I am in a partnership and doing a good amount of work. Well as much as we can handle now. We want to expand and start flipping houses. We do everything from excavation to finishing. But we need an investor to be the money man. How do we find the money man???? We are very good at what we do we just don’t have the capital to start this. please help! Tim
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Last summer I placed an ad in the paper stating I was seeking private party financing to purchase real estate investment properties. I was hoping to borrow money and pay 7% interest. I was hoping to purchase homes and avoid bank financing charges (loan origination fees, doc prep fees, misc closing fees).
I got no responses from my ad in the paper.
Several months later I found a local realtor who "Brokers" these deals.
This guy has people he's worked with for many years and they have money to loan/invest.
I laid out my plan for flipping houses and he told me I would need to be willing to "split the profit" and form kind of a partnership. In other words I would pay for all materials and do all the labor and when the home sells I split the profits.
I got out my calculator and determined I would be money ahead to go to the bank and borrow the money and pay the $2 to $3 K in financing fees.
There are banks who will loan 100% on investment properties. The way they do it is one loan is 80% and at 7 or 8 percent interest and the second loan of 20 % is at a higher interest rate of 10 or maybe even as high as 12 percent interest.
I haven't done this yet buy I'm looking at it right now.
Good luck and I hope you find something that works for you.
,
^^^^^^
"and that's all I've got to say about that"
Addendum:I spoke with a lender two weeks ago and he encourage me to buy my next house - fixer-upper/investment home - and just simply state that I am going to live in the home (as opposed to trying to finance an investment property).I don't know if I'm comfortable doing it that way or not but I'm considering taking his advice.You would not be able to do this if you currently have a mortgage and it's showing on your credit report.-^^^^^^"and that's all I've got to say about that"
thanks for the info every little bit helps. if you find anything else please tell. Always interested.
alternative,
1st things 1st: whether a mortgage is on your credit report or not, if you sign a loan app (Federal Loan Form no. 1003, Pg 4) saying you intend to occupy the home as your primary residence when that is not the case, you are committing loan fraud.
Are you likely to get caught? In truth, no as long as you make the payments. However, a reputable banker/lender/broker would not knowingly allow this.
There are programs out there that work for this sort of thing. If you're credit is good and/or you have a bit of a downpayment (even from an equity line on your own home), there are loan specifically designed for this. There are also hard money lenders (basically, Mr. Big Bucks types) as well as commercial options. Drop me a line if you'd like more info.
Jay
I'm in a similar situation. my father and I own 1 rental property and are looking to buy more, if I can get the cajones.I know we have equity in that building, but would like to borrow well above that to drastically increase our holdings.My next step is to approach our bank (Wachovia) and see if they will play a little as far as how much they will lend compared to value.
Remember, not only can you use the equity in that 1st property for the 2nd rental, you can also use the income from its rental for that next mortgage. What you need to remember, however, is that you can only use 75% occupancy.
So, lets say you're renting the house out for 1000. You pay a mortgage (PITI) of 750 per month. That means, for loan purposes, you're only breaking even on that house. So set your rental rates accordingly.
Jay
Good info. I think it's more than loan fraud, because when you sell a primary residence you can usually avoid capital gains (2 years occupancy), whereas with a flip you pay them. So, it depends how far he takes it.
That's part of the "loan fraud" scenario. You probably won't go to jail if you're discovered (and you don't have a history of white collar crime), but the loan will be called immediately, so you'll almost certainly lose the investment property (and any equity you had in it) and, when the IRS comes calling (on the cap gains), you can easily lose your primary residence.
There are some great programs out there for investors. Find a reputable mortgage broker (not a banker, 'cuz he's only 1 lender; a broker has access to dozens or even hundreds of lenders and, in the interest of full disclosure, I'm a broker and correspondent lender) and get to work. Ethical brokers can be found (among other places, to be certain) at Up Front Mortgage Brokers (you can google it).
Jay
Tim, so far, you've received some good information except for that idea that was planted about committing loan fraud!
Don't put anything on a loan application that isn't true! It's not worth it!
Your idea of attracting investors to fund your projects isn't anything new and there are litterally thousands of sources. It all depends on the deal and the terms you are willing to pay.
