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5 Replies

@J Scott I am reading your book on flipping houses, and love the book and this is why I would like your personal and professional opinion. When I am pricing out my rehab I use your formulas, and I know not every market is the same, but yours and mine a fairly close. I am getting out bid on the houses on the houses I bid on. Most of the houses I look at require a good amount of work because I feel I can make a better profit from this type of home. With that said what I need to know is if I am to caring about the next potential buyer. When I go in a house if I see galvanized water line, cast iron water line and 2 wire electrical outlets I figure on doing the plumbing and electrical right off the bat, I really want to take care of my customers but am I putting to much emotion into buying since if I was the one buying this would be a red flag for me. I just need some guidance if you don't mind and anyone else can chime in also, great thanks .

My approach is to focus on giving my buyers the best house in the price range that I anticipate selling it.  It doesn't have to be MUCH better than everything else in that price range, but it should be at least comparable in all areas and at least a little better in some areas.  That way, your buyers will be getting value over and above any other property they would end up purchasing for the same price in the same area.

To accomplish this, you need to start looking at all your competition.  See what they are like in terms of electrical upgrades, plumbing upgrades, cosmetics, mechanicals, style, etc.  Use that information to determine what you need to do to compete with them, and to make your house just a little bit nicer for the price range.

In addition, you'll want to ensure that any safety issues, code issues or issues that would cause problems with your buyer getting a mortgage should be fixed first and foremost.  So, if all your competing houses have ungrounded outlets, if the wiring is in good (no safety issues), it's up to code and there's no mortgage issues with ungrounded outlets, then I would say not to upgrade.  But, if you competitors have new wiring with all grounded outlets and/or you find code/safety issues, you should definitely fix or upgrade.

Does that make sense?

@J Scott yes thanks that does make sense my problem would be that we have broad range of rehaberrs, we have some that will do all the upgrades including granite countertops and very nice finishings, to the ones that do nothing but cosmetic with very little upgrades, and this is all in the same area, so I guess I need to make an estimate in between the 2 types. Thank you sir I rack my brain on the numbers every time I look at a house.

Originally posted by @Brent Fleeman :

@J Scott yes thanks that does make sense my problem would be that we have broad range of rehaberrs, we have some that will do all the upgrades including granite countertops and very nice finishings, to the ones that do nothing but cosmetic with very little upgrades, and this is all in the same area, so I guess I need to make an estimate in between the 2 types. Thank you sir I rack my brain on the numbers every time I look at a house.

It's very unlikely that the rehabbers who are doing very few upgrades are selling their properties for the same price as those who are doing the major upgrades (if they tried to sell for the same price, they'd never sell them).  So, that means there are presumably at least two levels of quality but at different price points.

If that's the case, you should run the numbers for both scenarios:

1.  Doing lots of upgrades and listing at the higher price

2.  Doing fewer upgrades and listing at the lower price

Figure out which of those two scenarios gives you the best profit (given the amount of work required) and that's your answer...

Another thing you should keep in mind (solely in regard to being outbid) is that some investors work with much smaller margins. I know investors who will flip a house and pay 80% of the ARV-Repairs leaving a mere 14% after commissions. (They still have to pay holding fees.)

Are your deals on MLS? You should look into Direct Mail. You can't get outbid if you're the only person they are talking to.

You either need to:

A)Be patient and offer what you're comfortable with on listed properties. Eventually you're bound to get one as long as you're not offering $.50 on the dollar. When you get a deal this way it should be a "Home Run". 

B)Find your own deals.

The guys I know that use such small margins compensate by doing volume. We are talking 7 flips at a time kind of guys.

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

@Ryan D yes currently all the ones I am looking at are on the MLS work a W 2 job and investing is not impossible but I am currently limited to time. Also thanks for the input.

@J Scott thanks for the info now to apply it.

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