Too Much Work In First Deal
Hi,
I found a SFH that could be my first deal. But my fear is that needs a lot of work, A LOT!
Should I go for it? Too dangerous for a first deal?
Thank you.[ Edited by bernel77 on Date 01/20/2004 ]
What kind of work? Be more specific about some of the problems with it.
Stay away from big rehabs at first. Stick to the more simple jobs. We just finished a $40000+ job on a 170K house, and it was not worth it when I can make the same doing 10-20K in rehab on lower priced homes. Myabe I paid too much, but it just doesn't seem to be worth the extra effort and money.
3 beds, 1 bath.
Needs:
-New roof
-New walls inside (drywall)
-New floor (kitchen and bath tiles, rest carpet)
1 bath (new, needs everything)
3 beds (carpet and paint, lights, etc)
kitchen (new, needs everything, including appliances)
-Outside (paint and landscaping)
-New windows (7)
-New doors (5)
That should describe almost everything it needs.
What do you think? Too much for a newbie?
might as well just tear it down and start from scratch..lol
Before you pass on the deal....play with it a little. I would loooooooooooow ball on an offer and see if you could flip this to an investor. use 10 bucks as a binder deposit to put this thing under contract, nothing more, and see if you can wholesale to an experienced rehabber.
Get the owners to accept a low offer, run an ad, "Handyman Special" and sell.
Make sure you leave enough room in the deal for another investor to profit.[ Edited by nebulousd on Date 01/20/2004 ]
I wouldn't say it is impossible for you to do, though I'm sure a lot of people would. It might be easier to look for something else that's not so overwhelming. What do you think the property will be worth and how much can you get it for. If you can get it at a really good price it might not be to bad. I bought what sounds like a similar property before and rehabbed it and made a nice profit from it. It won't be easy or cheap but could be worth it if your just starting and aren't looking for others to do at the same time. If you want to get another one right away, it might not be what you want to do since it will take a lot of your time. If the profit at the end is substantial, get some estimates on repairs and give it consideration.
Gehomes,
They are asking 57.600 and the ARV is 90k. What do you think?
Nebulous is right......unless you have the right subs and know how to manage them as well as the flow schedule in which to manage the job......you are wasting time ....which is money.
NC_Yank
bernel77,
Your deal sounds exactly like the deal (my 1st) that I am working on minus the roof and kitchen work. I say if you have the time, cash and the #'s are right to go for it.
[ Edited by fmmp on Date 01/20/2004 ]
Quote:
On 2004-01-20 15:33, bernel77 wrote:
3 beds, 1 bath.
Needs:
-New roof
-New walls inside (drywall)
-New floor (kitchen and bath tiles, rest carpet)
1 bath (new, needs everything)
3 beds (carpet and paint, lights, etc)
kitchen (new, needs everything, including appliances)
-Outside (paint and landscaping)
-New windows (7)
-New doors (5)
That should describe almost everything it needs.
What do you think? Too much for a newbie?
<IMG SRC="images/forum/smilies/icon_confused.gif">
I think it is too much for ANYONE.
The roof probably needs a complete tear off and replace most if not all of the sheathing and maybe even some truss repair. Depending upons size this could easyily cost you 6K or more.
My off the cuff guess is you are looking at 30K or more in fixing plus having to closing costs when buying. If you figure on doing the work yourself when you pull the permits you may be asked for your contractors license unless you lie and tell them you are going to live there.
Even then you will have to pass the building inspections.
Then you have to pay the mortg, insurance and taxes for 6 months or more while the work is done and then put up for sale.
Even if you got it for 50K where is the profit.
Also if it needs all that it seems you have wood deterioration in the windows and doors.
You may have termites so you have to get rid of them and fix whatever damage they did.
There are alot better deals out there than to bother with something like this.[ Edited by CROWLER on Date 01/20/2004 ]
Quote:
On 2004-01-20 18:41, fmmp wrote:
bernel77,
Your deal sounds exactly like the deal (my 1st) that I am working on minus the roof and kitchen work. I say if you have the time, cash and the #'s are right to go for it.
