To offer or not to offer? That is the question

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To offer or not to offer? That is the question

Aaron Kovac
Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes

Hi All,

So as I've been reading the BRRRR book, listening to podcasts and researching/practicing analyzing deals every day, I can't help but think about how you will know what a rehab might cost.

If you’re investing from a distance (like an hour and a half away), don’t yet have boots on the ground, and using just pics online to judge a property, I imagine it’s pretty hard to figure out. How are y’all judging what rehab costs might be? Visiting yourself (alone or with a GC/inspector)? Establish boots on the ground?

More or less, as I'm analyzing homes I find on the MLS for practice purposes, I look at pictures of these beat up old houses and never having done a rehab before- I have no idea whether one house will require 10k, 20k or even 50k. As well as which skilled professional might be able to assist with that.

Hopefully this makes sense, but would love to learn what others are doing out there! TIA

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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
4y

@Aaron Kovac I am very involved in all of the rehab work that I have going here in the Chicago area, and I can't imagine trying to rehab an hour away with no boots on the ground. I think your better option in that case is to potentially partner with someone who knows what they are doing or to invest closer to home. I made the mistake early in my career of always thinking the grass was greener in another market, and I wouldn't be surprised if you are doing the same. Is there truly no opportunity in your local market? Have you worked to build relationships with brokers, sellers, etc? 

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    4y

    @Aaron Kovac I am very involved in all of the rehab work that I have going here in the Chicago area, and I can't imagine trying to rehab an hour away with no boots on the ground. I think your better option in that case is to potentially partner with someone who knows what they are doing or to invest closer to home. I made the mistake early in my career of always thinking the grass was greener in another market, and I wouldn't be surprised if you are doing the same. Is there truly no opportunity in your local market? Have you worked to build relationships with brokers, sellers, etc? 

    5Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @John Warren I would agree with you and wanting to be involved in the rehab. I live in Austin and being a lender, I can tell you it’s extremely competitive here with the amount of people coming from California and New York. The price points are just too rich for my blood as far as investing goes.

    San Antonio on the other hand is only an hour and half away and is the same distance/time as it was for me to go from where I grew up in Woodstock, IL to Chicago- so I’m not opposed to investing in SA. And it’s a lot cheaper of an entry point. I’ve met a few agents in the area from working with past client, that I can lean on to build a team.

    When you go to see a property for the first time, are you bringing anyone with you such as a GC or inspector, before you make an offer?

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    4y

    @Aaron Kovac You need to fill out a rehab check list when you walk the property, take a lot of photos, and then go home and build a scope of work. Take this information and show it to your contractor connections. Most contractors are busy AF right now and don't have time to walk a property with you. Unless you're paying for there time I wouldn't ask. Just get the pictures, measurements for flooring, and provide it to them. After that you'll have a great prospective on rehab costs. 

    For some items related to remodeling and repairing a property it's best to just know the numbers. If you don't know the cost to install a hot water heater you better start learning. If you don't know the cost to replace a roof you better start learning. 

    1Reply
  • Allen McGlashing
    Investor · Cambridge, MA · Member since 2017 · 195 posts · 106 votes
    4y

    @Aaron Kovac

    I recommend buying "The book on estimating rehab cost" by J.Scott at the very least it will give you an idea on what to look for even through the picture on the MLS and a general idea what you should expect to pay. Always add the higher price.

    2Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Jaron Walling thanks for the tips. I didn’t think to go about it that way and send to contractors. I guess I have some homework to do.

    Have you ever gotten any deals from a company named New Western? I ran into an agent who works for them and seems like they are a wholesaling brokerage. But from my initial DD, their estimates of repair costs and comps used seem to have wild ranges. Not sure how reputable of a source they are for finding off market deals.

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    4y

    @Aaron Kovac You have 5 options: 

    1. Walk the properties with your agent and they will likely be able to give you a "sniff" test of what the property requires. You shouldn't rely solely on that number. If/when an offer is accepted you will have the opportunity for an inspection. 

    2. Network with a property management company or contractor in the area. Tell them your goal is to buy "X" # of properties in the area within the next 3 years and you will use them for any properties you purchase. If/when you build a rapport with them you can walk the properties with them also. It helps if your property manager is also an agent or an investor. 

    3. Read books on estimating rehab cost and bring a rehab checklist when you walk the property, as others have mentioned. 

    4. Make offers blindly and hope for the best! (I wouldn't suggest this...)

    5. Don't make any offers and don't fulfill your goals and dreams (I wouldn't suggest this either...) 

    2Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Allen McGlashing thanks for the recommendation! I’ll check out that book.

    1Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Jon Kelly thanks for the tips. You’re right, I need to establish a team first and foremost, especially if I’m going to be doing this from a distance. Seems to be the common trend besides reading books to educate myself in rehab cost estimates. Thanks!

    2Reply
  • Aaron Gordy
    Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
    4y

    @Aaron Kovac I think that you should think it through a bit more. It seems that you are on the right track though. I look at many many properties before I choose one or help my clients buy. Its not rational to bring a contractor out to look at all the properties. 

