Multiple Rehab Project
I have heard that doing multiple rehab projects is one good path to follow for increased profits. My question, or rather concerns, is in several parts:
1. If one were to initiate multiple projects (i.e, buying 2 or 3 cheap houses at the same time how would they be able to convince a lender to finance them. Take into consideration here that finding private venture caps is not always an easy thing to do for a beginner and is a function of local economy, location, etc.
2. It seems sort of dangerous to attempt unless you have lots of backup $$$. Because you may just end up with 3 finished houses that won't sell in expected timeframes for whatever reason.
3. What about the short term sale taxes on each of these, cutting big time into what you actually see go into your pocket at the end of the sale. Now I know that some will argue here that a rehab/sell is your product/commodity and that it would be reasonable to expect that you should pay your fair share just like any other person who buys & sell products, but it seems ridiculous that holding a property for 12 months as opposed to selling it in 3 months (hence the difference in labels of investor/dealer) should make such a tax difference.
At any rate, I'm basically curious as to what others are doing in this corner of the ring. Also, lets consider that the properties I'm considering in my area are the: buy at 19-21K and sell at 39-41K because they're the ones that tend to move the fastest and that comprise a majority of my town.
What I tend to believe is that you have to get creative with your exit strategies.
For instance:
If you know that your rehab will take a while to sell or it has been on the market too long, lease option (or rent or Section 8) it. Also, don't get me wrong......your house may not be selling for more reasons than just the market. Go to your local realtor for suggestions if you don't want to rent it out.
Once you know you can lease your rehab for positive monthly cash flow, go to a bank or mortgage broker to get a loan that will allow you to recover your costs and some equity. Then roll your equity into another property. You can get some tax free money this way (via the loan) and possibly 1031 exchange after you've had the property for a while (see your tax advisor).
Let your tenant pay down your mortgage, thus creating more equity. Then if you want, try selling it again later or whatever making even more profit.
The point is, you can rehab to retail and rehab to rent and still make money. Be sure you have some in reserves to cover some rental expenses.
I understand what you guys are saying in regards to beig in a bind due to holding unsold property.
However, as long as your credit scores are decent, you should be able to do a "no doc" or stated income loan package that will meet your needs. This will allow you to refi. and pull out your needed equity/capital.
If you have decent credit and a lender won't do a "no doc" package for you, then go elsewhere. Seriously, if you can't get it done, then you are dealing with the wrong lenders.
I am no seasoned guru, but my local mom and pop banks bend over backwards for me b/c they know that the "big boys" will get my business if they don't help. I just locked in a $125K HELOC based on "stated income." It can be done, just keep trying and get creative. Having a good business plan, several exit strategies, and presenting yourself professionally seems to charm them as well.
I think the point Saniche was trying to make is, if you don't have the reserves to do multiple rehabs, then pay for interest/holding costs in the meantime, you can get in deep trouble. Yeah, anybody can see that if you can do twice as many rehabs in the same amount of time, then you SHOULD be able to double your profit. However, if something goes wrong on one of them, and it eats all your reserves, then it can get nasty quickly.
As far as borrowing the money for rehabs? Yeah, if you can fog a mirror, you can get a loan. But for SOME reason, them people loaning their money want payments each month, then, at some point they want it back. If you can't do either of those feats, they start saying nasty things to you, and sending Bruno over with his infamous baseball bat. lol
No, seriously, you have to make sure, until you get some reserves built up, that you just don't simply get in over your head, and lose everything due to things beyond your control.
Very true JAM. You gotta have enough to stay afloat with all of your monthly obligations or it will get ugly. Anyone can be a house collector due to the uncontrollable.
Sorry to beat a dead horse here, but if you are already in deep doodoo with rehabs you can't sell, you can still make those payments with equity you pull out of the refi. This will keep you afloat until you sell outright.
I am not recommending that anyone float things as normal practice, just if you already find yourself in that much of a bind. Floating for a while is better than losing everything you have.
crawl before you walk
walk before you run
then run like the wind.