All Forum Posts by: Owen Dashner

One more thing to consider doing is putting a spreadsheet together with most of the commonly used materials in a rehab (stock replacement windows, doors, drywall, lumber, stock cabinets, carpet, tile, light fixtures, and so on). One column with the name of the material, and three other columns listing prices for economy, standard, and custom types of materials. If you are really ambitious, have another column with the SKU #.

Once you have your list put together, spend a full afternoon walking through one of the local big box stores in your area (Lowes, Home Depot, Menards, etc.). Take your spreadsheet printout with you and write down the pricing info for each material item. You can also look online, but I find it's easier when you can physically see and touch the items.

After you have completed this exercise a couple times, you should have a really good idea what your material costs will be for most aspects of a rehab. The other half of the equation is your labor costs.

When you write your purchase agreements, make them contingent upon an inspection (make sure to allow yourself enough time to actually have it inspected). After they accept your initial offer, then make your GC inspection appointments. See if they will give you both an "all-inclusive" bid and a "labor-only" bid. Once you get your labor-only numbers, just add them to your material cost spreadsheet and you should have a pretty good idea on what your total costs will be for each rehab task. Labor-only bids will also allow you to compare apples to apples on GC bids related to specific tasks.

If there are some unexpected repairs uncovered during the inspection, this is your opportunity to ask for concessions from the seller. Use your GC bids and materials spreadsheet as ammunition for getting the lender to drop their asking price.

Obviously these tasks take time and effort, but once you have done it a couple of times it becomes much easier and faster.

Good luck!

Oliver,

I have a small handful of SFH rentals in Omaha, and I'm sure you are experiencing the same lovely weather in KC that we are (a high of ZERO tomorrow!)... I just had to replace a furnace in one of my rentals for $2K yesterday. Poof, there goes my cashflow for the year on that property. I'm mentioning this because the property you buy may not appear to need any repairs now, but you never know when a bigger-ticket item will reach out and bite you.

Over the long haul, your operating expenses will likely average out to 45-50%. But any one property in any given year could have a couple of one-time capital expenditures that will completely blow up your planned cash outlay for the year.

So make sure you are giving yourself enough of a cash cushion just in case. If $5K is the max you have available (I wasn't sure if that was your max for the downpayment, or the max cash available total), be very cautious about plunking it all down on just the purchase.

You might consider wholesaling a couple properties and/or partnering with someone to generate some cash before acquiring a rental to give you more room for error.

Roc,

Bronchick's book is a good read as well, but I have read several on flipping (including Flipping Properties by Bronchick) and still believe that FLIP is superior to most others out there.

As Jeff mentioned, Bronchick's book is more concise, but that doesn't necessarily mean it's better. Flipping a house is a very involved process with many steps and moving parts. FLIP is more descriptive, current (the copy of Flipping Properties that I own was copyright 2001), and comprehensive.

Keep in mind that "flipping" a property can mean different things to different people. FLIP is based on current tried and true system of buying, rehabbing, and selling houses (it's not about wholesaling, assigning contracts, etc.). I found the breakdown on costs helpful, as well as the step-by-step walkthrough of the typical tasks of the rehab process- outlined in order.

I personally did not feel like I was being sold a product while reading it. The authors are two guys who are a part of Homefixers, which is a buy, rehab and sell franchise. I felt I was reading an outline of how to duplicate the process used by a successful company with experience completing 1000 flips. If they plugged Homefixers a bit, so be it. It's still well worth the money, IMHO.

Do I have 100 rehabs under my belt? No. But I have done several myself and can tell you that I still learned something by reading the book.

With all that being said, both books are definitley worth including in your personal library. ;-)

If you are considering rehabbing the property and you are estimating $20,000 in repairs alone, then your offer needs to be a lot lower than $72K. You have to factor in all of the "quiet costs" as well. Realtor commission, closing costs (acquisition & selling), utilities, dumpster rental, taxes, insurance, and interest payments are some of the things that will eat away at your profit.

Get some really good retail comps (not Zillow or any online estimate) by physically walking through similar properties in the area, and have your realtor pull recent sales. Look at how long the comps sat on the market and price per square foot, and factor that into your calcuations. You will want to price your completed rehab property slightly less than the current comps to ensure that it sells quickly. After you arrive at your eventual sale price, subtract your rehab costs, carrying & quiet costs, and desired profit. The number left over should be your maximum offer.

With all that being said, if the property needs extensive repairs, I would probably not recommend starting out with it as your first investment. On my first rehab REO property, I made the classic mistake of underestimating costs, and trying to make a good deal out of something that simply wasn't.

Also, If you are looking primarily at REO's, you definitely don't want to fall in love with any particular property or you will get frustrated and disappointed. Keep several going at once and make some lowball offers with an inspection contingency. REO deals typically take a LONG time to come together, so just do your due diligence and try not to get too excited when evaluating any one property.