Banks and traditional lending institutions are quite often the first source that we think of, but they certainly shouldn't be the last. There can be many "issues" with banks that make them a less than desireable choice: high closing costs, high standards of creditworthiness, personal liability for loans, etc. Sometimes the banks are the logical choices but other times they are impossible to work with.
For instance, if you intend to do flips, that might mean you intend to do a little fixup. You might find an incredible fixeruppper and buy it at a great discount. For instance you find a house that is worth 100k fixed up, needs 10k of repair and you buy it at 60% of fair market value (60k). Banks will normally easily loan up to 90% Loan To Value (LTV) , so you think you're going to waltz into the bank and get a 70k loan to buy the house and pay for the repair. They wont do it. They'll only loan 90% of the 60k! They'll want the deal to be "seasoned", some as much as 12 months to loan the fixed up market value LTV. Also, as an investor, you'll pay a slightly higher interest rate.
If you are currently working with a bank or two, and have a good relationship, you may be able to get them to do a lot more with you using their own funds. These are called portfolio loans and they can basically do anything that they want becaue they don't resell the loans., thus they don't conform to fannie mae and freddie mac guidelines.
One good place to research regarding private investors would be your local REIA office or club. Most larger cities have a local chapter and there's a wealth of information, as well as a lot of hard money lenders crawling around. At those meetings, you will find sources that specialize in funding projects like yours. There is a lot of money out there to be lent and every lender specializes so the key to funding your operation is to find a source of money that fits your business. Sometimes a broker might be your best choice until you set up your own network of money.
What numbers are you talking about and what state/community?
blue
Hey Blue, I am from Butler Pa. Sorry it took me so long to get back to you but work comes first. anyway thanks for the info. I will be working on this. If you think of any thing else please let me know. thanks Tim
Banks have plenty of capital and they like to lend it out on RE
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
Well, sort of. They like to lend it on perfectly good RE that needs nothing. But lending for houses that need fixed is another matter. Seems some fixers don't get the fixing done sometimes and the lender ends up being the fixee. Got it? DanT
That's the reason I won't deal with any more residential properties. It's a helluva lot easier to borrow bigger amounts for commercial properties. Most commercial tenants are easier to deal with, and less of a risk.
Large companies are always looking for lease holders. There are numerous companies that own their own buildings, but are in need of capital. So they sell their building. They are willing to sign a 30 year lease, and pay for all the maintenance. They end up with cash in their pocket, and a monthly lease payment instead of a mortgage.
It's something to look into if you can secure the loans. I did like this, I did it like that, I did it with a wiffleball bat.
Ideally, one could find a private investor who would loan 100% of the purchase price at 7-8 percent interest for a period of a few months or even six months to a year or whatever period of time one needs to buy the property, do the repairs, and then get it sold.I've been told it's nearly impossible to find a "perfect stranger" who will loan money this way and essentially be your "business partner".For the most part you're probably going to have to use either a friend or family member for this type of "low cost" financing.Maybe I'm wrong?.^^^^^^"and that's all I've got to say about that"
I know a couple of guys that have the "golden angel" investor. They both pay premium rates like 10 to 12%. It is worth it to them as they get all the money when the need it with little paperwork or red tape. But it doesn't come cheap. I think both have to pony up a small piece of the profits too. Like 5% or so.
You guys act like investors that have that kind of money, who would be willing to risk it with a private investor, are desperate to go out and make single digit returns. Investors like that have the means to make better returns and do so on a daily basis. The only way you will get to that money is to guarentee them the ability to make more than they could elsewhere. Especially when you are asking them to risk it with someone with no real track record.
The way it all worked out for me is when I hit the point I didn't need the help I have had numerous offers from people who wanted in. My doctor, an attorney, and a couple of well healed types. Frankly you start to realize you are better off when you can call the shots without interference. DanT
I looked into it a couple of times. If you can afford the risk/loan in the upper end then all you say is true. If you can afford the level of commercial property I can swing you usually end up with tennants staying 3-5 years followed by a 6 month to year long vacancy. If you make enough profit that is all well and good but I am a consistant thinker. I want everything I am into making something every month. At least in theory. But if you are positioned well in whatever strategy you choose it will work out. So how many do you own? DanT
Technically I don't own any of them, but I owe on 13 properties total. 5 have structures, 3 occupied. Just getting the feet wet.I did like this, I did it like that, I did it with a wiffleball bat.
