Seeking rehabber comments... - Posted by Doug Pretorius

Real Estate Investing
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There are deals like that around there; you just have to find them… - Posted by HR

Posted by HR on May 04, 2000 at 19:49:31:

Doug,

You are going to get burned, bad, doing a rehab for only 5-10k profit. That’s smoke, dust, and will vanish in a flash. How good are you at appraising roof conditions, structural problems, drain lines, estimating paint costs and labor, fixing windows etc etc etc…

I won’t do a rehab for less than 15k, and that’s projecting the sales price conservatively low and my expenses run on the high side. 5-10k? Man, that won’t even cover your carry costs, let alone your undiscovered expenses.

Sounds like your projected numbers are too optimistic.

Here’s my experience and current thought. Your purchase costs, sales costs, holding costs (taxes, utilities, insurance, etc), and contingency figures amount to about 15% of the after repaired value of your deal ( I am assuming a 6 month turn around time to buy, fix, market, sell, and close with cash in hand). Thus, take your after repaired value, multiply by .85 and that figure just gives you WHAT YOU NEED TO BREAK EVEN. Subtract your rehab costs and profit margin, and that’s your maximum offer. 5k? 10K? Shoot; that may not even cover the 15% expenses.

Stay away from the cosmetic rehabs that just need carpet. Your 5k will be gone in 2 months; Myers book and LeGrand’s stuff are a start. Most of all, jump in and do a couple. They will get far easier with practice.

Just my 2 cents.

HR

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That’s what I mean… - Posted by HR

Posted by HR on May 04, 2000 at 19:57:23:

Doug,

In your post above, you mentioned you don’t want to be in a position to have to pay someone to sell it. Why not? I believe you said most sales are thru agents, and yet your numbers are projected on you selling yourself? You are running your numbers all wrong imho. You are betting on a best case scenario, and, as you said, what do you do when it doesn’t work out that way? You learn a lesson the hard way, that’s what!

Project this expense into the deal to begin with; that way, if you beat it yourself, you get extra profit. If you don’t, it’s not an unexpected expense. Unexpected expenses are the bane of the rehabber. You beat them by buying cheap enough to cover the unexpecteds. 5k is WaYYYYYYYYY too thin!

Negotiate better deals.

HR

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Re: Seeking rehabber comments… - Posted by Doug Jones

Posted by Doug Jones on May 04, 2000 at 14:53:12:

I advertised mine last month “Owner Finance”.
When I had a buyer, I told them that I needed to have a mortgage broker look at their credit. He then figured out how to get them financed in 2-3 months tops. In the meantime, it is a Lease Option with $3000 Down. I also got lucky and they wanted to pay 6 months payments in advance. Good For Me!!
It sold 2 weeks after I bought it. I was still doing a little cosmetic…

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Re: Seeking rehabber comments… - Posted by Judy

Posted by Judy on May 04, 2000 at 10:06:56:

Would a Lease Option not work for you either? Or, would a wrap to the buyer not work? I’m confused here. Is it because your FMV is very low?

Judy

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Re: There are deals like that around there; you just have to find them… - Posted by Laure

Posted by Laure on May 05, 2000 at 05:58:34:

HR, I got a great deal last fall on a home that only needed the hard wood floors refinished. Total rehab cost was 800.00. I made 12k on the deal, bottom line after all costs. Ahhhhh but there were other circumstances involved. Motivated seller moving out of state.

It was a fun rehab ! hehehe… it took a lot of hard work to hire the man to finish the floors… WHEW, I am tired. LOL

I think I just got lucky on this one. I usually work my butt off for 12 or 15k profit. I guess I deserved this easy one.

BUY LOW, SELL HIGH. This is a money game. The house is just attatched to the money.

Laure :slight_smile:

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Re: There are deals like that around there; you just have to find them… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 20:56:57:

Thanks :slight_smile: I assume however that those books are written for the US, not
Canada, and especially not the hottest market in history for one of the best
areas in the country.

Ok, here’s a place I’m offering on right now, tell me what you think:

Asking $109,900
Fixed-up Value: $125,000
Offer: $103,000 minus closing costs (this is after 3 counters)
Estimated fix-up: nearly $10,000
Commission on resale: $6,250
Holding costs: I didn’t even think of these, but let’s say for 4 months,
about $4,000 including mortgage.

Well! That leaves me a whopping $1,750 profit for 3 weeks work! And that’s
hoping we don’t discover something we didn’t know going in.

Everyone keeps telling me this isn’t enough (well, obviously I agree for
$1,750) but no one seems to get it that this is as good as it gets here.

