Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
All you newbies - I'm a little further along than a newbie...But I'm learning the hard way...I crashed on my first rental, and my first rehab. I was way overly optimistic about EVERYTHING.
BUT - hey you have all the resources right here - Listen to what the EXPERIENCED folks on this board tell you...not the newbies. You can save yourself a lot of grief. If they say 70% and you justify 85% in your mind - YOU WILL LOSE. 2 or 3 k WON'T finance that rehab. You WON'T sell in three days. NO CASH FLOW will never cause you anything but a headache. Realtors will lie to you. Sellers will lie. Don't trust their words. DO YOUR DILIGENCE. Run the numbers....run the comps...get a contractor to run you realistic rehab estimates...do the cash flow analysis with real world expenses. Don't justify bad investments to yourself because you're dying to get into real estate investing.
Don't kid yourself. Making it in this business takes more than you expect. Just a few thoughts I wish I would have listened to, but didn't...and now I'm reiterating...lol.
which is exactly why i'm taking this very , very slowly and very ,very carefully.Each move I make is carefully planned and I run the numbers over and over then i run em again just in case. I'm starting with wholesale because A) it's the least risk B) I dont have the funds to buy a place to rehab just yet. I'll keep the cash i make from wholesaling and invest that into rental property.
thanks for the tips and now I know who to ask for advice in the future
Great post Minna. The 70% rule is there for a reason, it comes from experience. The only way I will deviate from that is when I’m buying for cash and even then I’ll only bend it a little. I’ve had some great projects, a bunch of really good ones and a couple that were only borderline profitable but never a loser. I learned early on to walk away if it wasn’t right.
Great post Minna. The 70% rule is there for a reason, it comes from experience. The only way I will deviate from that is when I’m buying for cash and even then I’ll only bend it a little. I’ve had some great projects, a bunch of really good ones and a couple that were only borderline profitable but never a loser. I learned early on to walk away if it wasn’t right.
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Ok, since I'm a newb, I don't mind asking. What exactly is the 70% rule we're referring to? :)
I'm curious, do you use the 70% rule when buying houses you are going to hold and rent out? I know the 70% rule applies to rehab/flipping, but I have heard that with rentals 80% - repairs works too. This allows you to refinance after repairs and have 20% equity.
What you are going to do with the property does make a difference to a small degree. If you are going to live in it as your primary home you can certainly bend the rule. For rentals it is a judgement call but I wouldn't bend it much. Things have a way of costing more and taking longer than expected. Working with 70% gives you a cushion. Financing is also an issue, most rehab lenders will only lend 65-70% of ARV.
Ahh - thanks. So, I'm considering my first deal. I can get the property for $400k, put in 20k, and sell for $525-550k. These are all conservative numbers [except the $400k, which is dead-on].
Using the 70% - repairs rule, this does not seem to be a favorable deal. Any comments?
Actually, I've found several hard money rehab loans that will lend up to 75% of the ARV. Of course, that 75% must include the cost of the loan (usually 4-7 points and 12-15% interest-only for 6 months) which essentially brings it down below 70%, but it works if you want no money out of your own pocket.
The deal looks very favorable on paper. The question is; how sure are you about the 20k for repairs? The two areas where most people blow it is with how much repairs will cost and how long it will take.
The deal looks very favorable on paper. The question is; how sure are you about the 20k for repairs? The two areas where most people blow it is with how much repairs will cost and how long it will take.
8)
$20k is definitely just a WAG at this point. I'm going to the property again tomorrow to take inventory of everything that needs to be fixed and get a better idea of a 'real' number.
We have a duplex which we bought at a very good price and even with repairs, we're ahead. However it's not in the best area. It's an up and coming, centrally located neighborhood, but it's not quite there. It's a property we should hold onto but even with a management company, we did discover how much we hate being landlords. So I'd add to your analysis, who will be your tenants, how difficult will it be to rent out, and do you want to be landlords.
We want to sell and do something else. I'm not sure about rehabbing and flipping. Don't know enough yet. What are some other REI ideas people have had success with? Has anyone partnered when rehabbing and what kind of agreement did you make? We'd be the money. After the sale we should have about $50,000 to work with.
Thanks for the great advice. The generosity at this forum is really great.
Dianna