Are they residential or commercial? I am just asking if what you said about commercial property is your theory or if it really working for you. I have 2 small commercial properties currently and my fortunes are as I described. DanT
A gotta laugh at this one. There are plenty of people who want to flip properties and fall into two of the three interested groups. The first group is the people who don't have a pot to pizz in, and have bought into the "buy distressed propoerties with no money" hype. The second is the group that has money but doesn't have a crew to do the renovations to turn them over. And then the third group are the GCs, who can do the work but can't buy the properties.
Nobody needs the people with no money. The second group are the "angels" who need the GCs to partner with, just like the GCs need the angels to finance the deal. So it should be a marriage made in heaven, right?
It falls apart for 2 reasons. First, angels and GCs get together based upon personal relationships of trust. And if you don't know and angel, then he's not going to give you money blindly. It's like any other business relationship, you need to trust one another because you are interdependent. Second problem is that both want to make a profit. The angel isn't looking to give you money so you make a profit and he gets a few pennies.
Think about what the Angel can earn on his money if he invests in standard investments, and then think what you can do for him that will give him a significantly better return. After all, standard investments involve little risk, and you are high risk (even if you don't think so). As risk increases, so must return on investment to compensate for that risk.
AND, the angel wants a say in what you plan to do; what house, what reno, what marketing. This is a real partnership, not just a deep pocket for you to pick whenever it suits you. The angel needs to make sure you aren't making stupid decisions with his money. So, the two of you need to get along well enough to make decisions together and be willing to work with each other and compromise when you disagree.
If you can put all of this together, maybe there's a chance you can partner with someone and build a synergistic relationship. Otherwise, go to a bank.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
Good post. Excellent information. I have a friend in another city who is a second generation business owner. His father started the business, did well and is wealthy because of it.
He told me a story a few years ago. He said he approached his dad and said he knew a couple of guys buying brick 6 plexes and rehabbing them. Once done they could get 100% financing on the investment and were looking for someone to finance them for the buy and rehab. They had a track record of having done 2 and needed money for more and willing to pay 15%. His dad chuckled and said "son, I wouldn't get out of bed for less than 20".
He does a fair amount of private financing and apparently does well with it. DanT
Mostly residential. A couple years ago I was going to start building homes, and bought a bunch of lots in a sub division. I'm just kind of sitting on them for now. They've appreciated enough that they are good source of equity if need be.
I made my comments about commercial on semi personal experience. A good friend/mentor owns quite a few properties. He's slowly selling off all of his apartments, and buying up commercial properties. He currently has 70 some apartments, and he says they aren't worth the hassle. He can make just as much on 2 or 3 commercial leases with out all of the BS.
I'm trying to set myself up in a similar situation. I just don't have the credit, or equity, to borrow the 3 or 4 million needed. So I'm just trying to slowly grow my holdings, and equity until the right situation comes along.I did like this, I did it like that, I did it with a wiffleball bat.
I just don't have the credit, or equity, to borrow the 3 or 4 million needed. So I'm just trying to slowly grow my holdings, and equity until the right situation comes along.
I'm in the same situation Dustinf. I'm also trying to grow my holdings and equity till the right situation comes along. But, maybe more importantly, I'm trying to grow my list of potential investors, so I can accelerate that timeframe.
No one will find willing investors, unless they are sought. When you start to look for potential investors, the idea seems daunting. When you realize that you have someting to offer, the task doesn't seem so large.
The consensus seems to be here that it will take "a lot higher interest" to entice an investor and that is true. That's the fun part. You get to design deals to help your investors make MORE MONEY!
That wise old saying, "you make your money on the buy" is true, but there's another one that shouldn't be ignored:
If the interest on your loan is going to break your deal, maybe it's not really a deal!
blue
You bring up an interesting possible cycle. Most things are cyclical. The residential rental business has lost some luster recently and a lot of people are getting out and into commercial.
So when will the cycle go back to residential being better than commercial and how can you get ahead of that curve?
Maybe now? Buy in when others are leaving? Corporate business today measures everything by the size of the silver dollar.
So when will the cycle go back to residential being better than commercial and how can you get ahead of that curve?
I wish I knew.
Locally, large rental companies are buying up all apartment buildings/complexes. I was talking to a guy yesterday, he and his 2 partners, own over 1,200 units. There a 2 other local companies that own over 1,000 units each. They are bidding on almost every multi-unit property, and with their buying power they can out bid almost anyone.