Some have suggested I try other areas of real estate since rehabs don’t look
so good. Well, rentals are out as I’ve mentioned before rent rates are way
too low compared to values. There are no mobile homes. Contract flipping is
out for the same reasons as rehabbing, in fact flipping in this manner may
be illegal in Canada. I don’t have the money or credit for development and
construction. There are no foreclosures here. And finally private mortgages
are extremely rare, so I don’t know what the chances are for buying them at
a discount.

So what does that leave?

Two realtors told me that several years ago all kinds of creative stuff was
done here, but suddenly everything was put to an end. I don’t know if there
was some kind of major fraud that caused legislation to be pushed through or
what.

If you have any more ideas I’m open to them! Don’t bother suggesting I move
to the US, I’m already considering that :slight_smile:

PS: I don’t know much about houses, but my dad does, and he’s helping me determine what needs to be done.

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Re: That’s what I mean… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 20:20:25:

Sorry, I guess I wasn’t too clear about that. What I meant by paying to get rid of the property is that I would LOSE on the deal. As in my final cost would be more than the sale price.

As for $5k being too thin, I would tend to agree, but my numbers are based on the current market situation, not on what I would like to get. Sure, it would be great to make $15-$20k+ but that isn’t realistic, at least not here.

But maybe I’ll be proved wrong, believe me I would only be too happy to tell you about how stupid and short-sighted I had been.

I’m looking at a house tomorrow which sounds like it’s owned by nice motivated sellers. It’s an old couple who have been renting it, but the rent hasn’t been paid in 5 months and I guess they’re too timid to evict the tenants. They’re listing it for $89,900 with the idea that they will evict them and clean the place up. But they would be much more interested in selling immediately to someone that will take it “as is.”

$89,900 is about $30,000 below fixed up FMV, but it may very well need $20k in fix-up. Anyway, I’ll let you know what happens.

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Nice! (NT) - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 15:53:10:

nt

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Re: There are deals like that around there; you just have to find them… - Posted by Laure

Posted by Laure on May 05, 2000 at 06:01:05:

Doesn’t ANYONE sell by owner??? Aren’t there ads in the paper??

Laure

30

Keep asking these questions… - Posted by HR

Posted by HR on May 04, 2000 at 21:15:42:

Doug,

I like your spirit: you are desperate to find a way to make it work, and I respect that.

First, nobody can ultimately answer questions about your market but you. So, become an expert in your market. Maybe that means becoming a realtor. Whatever it means, do it.

Next, I’m no Canadian (in fact the only thing farther south in the US than me are the shrimps and fishes) so I don’t want to comment on your real estate laws; I don’t know them.

Nonetheless, I woulden’t run these numbers any other way:

125000 after repair X .85 -10,000 repairs - 15000 profit = Max offer of $81,250. Don’t pay a penny over that (and honestly, if I were running the numbers, I suspect I would say the arv is 120,000 and my repairs were 13k for a max offer of $77,000).

I don’t know where you are, and I don’t know your market or national laws, but, again, I don’t believe there are not better deals around. What about foreclosures (none you say? come on; really? You Canadians are that dependable (wink; wink)?), successions, vacant property, damaged property, etc?
I’m not trying to be mean, Doug, but just because you can’t find it doesn’t mean it doesn’t exist.

Doug, I recently bought a 5 bedroom house for $2000. It was fire damaged and deep in the hood. Every other house around it is blighted and vacant. No joke. After putting about 12k into it, I will rent out section 8 for about $900/month. As Lonnie says, that return is “good enough.”

Many folks don’t want to touch this kind of property; others fight over it. Before, I saw this neighborhood with its abandoned buildings as an eyesore; now I see it as a potential grove of money trees. This one experience has added to my category of what a deal is.

I respectfully submit to you that because you can’t find the deals does not mean that they don’t exist. It just mean you can’t find 'em. Get good at finding them! I’m sure they are there.

HR

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Doug, this is a horrible deal!.. - Posted by HR

Posted by HR on May 04, 2000 at 20:58:58:

Doug,

Let’s run your numbers for a second so you can see what I’m saying. (BTW, I’m not saying the way I do it is the best or gospel; after all, I’m posting this, too, to see if anyone gives me ideas on doing it better. This way of thinking has made me good money, though, and after each rehab I not only don’t change, but I get more and more conservative!)

$120,000 after repaired value
X .85 (purchase costs (1%), sales costs (6%), holding costs (7%), contingency (1%)

$102,000
-20,000 rehab expenses

$82,000
-15,000 profit

$67,000 maximum offer.

Doug, you are making a classic mistake in thinking you will make $10,000 profit (30k increased market value - 20k rehab expenses). 30k in rehab will not take 2 weeks. I’d guess 6-8 weeks, but let’s be generous and say it only takes 4 weeks.

