Somebody came in today with a much better offer (I’ll have to wait and see what it was because they obviously aren’t going to tell me right now!)
As for the other house which I went to see today, we couldn’t get in. Apparently the tenants are hoping to stay rent-free indefinately.
Anyway, I asked my agent to make a $70,500 offer (I know, still too high.) which he won’t even do. He’s going to just ask the sellers if they would look at an offer like that.
Oh well, I think he’s had it with me now So next week I’ll put an ad in the paper and start putting up signs or something I guess: “We buy houses FAST! No agents, any condition, any price.” Should get lots of worthless calls, but hopefully I’ll get something good too.
Well, I figure my best bet in my current market is to do cosmetic and minor structural rehabs.
My question is to expert rehabbers and those who have just done it a couple of times alike:
There are MANY properties here in need of basic fix-up like updating and painting, and most buyers are NOT interested in doing the work themselves.
What I want to know is: How do you go about finding properties? Which do you select? (bad property in an good area, bad property in a bad area? cheap? expensive?) And most importantly, how much profit would you accept as a minimum?
It would seem that you can find deals anywhere, but first of all you want to focus on motivated sellars - that point has been made very well by HR.
Lots of times at the beginning we tend to make deals that are far too skinny because (a) we are afraid and (b) we don’t know any better.
The only area that I would be nervous about would be the maritimes - due to the fact that the economy is slow and the supply of real cheap housing is high. Other than that Ontario is great as is Alberta and I am thinking that BC may be ready for a buyer to get in there.
After reading your replies, what I hear is “I can’t do that here.” I hear Jim Piper is able to do it. And he seems to find them consistently. One reason you don’t want to start out with a rehab that does not have the potential profit is that as a beginner too many things can go wrong. AC needs replaced, foundation problems, contractors skipping, etc. There are people that will rehab for less than 10K a property here in Dallas but they have experience to inspect first and crews to control costs. They do 4 or 5 a month and can be competition if there weren’t so many good deals Sellers still have a hard time selling a dog retail even in a seller’s market. They may be in blue collar areas but there are good deals in more upscale areas. If you put the pizzazz items in and do a good job you can sell at the top of the market. What you don’t want to do is put out a lot of cash to have a small potential profit. Owner financing or split funding can reduce the financing costs. The relationship with a good mortgage broker negates the need for listing most of the time. You will have to do your own marketing.
Doug-
The first house we did we decided to take on almost just as much a learning experience as a profit making one. Bought for around 18,000, we sold it for around 37 and made about 9,000. This was great for us because we went into it saying, ok- even if we only make a thousand dollars, that’s a thousand more than we had and we learned a hell of a lot. And- the note was so low, that we could carry it if we needed to for a while without much problem. However, we were fairly certain that we would make at least 8,000- it just helped us to take that leap and do it to think of it this way.
I am always looking for things under 25,000 (that can sell for 35-65) but don’t exclude ones up to 50 or so if they are worth it. The ONLY reason we stay in this price range is because we generally get traditional loans with 10 or 20% down with interest only for a year so we can resell them quickly- and this is the price range we can get loans for right now. Also, we feel that many times, just because the house costs more, doesn’t mean you will necessarily make more on it.
Others may feel differently, but as of right now, we’re just starting out, and are trying to pay off major debts so our borrowing power will be better- and/ or we can put the money we make on these towards bigger and better things.
Of course it is always good to find something in a good area, but I would just say to become extremely familiar with several general areas and you will be able to make a good assumption as to what it could sell for. I look on realtor.com many times to see what other things around the house are going for.
I concentrate on Homes a first time home buyer can afford, after it’s fixed. Where I live, that would be 499-99k after fixed. There are no homes for them to sell before they can buy mine, and they are more FUN to deal with. It’s a real kick to be at closing when a person buys their first home, it’s a great feeling to hand them a house that they will enjoy that has no problems to bite them a year later.
I agree with the neighborhood thing. Do you feel comfortable going there at night.
As far as profit, there are a lot of lurking costs, interest, utilities, grass cutting, RE taxes, referred to as “holding costs”. And they can mount up on you pretty fast, so don’t poo poo them.
Get the book, “Buy it Fix it Sell it”. Find and LEARN your “target” neighborhoods like the back of your hand.
Kevin Myers has a good book - Buy it, Fix it, Sell it.
As far as finding properties Sunday papers, penny pincher papers, and just driving around are where i find most of mine. The realtor i work with prints me a list of all properties near me under 65k and all properties with buzz words like “fixer” in them. He will also call up before he lists a house that is a fixer and let me look at it so don’t underestimate the value of a good realtor.
As far as profits i use a very minimum of 10k. And thats a cheap house. I don’t use a set formula but the higher the property the more profit you need to build in. If i finance i figure 6 months of holding costs. A house sitting empty for a while can eat up profits paying the note, water, eletric, gas, lawn care, etc.