Just my $.02...

Good luck!

Hi Kenneth,

Congrats on getting started on your investing plan!

It sounds like you are in the fortunate position to be able to spend some meaningful marketing dollars. I agree with Mike, the real deals are definitely not found by searching websites.

Based on your situation, I would put together a marketing plan in addition to "beating the streets", joining/starting an REI club, and general networking. Call all the FSBO's in your area and find out what the asking prices are to further flesh out your market data. Call landlords that have vacancies and ask if they will sell.

Get some nice business cards together and give them to people. You could start a website with your business model and implement some online marketing. Start a letter or postcard mailing program for your target areas. Use bandit signs and flyers. Put a recurring "We Buy Houses" ad in your local paper and pennysaver publication.

I'm sure there are lots of things I left out. But the point is, you want to get to the point where motivated sellers are contacting you, not you having to constantly find them.

Doing all these things will take a lot of effort, but anything worthwhile always does!

Best of luck!

I have tried to make it a practice (recently) of giving something away whenever I have come into some unexpected cash. I realize that I could do (should do) more, but I guess you have to start somewhere.

A few times I have paid the gas tab of the person behind me at my local gas station (without them knowing it was me). This time I tried something a little different.

Recently I got a little unexpected chunk of change from my employer and decided that I would give $100 of it away to complete strangers. So I stop into the Dollar General store in my town and buy four $25 prepaid Visa cards.

A nice older woman walked to one of checkouts at the same time as me and insisted that I go ahead of her in line because she had several things to buy and she saw that I only had the Visa cards. So I pay for the cards and then I stick one of them in her shopping cart and say, "Thank you for being so nice." She thanks me and says, "You don't have to do that!".

As I walk around past the other checkout, a woman is trying to pay for her groceries, but her credit card isn't working. I hand her one of the $25 cards and say, "Here, try this one", then I walk out of the store.

As I am in my car pulling away from the store, the second lady comes running out waving her arms to get my attention. I roll down my window as she approaches. She says, "Thank you so much, mister! You have no idea how much that helped me- it has been so hard recently for me and my family." I was a little humbled and didn't really know what to say, so I handed her my two remaining Visa cards and said, "Well hopefully this will help you even more."

At that point she exclaimed, "Oh my goodness! You are like an angel! AN ABSOLUTE ANGEL! Thank you so much!", and ran back toward the store shouting and waving the Visa cards in the air.

I drove away from the store with a HUGE smile on my face and it stayed there until after I got home. But it got me thinking that I am not doing nearly enough for others that are less fortunate than me. I mean, if $25 can affect a woman's life so much that she would literally run after me to tell me how much it meant to her- then I could be doing a helluva a lot more for others.

This was a bit of an epiphany for me. I am a bit young yet to be worrying about my legacy, but I can only think of a few times in my life where I have felt as good about myself as that day at Dollar General. Hopefully someday I will have enough to give to truly make a difference.

So what have you done to pay it forward? What has been your most rewarding philanthropic moment?

Courtney,

It would not be advisable to do any repairs whatsoever until you actually own the property. Any number of things could happen before closing that would put your invested time and money at risk.

If you are concerned about not having enough money for both the downpayment and repairs, you will need to get creative. Assuming that the numbers still make sense for flipping, I would suggest looking for seller financing and/or subject-to situations to minimize your out of pocket costs at closing.

The two authors are owners of Homefixers and have done or been involved in over 1000 flips. They have the entire process of finding, analyzing, buying, fixing and selling down to a science.

They break down the rehab process into fifty manageable steps and outline when each occurs and which type of contractor would be needed for each step.

The steps are then broken out further with associated costs for typical pieces (i.e. kitchen remodel, bath remodel, etc.) of an overall remodel project according to the quality of material used (basic, standard, designer and custom).

My favorite part of the book so far has been the breakdown of a flip from a cost perspective. They have broken out all the typical tasks/repairs involved as a percentage of the overall budget, and as a price per square foot. For instance:

Interior paint (two-color) job for a standard finish-out could be expected to average $1.50/sq ft. with a 7% overall cost vs budget. Cabinetry (standard stock oak, installed) would average $2.00 sq/ft with 10% costs of the overall budget. And so on...

Aside from the budgeting/estimating breakdown, there is a ton of other great info in the book. Finding deals, developing a scope of work, formulating your maximum offers, what % minimum profit to expect on each project, etc.

All in all, an outstanding book with a ton of data and very well written. I have an REO under contract right now that I will be flipping and plan on applying some of the info from this book into my project.

I just picked up this book yesterday and can't put it down! Probably the best book on flipping houses I have ever read.