Don't make us save you....

I hate to admit it, but we at Alamo Home Source have made great profits on the massive mistakes of amateur real estate investors. We are not out to exploit people; in fact, we swoop in to rescue naïve investors when they spend way too much on rehabilitation costs in the hopes of recouping it on the sale price, all because they did not know the market sufficiently well.

A few years ago, a new investor came to San Antonio from California. He had paid $45,000 for a house and spent $60,000 on renovation, for a total of $105,000. His plan was to sell the house for $130,000.

There was one problem. The houses in that area were selling for around $80,000.

He called us, hoping for advice on selling the home. After all, he said, his house had the works: new windows, custom built cabinets, travertine floors, a robot that fixed you breakfast, everything. It was the nicest house on the block. Unfortunately, buyers were scrutinizing his $130K rehab home against all the homes in San Antonio. These buyers were using traditional loans from a mortgage bank, so why not just spend that money in a better part of town?

We offered him what we believed was a great deal for that property. We would pay $70,000 cash within three days. He laughed in our faces.

He called us nine months later and sold it to us for $70,000.

I hate to admit it, but we at Alamo Home Source have made great profits on the massive mistakes of amateur real estate investors.

Since we offer our customers the financing on our homes, we have more room to breathe. Our customers rely on us to be the bank, so our houses are not our primary “unique selling proposition”—our financing is. This means that when we find a deal such as the above example, we would likely buy the house at $45K, rehab at $15k, sell at $80k, and make a tidy $20k profit.

Obviously, this will depend on the extent of repairs needed. Here is the secret sauce: we ensure the home is safe, in good working condition and livable. We do not need to provide granite countertops, a top-of-the-line HVAC system, and a drawbridge with a knight in shining armor. We are the knights in shining armor, since we are bringing the financing to someone who does not traditionally qualify.

All of this success hinges on properly determining the rehab budget. Over the past ten years, we have developed a great worksheet that we have used every time and with consistent success. We focus on three categories of repair:

1. Safety Issues

2. In-Your-Face Issues

3. Over the Top Issues

Then, alongside our contractors, we estimate the cost for those repairs to determine our budget.

We do not need to provide granite countertops, a top-of-the-line HVAC system and a drawbridge with a knight in shining armor. We are the knights in shining armor, since we are bringing the financing to someone who does not traditionally qualify.

(GET THE WORKSHEET AND "AFTER REPAIR FORMULA" BELOW)

Here are examples and an explanation of each of the three categories.

SAFETY ISSUES

These should be pretty obvious. Anything that is a safety concern must be resolved. We believe in providing quality homes to the hardworking people of our community, and we hope that you do, too.

Here are some examples of safety issues:

1. A couple of outlets in the garage look burned and the outside electrical panel has wires hanging out of it as though it has been tampered with. (Get an estimate from an electrician to address the issues.)

2. We smell gas at a property. (Get an estimate from a plumber to do a pressure test on the gas lines to detect possible leaks.)

3. Tree branches potentially causing damage. Many homes have trees or tree limbs that could cause significant damage to the house or a neighbor’s house. (Get an estimate for trimming or removing the entire tree.)

4. The back patio is missing a corner post and has a lot of rotten wood. It looks like the roof could potentially cave in. (Get an estimate from a carpenter to demo or rebuild the patio.)

5. The swimming pool is unfenced and full of green nasty water. (Get estimates to drain and clean the pool and/or fence the area off for safety.)

6. Smoke alarms and CO2 detectors are missing. (They need to be installed according to building codes in your area.)

IN-YOUR-FACE ISSUES

In-your-face issues are items that absolutely must be done in order to market the home. We would get estimates on all items like these and add those estimates to our renovation budget:

1. The roof looks like it has not been replaced in forty years. There are several shingles missing and obvious signs of rotten roof decking.

2. The carpet is stained and smells. Cleaning will not help.

3. The kitchen cabinets have several missing cabinet doors and drawers, and the Formica countertops have several burn marks and cracks.

4. The tub in the bathroom is clogged and draining very slowly and the toilet tank has a big crack in it.

5. There are five broken windows.

6. There is trash all over the yard and in the garage.

7. There are several light fixtures missing throughout the house.

8. All three-bedroom doors were kicked in and need to be replaced.

OVER-THE-TOP ITEMS

Over-the-top items are the additional renovations that we believe will push the home over the top and make it extremely marketable. Making a home marketablecan be any combination of improvements to the home that will entice a prospective buyer to purchase the property. Remember, offering seller-financing terms is the number onething that makes your home marketable. This is why it is much easier and more profitable to renovate and sell the home.

Picture a home that has not been updated for twenty years and needs a little bit of everything. Let’s assume you already got estimates on the Safety Issuesand the In-Your-FaceIssues. Here is an example of some of the estimates we would get in order to push the home over the top. Remember, the goal is to present a home that is safe and clean with enough upgrades to motivate a buyer to purchase the property. Here are some examples of things we would do to push a home over the top:

1. Install a brand-new central heating and air-conditioning system: $4,500

2. Update the kitchen with brand-new cabinets and countertops: $5,300

3. Paint the inside and outside of the house: $5,000

4. Install a privacy fence since the neighbor has a barking dog: $2,500

5. Install all new light fixtures, doors, doorknobs, faucets, and windows: $4,000

6. Sand and refinish the wood floors: $2,500

Learn the techniques and strategies that have guided us in over 750 rehabs at and chat with us about any of your seller finance or note creation needs on our Facebook page.

The Formula and Worksheet:

After Repair Value (ARV) formula:

ARV – [TARGET PROFIT + COST OF REPAIRS] = MAXIMUM PURCHASE PRICE

Once you have your maximum purchase price, use the following worksheets to identify the cost of your repairs, so that you can meet with your contractors and pin down your renovation budget:

Safety Issues:

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

In-Your-Face Issues:

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

Over-the-Top Items:

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________

________________________________________$________________