They advertise in all the local papers, and with 1 phone call renters can look at properties all over the city. Plus, the companies employ large maintenance departments, that can repair almost anything immediately. They also have large contracts with local snow removal companies, and receive cut rate prices for plowing and salting.Speak the truth, or make your peace some other way.
Sounds like they think that buying residential now, while others are getting out, may be getting them ahead of the curve.
For an individual like me I would not want the hassle of a large complex but there are some advantages.
I still think that residential rentals can be good. I don't sell. Only buy, fix, rent and hold. The stuff I sold over the years; wish I had it all back.
Corporate business today measures everything by the size of the silver dollar.
>>"So when will the cycle go back to residential being better than commercial and how can you get ahead of that curve?"
Right now, commercial is farther along than residential in the cycle. Now is not a bad time to look at residential for properties not on condo converters' radar.
Around early fall, residential went into the recovery phase (although the "experts" have been saying the same thing for the past couple of years, so sounds more like a weather report than anaysis).
http://realtytimes.com/rtcpages/20050804_marketrecovery.htm
http://www.realestatejournal.com/buysell/markettrends/20051006-corkery.html
http://www.nmhc.org/Content/ServeContent.cfm?IssueID=596&ContentItemID=3756&siteArea=Topics
http://www.grubb-ellis.com/PDF/natmrkttrnd/markettrendoffice.pdf#search='rental%20market%20recovery'
I'm very heavily into residential, though, so I have a bias. Office market always turned me off 'cause you get long leases, but also long vacancies when a tenant leaves.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
A few years ago we bought an interest in a small 16 unit complex inside the loop in Houston. The rents were low and tennants were long term. Maintenance had not been deferred too much at the time and we have caught up on all of it now. Rents are still low compared to the market but costs are very low because of no turnover.
I would not have been interested except for the location of this complex.
We've had opportunity to sell it several times but we still believe that the location will just keep getting better. Recently a large family tract nearby has been put on the market. Tract has been in the same family for over 50 years- an eternity in Houston RE market. So there will be some positive activity in the area.
I hope I can prevail on my partners to hang on to it.
Corporate business today measures everything by the size of the silver dollar.
Reminds me of the big one that got away a few years ago (big for me, anyway).
6 unit building literally just outside the edge of a hot neighborhood. Owned by a partnership of commercial RE lawyers who had already filed all the condo documents for it. They decided that the smart money was to get out of RE and into stock 'cause the stock market was down (I don't know how they came up with that, but that's what they wanted). They were asking $450k. I and 5 other "investor" types went to the broker's open with their realtors the day before it was to hit the market. All six put offers in. I valued the building at the time at $900k and change. I offered $625k contingent on commercial financing (I don't have that kind of cash). Next best offer was $600k all cash. I didn't get it -- they preferred the cash (can't say I blame them)
Not too surprisingly, the hot neighborhood spilled over the edge by quite a ways now. The buyer is selling off the condos individually in the range of $200k to $250k each and most of them are already sold. The only thing the building needed to ready the units for sale was to replace a couple of roof decks that were rotted.
Moral of the story -- if the area is on the way up, positive activity, whatever the factors are that make it make sense to hang on, I agree 100%, hang on for the ride.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Edited 3/23/2006 7:59 pm ET by philarenewal
Don't feel too bad about that. They probably just were in a bind for cash.May have even taken less just to get the green up front.
The biggest problem I have is that I can buy (almost) anything I want; but I can't buy everything I want.
Most people have the same problem. It's really a bigger problem than most of us want to admit.
I was passing thru a small west Texas town last year and saw a for sale sign on a lot in the 'downtown' area. They were wanting $28,000. Had seen it for over a year. Right on the highway but the town is pretty dried up. Obviously has not had much recent economic activity. Lot was deep with about 120' frontage. Total taxes are $580 a year. The thing that made me really want it is that it came with 100% minerals. I was very surprised. We talked back and forth and we finally areed with the seller getting a surface lease for $500 a year for 5 years to store some pipe and equipment on it. It was a good buy for serendipity. I paid a net to him of $10,000 cash. I paid all the closing costs and fees.
Later I was in San Antonio and ran into a guy with a real clean '67 Mustang he wanted $10,000 for. This car was in excellent shape and in the short term anyway would be a lot more fun than the lot.
