Assigning Deals To Rehabbers
Hi,
I am a newbie investor, and am focusing on locating vacant distressed properties (acting as my own birddog) and then tying them up and assigning them to a rehabber.
Is there anything wrong with making $20,000 on an assignment when the rehabber, after costs, could make $50,000? EVeryone talks such low numbers of $2-$5k, I was curious.
Also, do rehabbers cut you off if they see you making money (i.e. they back out of the deal at the closing table, only to go to the seller the next day and strike a new deal with them), or do they see me as a long term asset finding deals for them, and as long as they are making plenty of money, they could care what I make?
Any insight into the mentality of rehabbers would be great. I truly want to make as much money as possible, while making them as much money as possible, and making the seller happy too. Thanks, Dave
Dave,
if your in Mass. I am a rehabber looking for a reliable bird dog.
There will always be people out there that take advantage of others but with any luck they will run out of people to burn. If they did back out and then buy it from the seller simply don't go to them again. I have no problem paying an assignment that high if I am going to make 50K. Besides if yu continually brought me these leads so I didn't have to find them then even knowin your taking 15-20K you just became my best friend. Let's face it, it's not exactly easy to find this great of deals if you find a way to find them then god damn right you should make good money. The only thing some investors might ask is for you to wait until they resell to pay all or a portion of the 20K. That's a large sum to write a check for before an investor even closes on the property. Right now I am offering bird dogs a pre-determined % of the total resale after rehab. If there is one thing you can't ever do and be successful it's burning the mouth that feeds you.
TBARBER
If you brought me a deal where I could clear $50,000 after all expenses you wil have earned your fee.
But most new birdogs do not count in all of the expenses. So lets test your math.
You get a property under contract for $100,000, your fee is $20,000, reab cost are $20,000 and my profit is $50,000.
My question is what will I have to sell the house for and what are all of the cost involved?
lacashman,
This is obviously key. I would be providing you comps to show you what houses in that area of similar style in good condition/after rehab have been selling for.
But this brings up an even more important point: how can I as a newbie investor "as accurately as possible" estimate and calculate rehab costs to not only strengthen the acceptance of my offer so I can assign the deal, but to show you that my math is as close to real as it can be given any estimating situation?
I have no experience in construction, though I have a realtor husband/wife team and the husband used to be in construction. In addition, I know another guy who has speced houses and builds houses, but what is in it for them? I fear continually asking them for estimates ideas with no guarantee of spiffing them in return for doing so, and I do NOT want to burn any bridges early on in the game.
Any creative ideas?
And yes your math is correct. I would be tying up the property at a certain price, but before doing so would have my profit built in, rehab costs built in, realtor commission if necessary, perhaps 3 months holding costs (if rehabber is financing as opposed to just paying cash) and rehabber profit based on comps.
Am I missing anything? I want to do this THE RIGHT WAY and create business and economy for everyone. I am so pumped about the opportunites out there!!!! Thanks any and all who reply to this, including you lacashman.
Have a great weekend, Dave
Hey,
I don't know where you are talking about purchasing houses (so I don't know the costs of houses), but I don't think this is very realistic.
I am NOT saying it is not fair or right or ethical or moral, I just do not believe you will be able to take control of a property (not purchase it), make $20k out of it and leave enough on the table for anyone else to make a profit. Deals like this are EXTREMELY rare.
In order to get a house that is significantly below FMV, the repairs (and hence all other costs) have to be high.
Just to use some numbers (and lacashman's example):
FMV--$220k
Fee--$20k
Repairs--$20K
Profit--$50k
Financing and Carrying Cost (3 months)--$15k
Selling Costs--$14k
Purchase Price--$101
The numbers are rough (because I am too lazy), but the main point is there is a cost to the money used to buy and repair the house and a cost to sell the house (I always use an Agent and Closing Costs are generally paid by the Seller).
Bottom line is you are going to have a hard time finding a house with a TRUE FMV of $220k that you can pick up for $100k.
This is the reason that the assignment fees are usually a few thousands. There has to be enough profit left for the next guy in line.
Thanks for your response,
My question now is how did you come up with $5000 a month in carrying costs on a house with a $101,000 purchase price? Also curious about $14,000 in selling costs, if seller is paying closing costs. Realtor commission at most is going to be $7k. Where are the other $7k in selling expenses coming from, assuming it takes 3 months to sell from purchase date (I know we are talking hypothetically).
Yes, I know 45 cents on the dollar is not the norm, but I have an REO opportunity that the bank has owned for 15 months at this point, and the inside is a wreck.
I want to make an offer next week and try and tie it up. Let me know, thanks, Dave
Any contractor who is making 50k that is worried about you making 20k is a do do bird and needs to learn real estate 101:
Don't concern your self with what the other guy is making!
davehays,
Don't worry to much about being dead on on the rehabbing cost. But if you read the info at the link that I sent you you will understand more about holding cost. These you need to understand.
Remember even if your seller pays closing cost when a rehabber sells that will also cost money. So two sets of closing cost have to be taken care of.
lacashman,
Thank you, makes sense in terms of presenting the profit the right way to the rehabber to have their closing cost built in.
I didn't get the link you sent me about holding cost. Could you please re-email it to **Please See My Profile**
Thanks so much! - Dave
I PM it to you if you look at the top of the page you should see a letter spining around. click it.
Or go to the myTCI tab and go to messages.
lacashman:
On that post you referred me to, when they talk about a rehabber needing to make 15-20% of the sales price, does that refer to my sales price to them (assuming I’ve placed it under contract for one price and am upselling to them which includes my assignment fee: e.g. My contract for $50k is assigned to them for $55k) OR, does it mean their retail sales price AFTER they’ve rehabbed it.
For example, on a house they paid $100k for, which they put $30k in, plus any other holding, closing, sales and marketing costs, and they sell it retail for $175k, and their rate is 20%, are they looking to make $35k or $20k in profit on the deal?
They are looking for a % of the retail sales price.
I look at them different. If it is a quick rehab and I don't need to tie up a lot of cash I will look for a smaller profit.
If it is a big rehab and I have to put a lot of cash into it. Then I will be looking for a big return. Big rehabs often go over budget so you have to have some extra wiggle room.
Hey,
You may be past this already, but here is the break-down of my numbers:
Financing & Carrying Costs--You need to borrow $141K (purchase + rehab + fee). If you go the HML route, that is going to cost you between 6-10 points, plus the monthly interest only payment at 12-19%. Plus your insurance (very high for rehab). Plus taxes, utilties, etc.
Selling Costs---These are based on the selling price (not the purchase price).
Quote:
On 2003-10-02 23:51, TBarber wrote:
Dave,
if your in Mass. I am a rehabber looking for a reliable bird dog.
TBARBER
TBARBER,
I am in Connecticut, but I get Mass leads all the time. Even though it only takes me 30 minutes to get to Mass, those leads go to the bottom of the pile because of high volume.
Big Dog
**Please See My Profile**
203 623 5157
Dave, since you have such high volume, would you care to share how you do it? Say, what are the top 3 ways that you generate leads?
TO all that is here -
I can get info on a house right now that is well worth it here in Arizona. I can pick it up for around 700,000 -totally in perfect condition and the house in the hood are going for anywhere from 1.2 mil to 1.7 million is there anybody out there interested. PM me if you are