In selecting an area i usually just ask myself would i feel comfortable coming to this house at night to collect rent, whether i plan on renting or selling.
Jackie used to post here regularly and many of us know her personally. Her articles give you an excellent introduction to rehabbing.
In answer to your questions, for rehab projects, I prefer to work on houses with an after repaired value of between $60K to $150K in reasonably good areas. I absolutely will not take on a project in a “war zone”. I always look for a profit that is equal to at least 20% of the after repaired value. By shooting for 20%, I always come out with at least 15% even if my estimate of repair costs is too low or if I run into any unexpected problems.
Keep in mind that these are my parameters and others may have different criteria. As a matter of fact, I know several rehabbers in my area who specialize in projects with an after repaired value of less than $50K. These rehabbers are very comfortable working in this price range and they do quite well.
The market is great if you are selling your personal residence (which hopefully you’ve owned since before the boom started.) Some people are actually getting 25% or more than their asking price!
Are you doing deals in southern Ontario yourself? Or know people who are?
I’m getting tired of hearing the same din over and over. Fine, come and prove that you can do it here.
What do you mean by ‘upscale?’ Upscale by my definition would be $200,000-$300,000 here.
All I’m saying is that properties selling on MLS or privately for $10,000 profit, plus $5,000-$10,000 repair, plus $2-3,000 closing, plus whatever for marketing. What’s that? $17k-$23k below fixed up value? That’s assuming I do all the work and sell it myself. And that’s what you consider a minimum? I’ve only seen one property like that (which I’m offering one right now) and that’s only after beating them down on their price.
Anyway… I’d love it if you showed me here (in my country, in my province) how to do it. I’ll eat my words, I promise!
I always say… know your neighborhood. And if it works, don’t fix it. Keep up the good work. You will develop a reputation quickly, and the deals will start coming to you. And they will be better deals, because they are motivated sellers and buyers.
There is only one or two corners I can think of that may not be 100% safe in the dead of night. Basicly we don’t have urban decay here. Having said that, these areas are where many people wouldn’t want to live, ugly beaten old houses, tiny lots etc. But they are still fully occupied.
As for holding costs, houses in any but the oldest neighborhoods sell within a month, but I will figure in at least a few months of holding costs after reading the replies here.
As for profits, I’d appreciate specifics! The reason I ask is that $5k-$10k is all I can find, and that’s with at least $5k fixup and 2+ weeks work. Certainly not a bad living compared to a job, but not going to make me rich any time soon either, especially if I have to list it with an agent!
Bud’s only trying to help; it’s good advice. You are getting frustrated because you are not hearing what you hoped to hear, and the info isn’t enuf to help you solve your problem. You’re right: it’s not enough.
You have a choice: 1) Better educate yourself on rehab knowledge, skills, process, costs, number running, crew management, contracts, material costs, proper repair procedures (for plumbing, electrical, floors, roof, sheetrock, siding, central air and heat, etc), etc etc etc…
or just go ahead and forgo the concensus over and over and do a rehab. Do you have 5-10k to throw away? Cause you are going to gonna get burned, bad.
(Choose option #1; it’s cheaper and less painful).
Doug, your frustration is normal. We have all felt it. You are trying to apply this stuff to your market. Hang in there. Don’t let the frustration stop you. Find a way.
As Terry Vaughn says, There is always a way. How true. (Even in your market)
I don’t do rehabs for “$5K-$10K”. Too many opportunities for error/unforseen problems which would wipe $5K-$10K out. Unless of couse by rehab you mean some paint and carpet.
Personally, I don’t even think about it unless there’s $20K minimum profit after all costs. (Again, I don’t view carpet and paint as a rehab).
Ugh. I wish there were deals like that around here.
As rehab I was counting paint and carpeting. But to make $5k-$10k I’d have to at least paint and refloor throughout, including kitchen cupboards, and usually do something with the bathrooms and the exterior.
Otherwise houses needing “some paint and carpet” sell for the same as they would with that done.
As soon as I have it under contract I’ll start marketing the hell out of it. But very few private sales sell here. So I’m looking ahead to the possibility that I may have no choice but to list it.
I don’t want to get into a position where there’s so little profit I’ll have to PAY to get rid of it. Unfortunately I wouldn’t even be able to rent it, because rent rates here will not cover a mortgage, let alone expenses.
Kitchen, bath, carpet, vinyl, roof, siding. My experience has been 12k to 30k. depending on the SIZE of the house, and I do a lot of the work myself ! Some say I’m too particular with the work. I am in a “pride” stage and may be improving more than necessary.
The bottom line is that kind of job does take 3 months. The upside is a very fast sale, and it can be done WITHOUT a realtor. So, I am making exactly what I am projecting profits to be. Lately, a little more. Guess I’m learning.
So next week I’ll put an ad in the paper and start putting up signs or something I guess: “We buy houses FAST! No agents, any condition, any price.” Should get lots of worthless calls, but hopefully I’ll get something good too.