Corporate business today measures everything by the size of the silver dollar.
depends on location and your own track recordwalk in cold and unknown or try to borrow for property in the worst part of town...got it?
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
You are right if you have a solid track record. But these guys are talking about just having a few under their belt. Not enough to catch a bankers attention enough to get them to bend the lending rules of the home office. With a good relationship, assuming your banker stays put long enough, many good things can happen. I got it. DanT
We good then - yeah, those bankers are all Yumpies nowdays. Hard to get them to sit still
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I saw this on the news last night and found it interesting.
http://www.prosper.com/public/welcome/default.aspx
I have mixed feelings about it, but with enough success using this first, you might approach a bank with a proven track record and get a better rate.
Kevin
Aside from avoiding fraud charges, another important consideration for a rehab is casualty insurance. If you don't tell the insurance co. it's vacant, your grand prize is no casualty coverage after usually 30 days of vacancy. If you do tell them it's vacant, your grand prize is rates about 2 to 4x the "normal" rates.
On the liability side of an investment prop., if you will hire subs, make sure you tell the ins. co. that too. If there will be anyone working on the site other than the named insured (which can be you, or your company or you and your partners if you do it that way), you have to make sure you are covered if they get hurt and sue you. You don't necessarily need a wc policy, you just need to be sure your liability policy will cover you if someone on site gets hurt and wants to tag you for it. If the people on site could be considered your employees, then you do also need a wc policy.
When they offer you the optional terrorist coverage for an additional premium, best approach is to ask "are you kidding me?" ;-)
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
I've been doing RE investing for several years now. My 2 cents/random thoughts.
Everyone and their bro has gotten into it and created a seller's market for distressed props. I think that should change though as all the easy mortgages out there foreclose in the near future.
There has been alot of Flipping fraud which has caused the gov. to crack down. You may have a hard time reselling a house if you've only owned for a short time-certainly to an FHA or VA buyer.
Remember the #1 rule of investing, you make your $ on the purchase, ie. buy it cheap.
Plenty of investors have gone belly up around here-don't even think it's a sure thing.
Your accountant might be able to connect you with an angel investor.
Jon
Just a thought for you and a couple of questions. I'm aware of a situation right now where an investor bought a house and he did all the repairs himself and he's trying to sell the house. The numbers are not going to work on this particular house. He paid too much for it.One mistake many people make is they don't realize these homes "max out" in their sale price. There is only so much a 3 bed, 1 bath, 1 car, 1200 sq feet home will sell for. People assume they will sell it for considerably higher as the home has a new kitchen and bath and it doesn't work that way.In my example above, the carpenter/remodeler would have made far more money had he just gone to work day to day doing carpentry work and gotten paid fixing others people's homes.There's nothing worse than putting many weeks and months of money and hard work into an investment and when it's done it doesn't sell. The weeks and months go by you're paying another couple of hundred or more each month in holding costs.My question for you is how are you going to find the houses to flip and also how will you determine how much to sell the home for?Again, I'm just trying to be helpful and I wish you luck and hope it works for you..^^^^^^"and that's all I've got to say about that"
"People assume they will sell it for considerably higher as the home has a new kitchen and bath and it doesn't work that way."
One of the comedy statement I hear is someone saying they put a kitchen and a bath in a rehab. What new investors fail to remember is people expect a house to have a nice bath and kitchen. So they are not as excited as the investor that it is new. DanT
>>"One of the comedy statement I hear is someone saying they put a kitchen and a bath in a rehab. What new investors fail to remember is people expect a house to have a nice bath and kitchen. So they are not as excited as the investor that it is new."
Steady there Dan. Depends on the market. As you approach the higher end, it makes a big difference if the kit./bath/mechanicals/roof, etc. and a lot of other things are new. If you're talking low end or rental, then yeah, who cares.
My advice to the OP is to develop a relationship with a good local realtor. I've been working with the same woman for over a decade and I practically don't make a move without her. She's made me a lot of money over the years by knowing what's growing, what's selling, what's a waste of time, etc. Every market is different.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Certainly new beats bad. But what I am saying is that many investors believe that is the end all as far as the property bring more than the neighborhood comps can stand. Even if someone agrees to the higher price unless they are the rare cash buyer they can't get it appraised for enough.
