Rehabs....in A Bad Area
Hey gang..I am looking for my first REI deal. Ihave decided that I want to start in rehabs, as I have some great connections with subs, as well as my best friend being a builder/contractor, who is looking to get started in doing rehab work for me (as well as others if it works out). I also like the ability to possibly get started with little or no money down.
I have found a few rehabs that I went to look at. MY first question is basically about ARV. The investor, who basically is a wholesale investor, lists them having much higher ARV than I see. The 2 I looked at today are in a real bad part of town. I usually have no probs in dangerous areas. I am an on-site agent and have sold plenty of houses in places I would not want to be after dark. These 2 though, I am not sure I would want to be there during the day.
Should I shy away from these types? Like I said, I really don't see the ARV that the investor is advertising, but then again I have not run the comps. For instance, one is selling for 49K, needs only cosmetic repair, est 4K (by investor ad) and has ARV of 100K. Even if I could fix it and flip it for 70, it would be worth it. The area is simply in the hood. No other way to descibe it.
Thanks in advance..
Brian
I never rehab in a war zone. Anybody that can get a mortgage will not live there. Also if you rehab in a war zone, it won't stay nice for long. You'll lose materials and tools constantly. The trick is to buy houses that need little rehab, but they have to be cheap. You can flip to the slumlords.
I am thinking red flag.Be careful. You have to do comps and check around. I have a couple homes in rough areas of Pa. and ARV is 40-45k for 3 & 4 Bd SFH homes. That price seems high. Just my .02 Good Luck
This is slighly off topic to your question but I wanted to advise a word of caution when dealing with friends on a business level. Although I am newer to real estate investing, I am not new to business. Friends always want special treatment and if something goes wrong are you going to treat them on a business or personal level?
A business needs to be run with plan and decisions must me made to follow that plan. Friendships aren't this way.
I don't know if I explained that very well but I would strongly advise you to think this over. It is natural to want to bring your friends on your road to success but it simply isn't reality. We are all different and not all of us have what it takes.
Good luck
TO add to Myfrogger I would agree about the friends part to a point. IN life success is about who you can include and take along with you. You rise best when lifting others. That said I would get it all in writing, every last detail. I would tell your friend that you "value his friendship too much to lose it over a business deal" This should spell out each other's responsibility and save grief later on.
PS. The edg of war zones are excellent for appreciation if the surrounding areas are coming up in value and will carry your place with them.
pull comparables and see how long the others are on the market
Hey gang...thanks for the great replies. Two things:
The relationship with my friend is simply that I want to help him get started in REI. He is a great, great friend and I really just want to get him going in the right direction. He would not be a partner. He wants to handle the rehab jobs, full turnkey for a fee. He is very skilled at building, contractor and works endless hours for about 30K. I just wanted to teach him a bit about mkt, potential business opportunites, the industry, etc. Also, since I am just starting out, he really brings some connections with his subs, that he knows personally, that want work to do on the side for pretty inexpensive. My friend and I agreed that his services... scheduling subs, overseeing full rehab, giving remodeling advice would come basically as a consulting fee. I brought all this to him, the job, the pay, etc. He is very easy to get along with and would have no problems at all putting everything in writing. I agree with all that you guys have said.
Second, if I am looking at a property and trying to do a cost analysis of purchase, rehab and ARV, am I basing the ARV on the comps for the most part?
Thanks again...you guys are a great help.
Brian
Hey,
I read your post and without evening looking at where you were from, I guess GA.
Why?
Because I get information on dozens of house each week from Wholesalers in the Atlanta area where the Wholesaler has added a zero to the end of the FMV number!! And subtracted a zero from the needed repairs.
I look at them, laugh and then throw them away.
My best guess is these wholesalers make a very, very nice living by selling houses to Newbie investors.
Don't even think about buying these houses.
I invest in low income areas and I agree with the comments above. I wouldn' t even think about rehabbing a property to sell in these areas. It is almost impossible to find a buyer who could get a loan, not to mention the fact that you would almost need to hire a full time security guard to keep an empty house from being vandalized while you were trying to sell it. The best way to make money in these areas is to buy extremely cheap, quick rehabs, and then rent them quickly. The properties are rarely vandalized if someone is living in them, but they are an open invitation to trouble while vacant.