So you find the crews, negotiate the prices, get them going, etc. and get 20k worth of work done in 4 weeks (good luck); then you try to sell it yourself. How long do you think it will take to find, screen, and agree on a buyer? 2 weeks in dreamland? 2 months probably (I bet on two months) but let’s be optimistic again and assume 2 weeks. Great, so now it’s rehabbed and you got a buyer in only 6 weeks (good luck)…

How is your buyer paying for it? Cash? Bank lona (I’ll bet on bank loan) buy let’s be optimistic and say you find the 1% cash buyer for a 130k house who is not laundering money. Ok, so they fork up cash, but want the standard 10 day inspection. So, how many weeks is it with the La-La Land scenario? 8? 2 months.

Ok, so you were figuring 10k profit. But now, you have to pay taxes on the house for owning it 1/6th of the year. You also have to pay insurance, utilities (I overheard my wife arguing with the energy company the other day; she thought the electricity bill of $350 for April was way too high for a vacant house. Normally, it is. All those power tools really eat power, though. I asked her to hang up; I thought it sounded low…)

And, god forbid, just what do you do if the best case scenario doesn’t work out? Why put yourself into this kind of stress? There is no debate here, doug: this deal ain’t a deal!!! Pass.

You keep saying better deals aren’t in your area. Sorry. I don’t buy that for a minute. (especailly not with older housing stock). The real issue you should focus on, Doug, imho is getting better at finding deals. Also, imho, you need to get MUCH better at running the numbers. As Ron LeGrand says, you are about to go to a VERY expensive seminar.

Running the numbers is the heart of this business; houses are secondary. Know the biz so well that you can account for the mistakes. Man o man, Doug; I woulden’t touch your deal with a ten foot pole. Real world is it will take 3 months to rehab, 2 to market, and 1 to sell; you will find 6k more in expenses you didn’t expect, you will need to sell thru a realtor, your buyer will need to get a new loan, etc etc etc.

This biz is hard enuf. Don’t make it harder by projecting perfect scenarios. Project mediocre scenarios. Make lots of offers. When someone then finally says yes, at least you will know going in you have a decent shot (maybe) of making some money.

Learn to find profitable deals, pal. Good luck!

HR

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Private Sales - Posted by Doug Pretorius

Posted by Doug Pretorius on May 05, 2000 at 08:15:12:

We have two papers that people advertise houses in. The one is the main newspaper, the other is a pennysaver. In the newspaper there are maybe 4 or 5 private sales. In the pennysaver they’re all private, all 10-15 of them :slight_smile:

These papers have a circulation of at least 350,000 together, plus websites :slight_smile: Actually! Would you like to see the ads for yourself? Try these sites:

www.bowesnet.com/kwpennysaver

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Re: Keep asking these questions… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 21:58:11:

I’m still with you! I’ll keep beating you to death with questions and complaints about my market, if you bear with me :slight_smile:

I know some realtors (who I can trust 100%) very well, who know the market very well, so I guess there’s not much point in becoming one myself.

Now I’ll go down your list:

Err no, I meant there literally are no foreclosures, as in they are not done here. They are possible, but no bank does them. They sell by power-of-sale, which they can do after 3 months of deliquency. But these they have to get more than the mortgage otherwise they will be sued by the owner. Anyway, there are many power-of-sales, but they are all at or above FMV, regardless of area or condition, and these places sell just like everything else.

Vacant properties? I’ve already listed them, that $125,000 one with the $10,000 repairs, it’s vacant (for 3 days!) Other than that my realtor friend printed all the vacant houses currently listed and they amounted to all of 20 in a twin-city of 250,000 people. I checked them out, they’re all asking way too much for the area and condition.

Fire damaged? That’s a possibility, but not for $2,000, maybe $40,000, if it’s in a bad area and needs to be completely turned inside-out. There are no neighborhoods here like you’re talking about. There are two or three streets (well, sections of streets) that are the ‘scummy’ part of town, but they are all occupied.

Anyway, I’d be happy to admit I’m totally wrong if I could find just one deal that even remotely resembled what you’re talking about, because it would mean I can make some money at this!

Ok, I’ll tell you what. How about I take that list of vacant houses my friend printed up and offer 50% of the fixed up value on all of them? Do you think that could find success? If you offered 50% for 20 vacant houses in your area, would you get any of them?