All markets are different I agree. Otherwise I couldn't buy a house for 10-20k daily when in Calif they pay 250k plus minimum. But the principles still apply. Over investment for the market leads to money loss. A good realtor is invaluable. But finding one that understands investment real estate is a true find. DanT
The point that I was trying to make is that sometimes beginners think their house will sell for a lot more because "everything is new!" or "this home could be on HGTV!" or "this house could be featured in a magazine!"Let's say the avg 3 bed 1 bath 1 car sells for $100 K and Joe Schmoe investor buys one of these and puts in top of the line kitchen cabinets, high dollar countertop, high efficiency furnace, and new high dollar 50 year warranty roofing, etc etc etc.He gets out his calculator and then sees that he has to sell the home for $125 to make a profit and he assumes his house will sell for that because it looks so good it could be in architectural digest.Sure his home is better than those priced at $100 but what he finds when he starts competing with the other homes priced at $125 is that those homes have two bathroom or two and a half, and those homes have a two car garage where his home has only one, and those other homes have a basement and his doesn't..^^^^^^"and that's all I've got to say about that"
Steady there Dan. Depends on the market. As you approach the higher end, it makes a big difference if the kit./bath/mechanicals/roof, etc. and a lot of other things are new. If you're talking low end or rental, then yeah, who cares.
I don't think that's exactly what Dan was saying. But as long as we're there, I have 2 cents to add. A lot of speculators, especially on high end housing, don't understand what their buyers are looking for. True also for a lot of real estate salespeople, who talk like their millionaires but (guess what) they ain't. Understanding your target buyer is crucial to getting a return on your investment, and shooting too far above your head can backfire.
And, even when you do sell a house, ever find out afterward that the buyer tore out what you just put in? Happens all the time in high end housing, because they have the money and your choices aren't theirs. There's a lot more to it than slapping in a new, shiney kitchen. Even with stainless steel appliances.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
Yeah, whatever. I thought Dan was being a smart a$$ by saying it's basically stupid to put in new stuff in what's there is already OK. In my market, new gets a premium of roughly 30%. Typical 1400-1500 ft.sq. house goes for about $550k to $600k. 2500 sq. ft. and up, the sky's the limit. If you leave it as is, I don't care what it looks like, you will not sell it for those kind of numbers.
Peace.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Nope, nothing in my response was intended to be funny or condescending. I live in a market where the usually rehab sells for 30-40k. Fixed up it brings 80-100. So if you take a decent kitchen and do a gut rehab you will struggle to make money. In your market it might work out fine.
The BBQ house I posted has a new kitchen. That was because I couldn't save the old one. But frankly I don't know anyone doing flips in the price range you are talking about. Do you do them at that price level? On a regular basis? DanT
>>"Nope, nothing in my response was intended to be funny or condescending."
My mistake then.
>>"But frankly I don't know anyone doing flips in the price range you are talking about. Do you do them at that price level? On a regular basis? "
Done one just about every other year since Dec. 1996 I think it was. I wouldn't call them flips. More like gut everything except details worth saving then rehab. I'm working on one now that had to be squared to the walls (in case that's a local phrase -- been gutted leaving nothing but the roof, the brick walls, and the joists so the houses on either side don't fall into the basement). The prices are where they are over the past few years. It's been a steady price climb since the mid 90's, just a lot faster climb lately. But yes, just this August, I finished a 1450 sqft house on a 768 sqft lot that brought $525k. Comps were $569k but I took the lowball offer so as not to be greedy and end up owning an empty house over the winter (bulls and bears make money, etc.). Within two weeks after closing on the sale of that one, I closed on the buy of the next one (900 sq ft two story "starter" type home expected to bring roughly $350k when it's done). Presently jerking around with architects on the plans (even a tiny house in the city needs the archy's stamp depending on what you're doing)
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
I am always amazed at the pricing in big areas. But more so the profit available to be made. You have my envy for the week.
Here most guys I know that do this will brag about making 50k on one. Most of the houses I have sold brought me about 20k or so. The only ones I have made more on were the ones we lived in and then sold, with the great tax advantage of owning vs investment. DanT
I'm just a typical knucklehead who has gotten lucky more than my fair share.
The guy to envy is a buddy of mine -- converts warehouses into condos and has done a bunch of them. Want to talk about upside, it's almost surreal. One example -- buy warehouse for $250K, spend just over $1 million on condo conversion (a bit less than $100k/unit), sell converted building for $2.5 million. The real big boys doing high rises are doing even better.
