Posted by Shawn M. Crawford

Posted by Shawn M. Crawford on December 07, 1999 at 14:46:09:

nt

Re: I have found the “cure” for “Rehab-itis”. - Posted by Jeffrey Short

Posted by Jeffrey Short on December 07, 1999 at 07:31:35:

Terry,

I am a newbie myself, but I think that I start off answering your “how to make $25K” question.

You could focus on doing “quick flips”, which is simply buying and selling a property in a relatively short period of time!

You could doing Mobile Home buying/selling… look at foreclosures… the list could go on and on.

I am looking to start with doing quick flips…then move to MHs and possibly foreclosures. However, what is best for me, Phil, or anyone else, is not necessary best for you. This is where Phil’s comment about “education is the key” comes into play.

Look all over this site…read the articles, the sucess stories, the many posts. Check into the chat room, talk to the other people here… get “a feel” about what you want to do…and then do it!!

Hope this helps…

Jeff