1st Time Investor Here... Would love your thoughts on this property. Thanks!
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A great deal overall. Assuming it is truly turn-key and does not anticipate any major repairs; this is great for cash flow. Make sure you do a very thorough inspection as major repairs typically make the deal start in the red.
Thanks so much for your feedback, Ernesto! I'll look for some contractors in the area who might be able to give me an inspection and bid.
Quote from @Diana Nolan:
Thanks so much for your feedback, Ernesto! I'll look for some contractors in the area who might be able to give me an inspection and bid.
As an inspector, I may be biased, but I'd recommend a third-party inspector for the inspection, and then bring that report to the contractor for the bids. It can be advantageous to have a report written by someone who's paycheck is not dependent on extent of the findings. I'm not saying they will be dishonest, but we're likely going to be looking for different things. The contractor may want to give you a beautiful kitchen, while your inspector is there to make sure it's safe and correct - Different perspectives for different purposes.
But many investors skip the inspection and do the contractor bids like you said, but I'd be willing to bet that those are experienced investors who already have existing and trustworthy relationships with those contractors. I cannot recommend that approach if it's your first investment, or if you don't already have a good working relationship and history with the contractor giving the bids.
And I doubt a contractor will be crawling through crawlspaces or attics just to come up with a bid on a home you might not even own yet. How much will you paying the contractors for these bids?
@Diana Nolan - Why aren't you including funds for property management costs? I usually budget between 8-10%. These are real costs whether you are doing it or someone else is. You should always include property management costs since the ultimate goal is to eventually hire a property manager and make the asset more passive. Just a thought!
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Real Estate Agent MA (#9576338)
- 857-267-6556
- [email protected]
- Podcast Guest on Show #69
@Mike Hasson Hi Mike, thanks so much for your valuable insight - that is a really good point. It sounds like it definitely makes sense to have a third-party inspection. Regarding paying contractors for a bid, what is usually a reasonable amount? In the past, contractors I've used don't charge for a bid, but that was for a specific project and not for analyzing the property as a whole. I understand that is a much more involved process that warrants payment.
@Andrew Freed The reason I didn't include it was because I watched a class on Bigger Pockets that advised that you do your own property management for the first couple investment properties so you can learn more about the process. He left that box blank in the tutorial. But it's a good point that you want to eventually hire a property manager and make the asset more passive. How much do you usually allocate for that?
@Diana Nolan 10% is a fair estimate. It might be less but better to be conservative in your underwriting.
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Real Estate Agent MA (#9576338)
- 857-267-6556
- [email protected]
- Podcast Guest on Show #69
Looks good, personally I would budget a little more for property taxes and property management company down the road.
Quote from @Diana Nolan:Good question, I think it couldn't hurt to ask the contractor, as everyone's going to value that differently. But my average home inspection is around $400 and I spend a good 2-3 hours looking around, testing things, etc.
@Mike Hasson Hi Mike, thanks so much for your valuable insight - that is a really good point. It sounds like it definitely makes sense to have a third-party inspection. Regarding paying contractors for a bid, what is usually a reasonable amount? In the past, contractors I've used don't charge for a bid, but that was for a specific project and not for analyzing the property as a whole. I understand that is a much more involved process that warrants payment.
Another thing you can do, is check out the Bigger Pockets book on Estimating Rehab Costs. It breaks eveything down into parts, labor, etc. Then you can compare your assumptions with actuals, and negin to develope an intuitive sense for how much things cost. Always add 20% to that though lol
@Andrew Freed Okay, I'll add that into my calculations. Thank you so much for the advice!
@Kass Farran Thanks so much for taking a look! Good to know about budgeting more for property taxes (and property management as well)... do you have a rule of thumb that you go by when it comes to property taxes? Do you add to the estimate they give you, or take at face value?
@Mike Hasson Okay, that is all really good to know. Developing an intuitive sense is something I definitely need to work on, but will pay off (literally) in the long run. Thank you for your advice, it's much appreciated!
