All Forum Posts by: Sam Erickson

Hi Everyone,

So I'm looking at a property to rehab but I'm having a hard time determining ARV. The property is located in a pocket of residential that is boxed in by 4 major roads. There are probably only a couple hundred houses within this area. My problem when I run comps nothing comes up. I went back 3 years and only 4 houses have sold in that time and one is currently pending.

The area is very nice which also adds to the difficulty of determining ARV. Of the 4 houses that sold 2 are twice the size of the one I'm looking at. The number I need for ARV is $220,000 for the deal to make sense.

Subject House: 3 Bed, 1 1/2 Bath    1,700 Sq Ft.

Below are the sales numbers for the comps

House #1: $424,900        DOM: 112        3 Bed, 3 Bath 3,532 Sq Ft.        

House #2: $381,000        DOM: 105         3 Bed, 3 Bath 3,500 Sq Ft.

House #3: $280,000        DOM: 107        3 Bed, 2 Full 2 Half Bath, 2,250

House #4: $222,000        DOM: 35          3 Bed, 2 Bath,  1,500 Sq Ft.

Pending House: $229,900  DOM: 14       3 Bed, 1 1/2 Bath, 1,644 Sq Ft.

The Pending House of coarse is Pending so the $229 is the list price, won't know sale price till is closes.

Do these numbers look promising?  Any insight would be great.

Thanks,

Sam

I have used both Quickbooks and Wave as well as Propertyware. For me Quickbooks is superior. I started with QB then switched to Propertyware. Popertyware's Property management system is nice but the accounting was terrible. I then switched to Wave (because it was free) It worked OK and the UI was nice but could tell it was a free platform. It lacked in accounting services and being able to do more advanced entries.

I then switched back to QB and paid for the pro version, it does cost money but I feel it is far superior. The "class' function is what sells me, especially when dealing with different properties. When I was using Wave (may have changed since then) there was no way to separate out income and expenses on the P&L for different properties. All the manual calculation that resulted from this was a deal breaker for me.

Welcome @Andrew Tyson 

Honest Home Inspection, one the most knowledgeable and most thorough inspectors I have found.  Hope the info helps.

No supervising broker, I own my own brokerage company.

My Closing cost where $750 ($540 owners policy & $210 state fee (whatever that is)). I was able to get the buyer to pay the title companies fee.  I also didn't have the typical water bill charges and such being that I lived in the property and made sure all was current before closing ( I suppose I could have put this toward the cost of the flip but since I was living their I paid it as a personal monthly expense)

My numbers above were ~(about) numbers and rounded based on my memory from 5 years ago.  Sorry probably should have taken the time and pulled everything to be exact. Pulled my HUDs below are my hard numbers.

Sale Price: $89,900

Purchase Price: $49,600

Holding, Rehab, Closing: $12,735 (monthly Payment PITI: $395)

Profit: $27,565

Hope this is more clear.

@Damon Armstrong

I did have a little bit of a background before going in. My father built houses for 25 years and is a master electrician and plumber. I relayed on him a lot. A lot of late night phone calls trying to explain something. It was a lot of just googling it and watching a you tube video or to and then doing it. A lot of what I did if I could do over now would probably take me half the time and would probably do it differently. I learned a lot though and it really has prepared me for just about anything.

@Account Closed

The $12K was pretty much all materials and I did 100% of the work I didn't hire out anything. I rolled my holding cost into that $12K as well just for the 3 months of construction. My wife and I bought the home as our first house so we actually lived in it for a little while after it was finished before we sold. So my monthly payment included taxes and insurance was ~$400 a month. So in that $12K number ~$10,800 was materials and $1,200 holding cost. I'm a broker and actually had the buyer see the yard sign and contact me directly so I didn't have any commission cost.

We did pull permits couldn't tell you what the exact cost was but very minimall cost in Janesville.

@Damon Armstrong

Probably would have took $12-15K off my profits.

@Tyler Wenzel

We had that same thought, probably a mason with a bunch of block laying around and thought he would put it to use.

The home was on Columbus Circle.

Hi everyone, so I'm reaching back into the archives of my brain for this deal as it happened about 5 years ago, and was my first rehab.

The rehab took place in Janesville WI and was the first house my wife and bought after we got married. It was located in the best location, I have yet to find a property in a better one. It was on a circle road with only one way in and one way out. It was a 2 bed, 1 bath ranch ~900 sq ft. The average house on the circle was probably 2,000 sq ft, and were selling for 4-5 times what I bought this one for. The circle was lined with houses full of character, not one looked the same. To give you an idea of the circle it was the type of neighborhood that when the city wanted to come put light polls in all the neighbors got together and petitioned the city to allow them to put in the classic light poll at the end of the drive rather then the tall yellow light, light polls the city was going to do. Keep in mind the only reason they got to do this was because all the home owners paid for and installed their own light polls.

I purchased the house for ~$50,000 and was doing all the rehab work myself. I closed on it in the morning and went right from the closing to the house to get started. I promptly began ripping out carpet, trim, old kitchen cabinets etc. It didn't take long and I learned that the entire house was cinder block, the exterior walls, interior wall even the floor. The house had a full basement so yes it was a cinder block floor that was suspended over the basement with 3" of concrete poured on top of the cinder block.

As you can image it was a nightmare doing anything. The plan of easily moving the kitchen sink over there and and switching the bathroom up had become 10 times harder and nearly out of the questions. The house was constructed in a way that the plumber and electrician were on site when the blocks where being laid and all the pipes and wires ran through the center of the blocks. We ended up having to remove entire walls to get at the plumbing and and put new 2x6 stud walls in so the thickness would match the other walls.

The windows and door frames where set in place and concrete was poured around them. When we went to replace them we had to saw cut them out of the walls.

I purchased the house for $50,000, and put about $12,000 into it. We listed it for 89,900 and had a full offer the next day, I learned a lesson in under valuing with this property as well. Probably should have listed it for 10-15K more then we did but I was nervous about holding it for a long time.

So we ended up making just shy of $28K. The cinder block turned my original 1 month timeline into 3 months, however it didn't effect my budget, obviously time is money so it did have an effect on my bottom line with the extra holding but I didn't come out of pocket any more then what I budgeted.

I had no extra money to come out of pocket so I learned how to rehab a cinder block house. I say in the title it prepared me for everything and it has. I have not done a house since that hasn't been ten times easier.

You will never appreciate how nice it is to be able to cut drywall back, move some plumbing and then patch it, till your forced to remove walls just to move a sink.

Hope you enjoyed, good luck.

Sam

Not sure. If you had to the go the route of a new furnace depending on the type of furnace needed to serve the unit i would think with a annual reduction of $3,000 in expenses it would pay for itself relatively quickly.

What about a monthly budget for repairs, reserves, vacancy, turnover cost? $174 isn't much to handle all these plus a positive cash flow.

Also how many years is the heat cost based off of? heating cost can be a killer for cash flow. Anyway you could require tenants to pay for their heat?

Throwing your numbers into the 50% rule looks like you would net a negative $55/month.

I would ask for the last few years of the P&L. If the annual average of repairs, turnover, etc. costs are anything more then $2,088, based on the other expenses you listed your cash flow is going to be negative.

Margins look a little tight for me. That being said if you can change the heat like a mentioned that could change everything.