The real estate boom has got to stop sometime, though, and I keep my risk at a level that allows me to sleep soundly every night. I still do renos, framing when things are slow, and property management. When the music stops, I've got to know I have a way to ride it out without crash and burn.
When you say $20k to $50k profit, what is the time frame? If you can knock out a bunch of those in a year, lot less risk on each one than making a killing on "the big one." For the rehabs I do here, by the time you get the permits through the city agency maze (zoning board, historical commission, licensing and inspections dept.), finish the construction, and sell the place, at a minimum close to a year goes by. If there weren't a decent buck in it after a year's work, and a year's worth of a good chunk of capital at risk, it wouldn't be worth doing.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
You will hate this then........we don't do permits or inspections except sewer pipe and water heaters.
Guys that do a lot will do 3 or so a year. I do one a year or two. We have been using them as filler when we have a spare day or two between jobs. I used to just fix them up and rent them but lately have been trying to sell them. But I agree with trying not to be over exposed. I self finance and often self insure to keep my costs down and profit up. We are also able to use a lot of material removed in our remodeling. We keep only above average stuff but you know a lot of folks (fortunately) throw out some nice stuff. DanT
No permits required! If only. Here whenever I think of no permits required I know I'm dreaming and promptly wake up.
$20k to $50k for your between jobs time sounds like good money to me and I bet your crew appreciates the work. I don't use a lot of stuff from the remo side (no good place to store it so unless it's worth paying to store it, I have to toss it), but I get some good design ideas from that end which is a bonus I guess.
Anyway, wish you the best with it. Be well.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Same to you. The neat thing about this site, all the things you learn about others business. DanT
Typical 1400-1500 ft.sq. house goes for about $550k to $600k. 2500 sq. ft. and up, the sky's the limit. If you leave it as is, I don't care what it looks like, you will not sell it for those kind of numbers.
one of the problems with these discussions is that markets differ according to where you are. You're in Philadelphia, a east coast urban market where small splits go for a million, buyers are regular people stretching to keep up with housing costs and they're maxed out from the purchase. This is a different group. So nobody's saying you're wrong; we're all talking about somewhat different things and taking for granted that everybody is thinking the same thing we are.
I started with restoring old manor houses on Long Island. Bought houses with great bones that were either neglected or butchered. Recreated what should have been there, which more often than not involved making them "old" rather than new.
The discussion here has made a number of good points: Don't overbuild. Don't underbuild. Don't buy high and expect a right to a good return. Know your market and think like a buyer. Don't expect an angel to give you money unless you're prepared to share your profit. And if you want to sell for a million, give them what a million dollar buyer expects. Nothing wrong with any of this advice.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
>>"Bought houses with great bones that were either neglected or butchered. Recreated what should have been there, which more often than not involved making them "old" rather than new. "
I pretty much do the same thing. In my market, buyers want old world charm and details, but with nearly everything brand new, no maintenance, no charm of imperfection. The "instant gratification society" is willing to pay a hefty premium for a place that's new, done, beautiful and ready to move in without lifting a finger. Thar's money in them thar hills! ;-)
>>"Don't overbuild. Don't underbuild. Don't buy high and expect a right to a good return. Know your market and think like a buyer. Don't expect an angel to give you money unless you're prepared to share your profit. And if you want to sell for a million, give them what a million dollar buyer expects. "
Agreed. Good advice.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Edited 3/10/2006 9:31 am ET by philarenewal
"Remember the #1 rule of investing, you make your $ on the purchase, ie. buy it cheap."
That statement can never be said enough. In our town of 40k I used to look at 30-50 properties a year, make offers on 10-15 to buy 1 or 2. Simply because any money you pay now you will never recover later. Buying at the lowest possible dollar is the key. DanT
BINGO!
I couldn't agree with you more.
All the money is in the purchase.
And being able to say NO. - on this one.Remodeling Contractor just on the other side of the Glass City
Join/start an investment club amongst friends?
