How Bad Is Bad?
I had the opportunity to buy a house on a double lot in a rural town close to the city in which I live. Just to give you an idea of its condition, they wanted $6,900 for the house. My question is this...How do most of you go about looking for rehab properties? Do you look for cosmetic repairs only or do you look for real projects (rewire, air, etc.). I was thinking about giving small down with a three year balloon. That way I would have the funds to undertake an extensive remodel and either sell or see what my rental income looked like and refi. What are your experiences with big jobs? Worth it?
What will the proerpty be worth after fix up, and how much will it cost to repair?
My estimation is that the property would be worth upward of $35,000 and would take $15K for repairs. If I could get into it for about 4K then that would leave me about a 16K spread. My ultimate goal is to rehab and do a L/O on it after refi. Thoughts? I had never considered doing a property this low in value but the spread looks okay and I think I could swing positive cash flow in a year if I contracted it instead of doing it on weekends.
Under those numbers why not... it would be a great learning experience...if they are asking 6900 offer up 4k allcash see if they will take it...
Thanks for the encouragement. I am looking at it as a learning experience, I have never rehabbed before but know the people to get it done. If the numbers work the way I want, there is a pretty good upside and not a whole lot of exposure to get hurt on. Do you ever get contractors/handyman to partner with you in exchange for repairs or does that get too tricky? Any experience with this would be helpful
You don't really give enough info to tell if it's a good deal or not. Do you know how to inspect and estimate a property thoroughly? This is critical. I can tell you that it is very difficult to do any rehab for LESS than $15k. A $6900 house probably needs everything, re-wire ~ $4k, plumbing ~ 3k, roof ~ $4 to $10k, we haven't even mentioned cabinets, paint or carpet yet. You see my point -- unless your're doing a down and dirty rental property rehab, the cash adds up real quick.
Don't get me wrong, I'm in the middle of a $50k rehab right now that should net about $20k profit on a $105k sale. Here's a summary of my costs to date to give you an idea:
DATE ITEM AMOUNT
06/30/03 GENERAL LABOR $(2,500.00)
07/21/03 NEW WINDOWS $(715.00)
07/21/03 LABOR & SUPPLIES $(700.00)
07/21/03 NEW ROOF $(5,265.00)
07/30/03 FOUNDATION WORK AND GLASS BLOCK WINDOWS $(3,980.00)
08/04/03 ROOF $(2,490.00)
08/21/03 HAZARD INSURANCE $(929.00)
09/10/03 NEW WINDOWS $(6,435.00)
09/10/03 EXTERIOR PAINTING $(1,100.00)
09/10/03 FIX SIDING $(401.82)
09/10/03 MISC MATERIALS $(111.15)
09/15/03 PLUMBING HARDWARE $(1,000.00)
09/16/03 HVAC $(1,900.00)
ACTUAL TOTAL to DATE $(27,526.97)
PROJECTED FUTURE EXPENSES
DATE ITEM AMOUNT
9/18/2003 Electrician $(1,925.00)
10/1/2003 Electrician $(1,925.00)
9/26/2003 SJ POMPO HVAC $(1,900.00)
9/26/2003 Home Depot Cabinets $(2,600.00)
10/5/2003 Counter Tops $(1,000.00)
TBD Carpet/Vinyl $(2,500.00)
10/5/2003 Flooring Tile $(1,000.00)
10/20/2003 Interior Paint $(2,000.00)
10/20/2003 Re Finish Floors $(1,000.00)
Total $(15,850.00)
Projected Grand Total $(43,376.97)
You CAN make money. But be careful, rehabbing is the hardest technical part of real estate and cost overrruns are standard procedure.
You might want to have the house inspected before you jump in. Or, tie up the property with a $10 option and try flipping it to another rehabber. Hang out while they inspect the house. You'll find out very quickly if it's a good deal if the rehabbers buy it from you.
[ Edited by daveh on Date 09/17/2003 ][ Edited by daveh on Date 09/17/2003 ]
Daveh,
Thanks for the great advice. They wouldn't come to my price so I have moved on to another prospect in the same town. I live in a large metro area and "reverse commute" to a small town where I work. Since I don't have a whole lot of capital, I am starting in this small Oklahoma town, not exactly $300K houses to begin with! Hopefully I can buy a super cheapy, do major repairs and flip or L/O to a handy man to complete, take that cash and move on to another. Thanks for the words of caution I appreciate you all taking the time to post. I will let you know how it all turns out.
Daveh,
How many windows were in that place?
Windows are something that is giving me serious heartburn. Until recently I never really knew what these things cost. Geeezzzz.