Fixer-uppers - The Right Way

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Years ago an investor friend taught me the right way to approach fixer-uppers. I watched others just buy a house for what they thought was a good deal, without a plan. My friend pointed out the flaws in that approach. You don't think price until you do your homework. You have to start at the end. Here's an outline of how he did it:

1. Determine what the house will sell for when it's ready.

2. Figure every expense: buying, repairing, holding, selling, and $1000 for unexpected things.

3. Subtract this from the expected sales price.

4. Subtract the profit you want.

Now you have the absolute highest price you can safely offer, so you offer less, of course. He never lifted a hammer, prefering to let others do all the manual labor. I watched him do 14 houses one year, making a profit on every one. This is the safe way. Hope it's of use to some of you.

Steve, do you have a formula that you use to help determine the repair expenses? ie for a room that might be 20x14... the cost to carpet that room... the cost to tile that room... the cost to paint that room... the cost for kitchen cabinets, etc... I'm also curious as to labor costs as a percentage of supplies?

Hope everyone had a great Thanksgiving!!!

hey pauly99; that would vary too much by locale. I guarantee that HD sells most of their commodities for the same or close to the same in the San Francisco area that they do in my little town. But I can get pretty skilled labor for a fraction of wht they can get it for.

Back when I had rentals I always used the same carpet guy, always used the same interior paint (Navajo White), and pretty much always used the same ($.88/sq ft) ceramic tile. And for that kind of stuff I could figure pretty quickly. In 28 years I only replaced kitchen cabinets ONCE in about 90+ houses!

FWIW, I've always done 90% + of my work, for the simple reason that I couldn't find workers, at almost any price, to do as good a job as me. The main exception being electrical, I just don't understand it.

all cash

All Cash, I should have known better regarding the question concerning labor. Yeah... In the Chicagoland area you can easily pay $90 per hour labor on your car or you can head 70 miles west of the city and pay half of that labor price.