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Re: Doug, this is a horrible deal!.. - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 21:36:19:

I’m sorry to say you are dreaming. Well, ok, maybe you can get $120,000 houses for $67,000 where you live. But if you could actually find someone willing to take $67,000 for a house here it would mean you need to bulldoze the house because the land is worth $40-$50,000 and the house is condemned and caving in (I actually looked at a house like this two weeks ago! We weren’t sure if it was even safe to go inside and BTW that house and land was maybe worth $90,000 in perfect condition.)

Ok, well you are welcome to fly up here and show me how exactly you plan on getting people to take half what a house is worth.

Let me give you an example of a nice house in a nice area that sold 2 months ago:

Asking price: $151,000
Number of offers: 21
Sale Price; $191,000

The one I mentioned before (the one for $89,900) IS in an old (90+ year) and rough but improving area.

Anyway sure, I’ll do as you suggest and offer $67,000, tomorrow. I doubt my broker will even bother to write the offer, but I’ll see. Oh wait… you want me to buy it for $67k? So what should I offer? $60k?

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Rehabbing ain’t darts… - Posted by HR

Posted by HR on May 04, 2000 at 22:31:06:

Doug,

Ain’t the internet great? I’m duckin’ over to the commercial board and every now and then check in to see your latest post. I’m having fun this Wednesday night; I hope you are, too.

BIG problem with one of your assumptions, Doug: you said all the houses that were LISTED. What? Only listed houses can be sold in Canada (wink)? You are only target MLS properties? That might be the big problem right there.

Come on, Doug, there are other, vacant properties that folks don’t want but haven’t listed with a realtor yet. Find them. Also, why not take over a defaulting loan before the three month mark? Can you do that in Canada?

Doug, you know the bright side of all this? If you are finding it this hard to find the niche, so is all your potential competition. I bet that stops 90% of them. Will it stop you?

HR

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Yes! Now you’re getting the hang of it… - Posted by HR

Posted by HR on May 04, 2000 at 22:22:44:

Doug,

You got it! Don’t offer 67k to start; you need some negotiating room. Also, don’t offer 60k. The number is too round. Sounds like a bs number. How about $59,837? (and you are going to offer that after you look at the house, right, and after you hand the agent your bcard advertising yourself as a general contractor, right?)

Doug, for the record, here’s my opinion: Forget all the nonsense that says this biz is easy. It ain’t. It’s real hard, but seems to get easier with each passing deal. If you are expecting easy money, try gambling.

I’m happy to fly to Canada. Buy me the ticket, pay for my stay while I am there, and I will definately do it. I live in New Orleans. No BS; fly me there. I’m there. Hey, I’m no Bob Allen, but I’ll still make the offer (I ain’t good enuf to make any promises, though. LOL)

Now, here are my questions…

  1. where do you live? What is the population number?
  2. How will you finance your deals?
  3. How much rehab info do you have, and how did you get it? No disrespect intended, but dad’s suggestions on what stuff should cost as a do it yourself homeowner (my assumption, and I may be wrong there) will not help you as a contractor.

Let’s start there. I’m genuinely trying to help Doug; while you are getting increasingly p*ssed (and I’m doing this increasingly for others lurking), that’s the point of this board: folks posts questions, and folks post answers. Sorry you are not hearing what you want to hear. The advice, though, is solid.

One thing I notice about you, Doug, is you are highly unskilled at running the numbers as a rehabber. Even a newbie who has just read one book about rehabbing would never forget to account for holding costs. You don’t know what you are talking about.

Instead of trying to do deals, learn more about the rehab business. It is, after all, a business. What? You think by reading a cyber board, buying some guru’s course, or buying a $15 book you are suddenly going to have a new profession and a new business? REI ain’t a game. This is a business. And there are guys in every market, Doug, that will eat your shorts before you even realize you’re buck naked to the wind.

This is a business, pal, and you don’t know your stuff. If you want to get defensive, go ahead. I hope others learn from your frustration. It’s typical for a newbie who has bitten into the “rei as easy street” attitude; in the real world, rei is hard street, especially for someone with little knowledge, skills, money, and credit.

I don’t want to suggest you change locations, cause I suspect deals can be cut in your area, but if it really is that bad there, then move. You want it that bad? Then move. Don’t expect it to be any easier, though. Cause again, from your posts, it’s obvious to me that your education is incomplete still. You are going to find every market, at this point, problematic because your knowledge and skills are problematic.

HR

PS. Every deal I’ve ever done was buying 50 cents on the dollar, and this is from the lowest crack house (5 bedroom $2000 house) to a half million, 8 bedroom 5 bath monster. Buying cheap IS the game, Doug. The fact that it’s houses is secondary.