    You should start assembling a few gc's if you are going to hire a gc and pick their brain about costs and permits and timing. Don't ever forget time. Time can be expensive  when you may have a high interest construction loan in place. Pick their brains about all the cost of repairs for every detail of the house such as how much would it cost to replace a roof that has a mid sized pitch on a ranch style house with 30 year shingles?


    Once you get an idea of the costs associated with each component then you can look at a property and do a basic estimate of the costs to see if its worth your time. Remember the opportunity cost of your time as well.

    I am not going to badmouth new western nor anyone else as that is bad manners. But do keep in mind the basics of economics of supply and demand. If they send a "home run" deal out to a hundred investors or so then more than likely the emotional bidding will strip out all the fat off the bone with the only folks making money are the lender and contractors.  

    1Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Aaron Gordy thanks for the feedback. I figured as much with New Western. I had never heard of them in my time as a lender, and can only imagine if I’m getting emails from them, how many other hundreds of investors are as well?

    That being said, you are right, I need to dig in a little deeper and understand the general costs associated with certain rehab items to better educate myself before wasting anyone’s time much less my own. Appreciate the input!

    1Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    4y

    @Aaron Kovac wholesalers are doing the dirty work of finding rehab-type properties for investors so you don't have to. But, like retail, there is always a price to pay once it is put in front of the market. They are simply additional opportunities to consider along with marketed properties and homes sold directly by the seller. 

    The best way to learn rehab costs is to do rehab. Books, seminars, even contractor "estimates," will never prepare you for the real deal. Find a deal you are willing to try and go for it. 

    [email protected]512-674-5478
    Ryan Kelly Group - Keller Williams5109 Reviews
    WebsiteView Page
    2Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Ryan Kelly thanks for your feedback Ryan! Just like anything, learning through doing will teach you a lot more than any book or guru can.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    4y

    Knowing the difference between a likely profitable flip and a likely disaster in waiting means knowing your market.  if you wait for others to tell you what is or is not a profitable deal, you will either be waiting a very long time or will soon be broke from failed projects that were too thin to begin with, as every "expert" extracted his or her slice from the pie presented to you.  Every fix and flip project starts with knowing the ranges in which fixers and fixed properties sell for in the current market climate, knowing what it takes in rough cost to take the fixer you find to the correct level - here, J. Scott's book will provide a helpful start in teaching you the categories of fixes you may encounter and their relative (but not absolute) prices in your particular market - and having the contacts necessary to put your plan into effect in a timely way.  

    As to absolute costs, different trades in your area will charge within a range of price points (electricians, plumbers, drywallers, tilers, carpenters, haulers, etc.).  A general contractor will typically charge an hourly rate plus a percentage over these costs for managing a project.  Local materials costs can be generally gleaned from the internet. Make some phone calls.  Look in on some ongoing projects and talk to the folks working there.  It's not rocket science to figure costs out.  

    If this sounds like too much work, probably best to go into a different line of owrk.  



                

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    4y
    Originally posted by @Aaron Kovac:

    Hi All,

    So as I've been reading the BRRRR book, listening to podcasts and researching/practicing analyzing deals every day, I can't help but think about how you will know what a rehab might cost.

    If you’re investing from a distance (like an hour and a half away), don’t yet have boots on the ground, and using just pics online to judge a property, I imagine it’s pretty hard to figure out. How are y’all judging what rehab costs might be? Visiting yourself (alone or with a GC/inspector)? Establish boots on the ground?

    More or less, as I'm analyzing homes I find on the MLS for practice purposes, I look at pictures of these beat up old houses and never having done a rehab before- I have no idea whether one house will require 10k, 20k or even 50k. As well as which skilled professional might be able to assist with that.

    Hopefully this makes sense, but would love to learn what others are doing out there! TIA

    Lots of questions in your post. Given the number of offers we make we've found it's not it's not cost effective to physically visit every property before making an offer.  So over the years we've developed some rules of thumb for determining potential renovation costs based on information provided in a listing, including the pictures and anything we find in public records on the property. I say rules of thumb but we have a database that we update based on current and past renovation costs. And we use those rules to fashion our offers. But our offers aren't sight unseen, we will always have an inspection period in our offer. If an offer is accepted we will visit the property during the inspection period and complete our due diligence.


    Our process for investing locally was developed from investing from afar (Out of State). The difference is we had boots on the ground support & paid them. We'd review properties received from an agent or wholesalers. Review the details & run our numbers and make an offer with an inspection period clause. If an offer was accepted then we would pay a GC to inspect the property and determine if he could hit our target number. Key word- Pay the person for their time. We would also pay the local realtor (a buyer's agent) for their time.  


    Prior to having our database we used HomeWyse  to estimate the cost for a renovation. Costs are adjusted based on where you are in the United States. We still use it. 

    312-681-7487
    2Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Darius Ogloza very good points. Understanding the market I’m looking to invest in has been priority number one. I just have to get better at running comps to get a good eye of what will make a good deal or bad one. And from there, build a team that I can trust before deciding to jump on a deal or not. Appreciate the insight!

