Classic Novice Investor
As an licensed inspector and GC I am asked to evaluate properties all the time; today I was asked to look at a property where a novice investor is doing their first major fix and flip. Five minutes into the home it is evident that they were way out of their league. (I am still shaking my head on what I observed)
For $300 the investor could have hired a competent inspector to go out and evaluate same PRIOR to going into contract however being that most investors are cheapskates, this one relied on a handyman to look at it. Short story is that the handy man spent over $50,000 of the investors money for which 90% of the work now has to be torn out.
When all is said and done the investor will have spent over $140,000.00 in a neighborhood where the average home is around $70,000......... now tell me which would you rather be out.....$300 or $140,000. (I cant help but sadistically laugh)
For the last few years I have been doing more inspections on foreclosures where investors are looking to make a killing......... the problem is that many fail to realize that indeed you do get what you pay for..... one is not going to buy a property for next to nothing without having to spend quite a bit to make a return.
You make your money on the front end of a fix and flip.......IF.......... you approach the property with realistic repair numbers and a true assessment as to the after repair value of the home.
If your profits are based upon how much Joe the Handyman can save you then you will end up like so many novice investors before you...........broke and disillusioned.
Mistakes made on this particular property were.
1. Failed to know their own limitations (novice investors should not be taking on large projects)
2. Failed to seek competent advice as to the true condition of the home.
3. Failed get an accurate assessment of repairs needed including unknown variables that will crop up.
4. Failed to assess a true ARV (after repair value) of the property
5. Failed to hire competent and reliable professionals to do the work
6. Failed to oversee project or hire competent person to do same.
There is money to be made in fix and flips but you have got to know what you are doing.,...... watching This Old House and Home TV does not make one an expert. Quite frankly I hate many of those shows because of many of them are so unrealistic.
NC_Yank
Good post. This also applies for structuring...people want to set up LLCs and tax return prep on the cheap then years later say they want to change things and want to know how they can fix the problems. Get the advice up front from professionals and you will save much more down the road.
12 inch tiles and 1/16th inch grout joints from Lowes. Inspect EVERY tile though because there was pitting in many of them and we had to search through to get the ones w/o a problem..
And, why do you want to start with Junkers? You could buy a really decent forclosure for $45K. One that only needs a facelift to sell for $90K or so.
Much easier deal for everyone. And much easier to convince your money partner to go along with the deal.
[addsig]
How do we join these guys to partner with them?
First, identify your competitors, then meet with them in person. Your new partners need to be aligned with your way of thinking: Moral values, ethics, financial stability, profit expectations, mutual respect, etc.
Partnering is like the old Reagen cliche: "Trust, but verify." Do a few small deals with your new partner(s) and see how you feel. Were you comfortable as the deal unfolded?
Good Luck!
[addsig]