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Re: Rehabbing ain’t darts… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 23:29:11:

Heh heh :slight_smile: Actually my fingers are ready to be retired for the evening, but I’ve enjoyed our discussion. You may have dashed my hopes, but you’ve given me something to keep looking for.

Well actually there are even less private sales than there are vacant houses on the MLS :slight_smile: But I can honestly say I have not beat the bushes as far as trying to get properties that people aren’t trying to sell.

Let’s hope this is my problem!

I note on my ‘competition’ they aren’t even going as far as I have, and I haven’t gone far enough. There isn’t a single ad in the paper or sign seeking houses. Nothing like what some of you guys talk about with “We buy houses” in your area. So that’s one bonus for my town :slight_smile:

I’ve checked out a few private sales in the paper (there are maybe 10) and a couple by word of mouth. They were 10 times worse than the ones you’ve been telling me are worthless all night!

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Re: Yes! Now you’re getting the hang of it… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 04, 2000 at 23:17:25:

Did I say I know enough about rehab? No, that’s why I started this post in the first place.

Actually my dad built houses for 30 years, including the one I’m typing this message from now :slight_smile:

Ok, as for your questions:

I’m in Waterloo, Ontario, which is part of a tri-city plus all the little villages around is about 450,000 population.

Financing will be cash, or if too expensive, large down payment and short-term mortgage.

I haven’t read any books about rehabbing, and I find most of the articles here either badly lacking or impractical for my area. My information comes from builders, people who have done rehabbing in other areas, realtors, and basicly going out there and looking at house after house after house. Actually one rehabber I talked to was doing great until she came here. Now she works 3 jobs to stay in a house built on a dump that she can’t sell where everyone is dying of cancer (No kidding!)

About the holding costs. I agree with you that not including it was an unexperienced mistake. But I did think of it originally, I just didn’t bother to include it because of how fast properties are selling. I admit it was an oversight I’ll try to avoid in the future.

I can certainly see the wisdom in being conservative, as you are. I’m just trying to explain that those prices are unrealistic for my area.

I hope, no, I pray you are right and I am wrong. Maybe I’m getting closer, the two properties I’ve mentioned are definately the closest to what you are talking about that I’ve seen yet, but you tell me they’re horrible! Arrrgh!

Since you’re writing for the lurkers, here’s my advice to them: Don’t bother to come here, now matter how bad you think your market is, it has to be better than this!

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Not just the lurkers… - Posted by Doug,

Posted by Doug, on May 05, 2000 at 07:16:43:

Doug,

If your Dad built houses for 30 years, he certainly knows what he’s talking about regarding home construction, costs, etc. He will be a major advantage to you in your quest.

I still recommend you increase your knowledge. You need to learn more about how rehabs are done and calculated for profit. I have enjoyed Kevin Myer’s Buy it, Fix it, Sell it, profit! course and Ron leGrand’s rehab book and tape set. Both have some serious holes, but they are a start. You have to educate yourself first, so cruise over to amazon.com and see what titles they have. The articles and posts here, while helpful, certainly are not enough.

You also said something I suspected from your last post. You are realtor educated. You have realtors you like and trust who are trying to teach you the ropes. That, right there, is a MAJOR problem, Doug.

From the start, these folks haven’t got a clue. I’m not being mean, just descriptive. They don’t understand the creative side of the biz, and, even worse, they are taught to stay away from it (at least in the states). While they see folks making some big bucks and pulling down deals, they self-select themselves out of the loop of being a dealmaker. These are NOT the people you should be getting your education from. Other than fair market value, they have little to teach you.

Doug, if your market really is that bad, leave the 51st state and come join us down here in the lower 50. REI is real good here. With your determination to succeed, who knows? Maybe you will even find foreclosure deals for 30 cents on the dollar?

Good luck,

HR

PS. Remember: a winner ALWAYS finds a way to win. That’s not just a cutsey phrase. It’s the mantra of the entrepreneur, especially in rei.

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Re: Not just the lurkers… - Posted by Doug Pretorius

Posted by Doug Pretorius on May 05, 2000 at 08:49:23:

Now, remember I mentioned realtors last, and for good reason! :slight_smile:

Anyway, I’ll use your formula and make some offers. If I can’t get anything, I’ve been hearing some good things about a city about 2 & 1/2 hours from here (still in Canada) where some friends of ours just bought 2 neglected houses for something like $20,000 and $40,000. The first they fixed up and resold and used the profit to buy a better house (the second one,) they aren’t trying to invest in RE either, they’re just living there, of course if they keep it up they’ll make a lot more than they do at their jobs.

Anyway, thanks for the advice. I’ll see what books I can get and continue making offers (I’ll be finding out today about that one that I offered $103,000, whether they’re going to accept.)