    0Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Crystal Smith great advice! Yes, inspection period is a must. I need to build a team of boots in the ground myself, before jumping in. How did you go about doing that in an out of state market?

    I'm looking at the San Antonio market (live in Austin, about 1.5 hours away). I know some realtors in SA from working together, as I'm a lender in Austin, so I figured I would start there. But I'm not sure whether the agents I know are versed well enough in the investor space that I'm trying to get into with BRRRR's. Or whether that have the connections to other GC's and property managers. Curious how you found your boots in the ground out of state.

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    4y
    Originally posted by @Aaron Kovac:

    @Crystal Smith great advice! Yes, inspection period is a must. I need to build a team of boots in the ground myself, before jumping in. How did you go about doing that in an out of state market?

    I'm looking at the San Antonio market (live in Austin, about 1.5 hours away). I know some realtors in SA from working together, as I'm a lender in Austin, so I figured I would start there. But I'm not sure whether the agents I know are versed well enough in the investor space that I'm trying to get into with BRRRR's. Or whether that have the connections to other GC's and property managers. Curious how you found your boots in the ground out of state.

    We found our boots on the ground out of state through networking; similar to what you're doing now; then we budgeted to visit and attend Real Estate Investment events, meetups, conferences,......  

    312-681-7487
    1Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Crystal Smith makes sense. When you do an inspection on a potential BRRRR, are you walking through with only the GC or are you also hiring a professional inspector as well?

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    4y
    Originally posted by @Aaron Kovac:

    @Crystal Smith makes sense. When you do an inspection on a potential BRRRR, are you walking through with only the GC or are you also hiring a professional inspector as well?

    We don't use inspectors for properties we intend to renovate. It's a waste of money. 

    312-681-7487
    1Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Crystal Smith got it. That makes perfect sense! Thanks for all your insight! I appreciate it :)

    0Reply
  • Collin Corrington
    Investor · San Antonio, TX · Member since 2016 · 242 posts · 126 votes
    4y

    I've got all kinds of boots on the ground here in SA.  If you need some recommendations shoot me a PM. 

    The important thing to me is to find a GC that knows the difference between a flip rehab and a rental rehab.  That's a big difference.  And that they communicate on what they can predict as near future capital expenditures.  Ex.  They AC works but might die soon.  That'll help you run your numbers.  

    I also work closely with a great inspector.  He will of course give you the gloom and doom on the report but he gives me a more realistic run down on a phone call after.  I like to use him as well because he catches a lot of things a GC won't.  Plus, you can use that to confirm what a GC tells you.  

    If you ever do make it down here hit me up and let's do lunch or happy hour. 

    1Reply
  • Michael LamPro Member
    Real Estate Broker · Dallas, TX · Member since 2014 · 24 posts · 29 votes
    4y
    Originally posted by @Aaron Kovac:

    @Aaron Gordy thanks for the feedback. I figured as much with New Western. I had never heard of them in my time as a lender, and can only imagine if I’m getting emails from them, how many other hundreds of investors are as well?

    That being said, you are right, I need to dig in a little deeper and understand the general costs associated with certain rehab items to better educate myself before wasting anyone’s time much less my own. Appreciate the input!

    Disclosure: Broker for New Western Acquistions in Austin

    Hey Aaron, I'm the broker for New Western Acquisitions here in Austin and just wanted to hit a few points. We've been operating in Austin since January of 2015 and have an extensive track record here in Austin. We always advise every investor to do their own due diligence as we do not provide any rehab or ARV numbers to our properties in our marketing material (unless it is necessary determined by the forum rules). The reason we are the largest residential real estate brokerage in the cities that we operate in is because of the relationships with our investors. There are many that seek to get on our list to receive the deals so yes it is true that hundreds of investors may get the property. There's no denying that, but that's what a pride ourselves on. There is no VIP list or cherry-picking the "best" deals and giving them to "preferred" investors. Every investor on the list gets a fair shot at the property. If you have any questions that I could answer for you, feel free to reach out to me. Best of luck in your endeavors!

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    4y

    @Aaron Kovac My first property was found on the MLS in 2018. It had been on market for 200+ days and was distressed. In today's market it would be gobbled up in 24 hrs. My second deal was found off market. I'm having no success looking at listed properties like most investors. Too many over valued cash offers flying around right now.

    0Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @collin 

    @Collin Corrington That is great to here from someone who is local! Sorry for the delay, i haven't been getting notifications from BP lately. I appreciate your insight and it makes sense why you would have an inspector come out and compare to a GC. I will definitely let you know when I plan to come down to SA next so we can hopefully grab lunch or a drink. It would be nice to meet an investor who is already involved in the SA market! 

    0Reply
  • Aaron Kovac
    OP
    Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes
    4y

    @Jaron Walling I can believe that. Anything that hits the MLS these days is, like you said, gobbled up almost immediately and very over priced. But like any market, there are still deals to be had i'm sure. Just a matter of finding the right ones. Appreciate your feedback!

    1Reply
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