<font size=-1>[ Edited by fmmp on Date 01/20/2004 ]</font>
fmmp I am interested to know what the numbers are on your such as purchase, repair cost and expected selling price.
Keep in mind the kitchen and roof could cost this guy 10 - 15K more than what your deal is costing.
This is the exact type of house I salivate over. Lots of work that scares off the newbies and no chance of it ever being sold to a owner occupant. It's got profit written all over it.
I'm with you on that one Re-hab. It would be a tough one for the first one and there is no way that I would pay more than 40k for it ( with what I am picturing by your descrpition ). But if you want to do the work yourself and learn alot, that would be it. My first two were massive projects, but now I can wire and plumb, service oil boilers, refinish hardwood floors, paint, install http://www.moldings.etc. etc. etc. It all depends on what you want to do, but whatever you do, make sure there is plenty of profit in it!!![ Edited by MikeWood on Date 01/20/2004 ]
I just walked away from two deals like this. One was a house north of here which was supposed to have been boarded up...needed EVERYTHING. The other was a small 6 unit apartment building...not to shabby on the outside, but was completely gutted (no plaster, no flooring, no wiring, no plumbing...no NOTHING).
It seemed to me that I needed to be making money a bit faster than the 6 months (or more) that these two properties would have tied me up for. Also, not only was I not going to make my profit fast enough, there just wasn't enough of a margin in the asking price vs. after rehab value to make a 6 month job worth it.
Just my two cents.
I agree with the rehabinator! these are the deals that seasoned rehabbers love because the field is a lot less cluttered with the scope of the project scaring off the weak and inexperienced. In some markets the competition is really tough and deals like this are the only ones that are common and plentiful. Also the profit margins are generally higher because of higher risk.
If this is your first deal then you need a contractor, one that can handle everything including any subs you might be using.
This means you should at a minimum find three reputable GC's and get bids from them. Take the median one and add a minimum of 15% to it and subtract that from the ARV as well as holding costs for 5-6 months, 20K minimum profit and then you would be looking at what your offer should be.
Major Rehab is where the big boys play that have lots of experience with lots of money for when things don't go according to plan. I frequently scare myself out of some of these and I do this for a living
I don't know how deep your pockets are but they need to be "deep" for this one as this will have to be permitted and inspected and things will come up.
Neb gave you best advice!
Sounds like about 25-30k rehab. Why not flip it to the "rehabinator"! You better
adjust your numbers:
Purchase
Acquisition cost
Rehab
Carrying cost
Selling cost
I would be purchasing at least 50k behind what the ARV is.
Good Luck
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."[ Edited by JeffreyAdam on Date 01/21/2004 ]
You are the only one who can answer your question: "Should I go for it?" The second part: "Too dangerous for a first deal?" depends on your ability to do what's necessary. Are you quick learner? Did you have ant past construction experience such as driving the screw or dealing with handy-man and other construction professionals? If you didn't and you still fill you should tackle this deal, then try buying it at deep dscount to get enough cushion. Otherwise, you might find yourself landing on pretty hard surface.
Hey,
Since you asked the question, the answer MUST be it is too big a job for you. Otherwise you would not have asked. When you are ready, you will know and not have to ask.
Now no one but you has seen this house, so I am going to have to guess at alot here. Since it is a 3/1, I guess it is around 1200 sft, no basement. BUT, I am going to go a totally different direction on this house then everyone else. For an experienced rehabber, and presuming your repairs are correct, I think this house is a $10K repair job and not $30-40k.
Everything you mention is cosmetic and not structural. For example you say New Floor (kitchen and bath tiles, rest carpet), but I think you mean Flooring. Big difference. Every rehab house needs need carpet and vinyl. And paint.
Also, I doubt some of the items may not be needed. For example, you mention 7 new windows. Why do you have to replace the windows??? If the glass is broken, replace the glass.
Now if does have termites (like someone else mentioned) or rot, forget everything I just said.
If the asking price is 57000 and you can lower it to 52000, I feel this is a good deal especially if you can do some work yourself.
There are a ways to find workers for reasonable price. For my husband this type of work would take about 2 months and about 20000 (top, roof included). But he has a team of people who works with him.
