Marginal REHAB - Is it worth it? - Posted by Russell

Posted by Mike o on February 23, 2000 at 20:11:09:


I would definately use the higher numbers. I’m still doing a rehab project,7 months(book says 3 to 6). i have found a lot of surprises, but I did allow for them in my estimates, by using a contingency of 10% of the entire project. Play it safe and don’t get stuck becoming a motivated seller.

Mike O

Marginal REHAB - Is it worth it? - Posted by Russell

Posted by Russell on February 23, 2000 at 18:50:29:

I have a REHAB opportunity, and, based on the formula in a book I’m reading by James Lumley (5 Magic Paths to Making a Fortune in RE), it’s not making the cut. But, my gut “feeling” is that I should be able to do something with it. It’s in a nice neighborhood of comparable homes, quiet street, good location, etc. I would appreciate any suggestions.

House should sale for about $67-$68,000 repaired. Repair estimate is $5000. I have private financing for 95% LTV with only a credit check required. Financing is through the previous owner and no PMI, appraisal, etc., are required. The present owner’s owe $40,000 on their mortgage. They are divorcing (wife is selling house) and did not make the payment for February. They also have other outstanding bills they need to pay, but I do not know how much cash they are trying to get. The house is listed with an agent at 6%. It shows poorly, do to the needed, primarily, cosmetic repairs.

I made an offer which was not countered but do not know if I should go higher.

My offer:

$67,000 Repaired Sale Price

  • 5,000 Repairs

  • 4,020 6% Sales Commission (I don’t want to FSBO)

  • 4,020 6% Overhead/Carrying (Book says use 10%)

  • 6,700 10% Profit (Book says use 15% minimum)

$47,260 OFFER

I have already stretched what the book says. Maybe it’s time to walk away. Any comments/suggestions?


Seminar Waiting to be Taken - Posted by Rick W.

Posted by Rick W. on February 24, 2000 at 04:47:04:


Trust us on this one. Paying all cash for a deal that exceeds the maximum offer is just a disaster waiting to happen. In fact, your $47k offer is $5,000 more than I would offer if I was planning to Retail the house, $10,000 more if I was planning to Wholesale it.

Murphy DOES live where you are, and the Rehab environment is one of his favorite places to hang out.

Try another strategy: Buy the property “SUBJECT TO THE EXISTING MORTGAGE”. You then only have to come up with Closing Costs & Commissions, can save your capital for the repairs, and can offer the property to a potential Buyer with “NO QUALIFYING FINANCING”.

I have done nearly forty of these in the last two years (most recent one last Friday). It works GREAT!!! I am hoping to get a contract today from a Buyer offering me $92,000 on a house I bought two weeks ago for $77,000, and have a total of $3,000 in repairs. I should net $10,000 after Closing Costs, and will have had the property for less than a month.

Let’s see - $10,000 return on $3,000 invested in less than a month, that’s a 333% return on my money isn’t it? (Actually, it’s nearly 4000% annualized, or "GOOD ENOUGH!!!)

Try Owner Financing, you’ll love it!.

Rick W.

Re: Marginal REHAB - Is it worth it? - Posted by Troy M

Posted by Troy M on February 23, 2000 at 21:11:58:

Don’t cut yourself short. Your deal looks like a minor rehab if you have priced the repair costs right. So, you may be tempted to settle for less profit (less work, less profit). But, I wouldn’t. Ever hear any horror stories about a “fixer-upper” investment deal? Maybe you’ve heard of a mom and pop who tried it and swore never to do it again? How about a house you’ve seen for sale that had been repaired half way, and the owner/investor(s) just wanted out? I looked at one of these yesterday. A real estate agent bought one of these “fixer-uppers” and now just wants rid of the thing, it still needs 10k or so. How about other investors, on this site even? Ever hear any of them remark negatively about doing rehabs? If you’ve been reading this site long, then surely you have. Well, there is a reason for those negative stories/remarks. Rehabs are not particularly fun and can go from good to bad in a hurry. Hence, you gotta buy right from the start, period. If all of your numbers are correct, I wouldn’t go more than about 45k, but then, I don’t pay a realtor to sell for me.

Hope this helps,

Troy M

Re: Marginal REHAB - Is it worth it? - Posted by JoeB(Atlanta)

Posted by JoeB(Atlanta) on February 23, 2000 at 19:44:03:

Hi Russell, I agree w/books higher numbers (these will also help ‘cover you’ when the rehab number goes up and other unforseen things occur----they always seem to)…

But go ahead and make a lower offer (even if it cuts the agent’s commission and seller’s equity very thin, you never know what they’ll accept).

Good luck,
Joe Brillante