In our openion, 15000 for 2 months would be a good profit.
We live in Florida and probably it's easier to do rehabs here, due warm weather.
If you have some extra money and able to do some job (not roof of course) yourself, then you should just calculate how much it will cost you. Meaning that you come with measuring tape and mesure whatever you need and just add numbers. There are nothing extraordinary in doing rehab, little by little you can learn yourself, you will find help that is not expensive as contractors.
Unless I have misread, this deal is TERRIBLE. You say they are asking 57k, the repairs will cost 40k and the ARV is 90k?! Unless I missed something there is NO PROFIT in the deal.
Unless you can get the property for no more than 25k I would RUN, not walk to the nearest exit.
[addsig]
It is very hard to estimate the repairs
without actually seeing it. For example,
it needs a new roof? Does the old roof
need to be stripped? Does it have space
sheeting underneath? Do you know what that means? Big $$$$$
I once bought a house that needed a new roof when I first started out. I figured
it would cost me 2-3k to replace. Well after I pulled my permits, had it stripped,
found out it had space sheeting, which meant I had to put plywood over the entire roof, it almost cost me 10k for the roof. The point I am trying make is it is
very hard to estimate repairs without
actually seeing the house. I have had
houses people tell me it would cost 7k
to rehab and I ended spending 15k!
I would recommend wholesaling it to another investor and then stop by every
day and watch the process and ask the
contractors questions. That is the only way you will learn!
Good Luck
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 01/21/2004 ]
[ Edited by JeffreyAdam on Date 01/21/2004 ][ Edited by JeffreyAdam on Date 01/21/2004 ]
If you can buy this house for between 25-30,000 then you may be able to make money.A complete rehab is not a good 1st project for a beginner,too many unknown variables.
Hmm. Too much for a "newbie?" Well, not if you follow the right steps.
If you're doin' the work youself, I'd do rehab in this order:
Roof
windows
electrical
plumbing
siding
drywall
paint
tile
floor
carpeting
If you're contracting it out, I'd go and get a bunch of rasberry lemonaide, a comfy lawn chair and table and set if up infornt of the place and do the above in the same order.
Once you're done with this one, you'll be, uh, "seasoned."
Would I do it? I've done it. Would I do it again? Oh, yeah! We got a few going now. One a contractor's doin'; the other we're doin'. Get a Lowes, a Home Depot and a Menard's charge card. You'll thank me later.
Oh, buy your own materials if you have a contractor. That way you'll control more of the costs.
Thanks,
OnTheWater
Bernel77,
Do what stockpro99 suggested, especially for the numbers and what you'll make out of the deal. Also take into consideration the fact that you'll learn a lot, and very quickly. If you take it on, you'll know for sure in the future what you want to look for and what you don't. That's kind of what I figured when going into a large project, it will certainly help you make decisions in the future, just a thought. Not that time and money aren't important on the first one, but the experience for future investing I think is just as important.
Tons of advice here and no one knows what the repairs will really cost. My advice is to get an estimate from a couple of contractors and see how much it will cost you. Don't repair more than necessary....it will save you time and $$$. Determine how much profit you need out of this to make it worthwhile, double it and subtract that amount and the repair costs from the 90K. That should be your offer. Make sure you have taken closing costs, mortgage payments while repairing and what not into account! Good luck! ( I am a newbie too so double check that my advice is sound before following it..lol)
When you say A LOT of work, in reality you are probably looking at a HUGH amount of work (and costs). This is not the way to start your career because it may very well be the end of your career.
If you go to the "war zones" in your town you can buy junk like this every day of the week.
Look for the "spick n'span" properties. Less profit but less expenses (redecorating and holding costs).
BE CAREFULL, and proceed. I too had a similar one, a HUD repo bought for 73K with FMV of 150K. I estimated it would cost 20 -25K to fix, until I found some hidden suprises after I started rehab. I ended up putting 40K in materials. Recently on the mkt at $ 155K. My formula is total cost including rehab to be no more than 70% of FMV. Didn't make it on this one, but had lots of learning and fun! Good luck