There have already been a lot of good comments and excellent info but I thought I'd throw out a couple of more things. When you enter the world of investing you'll have to make some decisions about the quality of your product and how much money you're going to spend on each home. You'll also have to look at what your competition is doing and the quality of their work when they flip a house.Here's an example.You're looking at a fixer upper that sat empty for six months after the former owners moved out in the middle of the night. The pipes froze and now there's some mold in the basement.Your competition will buy the house, paint over the mold, and move on to the next room. When they sell the house they will not disclose the mold issue. What would you do? Do a quality job? Spend mor than your competition to do it right? Would you disclose the mold when you sell the home and take a risk you will scare away a potential buyer?Next house.You're looking at a house with loose ceramic tile in the shower. You can tell by looking that water has gotten behind a lot of the tile.Your competition will fix this by going to home depot and buying a $39 plastic shower wall kit which will be glued on top of the ceramic tile. They've done a lot of these and they can fix this shower in 3-4 hours.What would you do? Would you gut the bathroom, install the proper materials, install new ceramic tile with the proper underlayment, purchase a high quality faucet that will last for many years?What if it takes you a week of your time to fix the shower properly? Would you spend $500 more than your competition to do the job properly? Maybe even $1,000 ?The list goes on and on with these types of scenarios. You'll have to make these decisions on a daily basis as you watch your competition outbid you, buy the home and pay too much, then cut corners but in the end make a profit on the home that you were unable to buy because your bid was too low.^^^^^^
Numerous good points. The more quality oriented you are and the more you care about the type of product you are putting out on the market the tougher it becomes to buy "right".
We had a local remodeling company in our area start buying houses in the early 90's. They rehabbed them to minimum standards as quickly as possible and sold them at a premium price. As the market got more competitive and the prices went up they actually would fly an appraiser in from another city that has much higher market values than we do and have her appraise the properties well above there actual values. Then they would work with an out of state lender that also was accustom to high values and they would lend the money based on the provided escalated appraisel.
This was done I would guess 80-100 times. Most of those properties are now in forclosure. I have bought a couple. So it shows you what level I guess you can stoop to in order to make money and keep the "good thing" going. DanT
everything should be thought of on a cost-benefit continuum. Some things, the mold in the basement for example, will have a cost to your reputation if you hide it.
As to material costs, there is a tipping point where you go from getting a worthy return, whether directly in price or indirectly in faster sales, to getting little or no return. My experience is stay away from odd, very high priced, very dedicated (as in color or design) since they may seem nice to you but may not appeal to buyers. On the other hand, use good quality on standard items like windows and doors and hardware that is appropriate to the value of the house.
It's all a matter of what and where your market is. There's no one size fits all answer. But at least you have a way to measure. Ask yourself, does it pay me back or not. If not, then follow Nancy Reagan.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
The way I was brought up was do everything the way you would do it for yourself. and I have maintained this procedure my entire time. That is how I get my work. Sometimes I have to bit the bullet and suck it up but in the end I maintain my rep and have a good word about my work.
not to date with how that works? fill me in on some details please.
once the wife returns to work we're hoping to join or start one ourselves.It's basically a group of folks that pool their money and time into group investments. Typically, an s-corp is formed with monthly dues. These dues are the capital that is invested.The idea is to work with a group of friends that come from diverse education/industries/backgrounds. This allows invididuals to research investments in their area of expertise.So, you could form a club or join one, and you'd probably be the expert in residential real estate investing, for instance.
Darrel, that sounds like an interesting idea. My first instinct is to challenge the idea that an S Corp is the right choice of entity though. Beware of possible Blue Sky (securities laws) requirements too.
blue
We had an interesting call today. One of the investors that we have in our fold called us and complained because he's got 150k to spend and it's been sitting in the bank for 4 days. He's already got plenty invested in his 401k in the stock market and he wants this cash in real estate in some way. He's anxious to put it to work and wants us to find something fast.
There are a lot of people that don't belive that they can line investors up but once you start looking and talking, you'll find a lot of money.
blue
Do you have your real estate license? Couldn't you make a few bucks if you could answer the phone and say something like "you've got $150 K to spend - I think I might have something for you to fix and flip....here's the address let's go take a look"^^^^^^
"The Older We Get, The Better We Were"
Mr Fixitusa, We fully intend to find some way to put that cash to work and we don't need a real estate license to do that.
We discussed fix and flips today, as well as foreclosure, or foreclosure fix and flips. We might do something like that. Our market here is so fickle (depressed actually) that we just don't know which way to go. Personally, I'm thinking out of state but Frank wants something immediate that will produce some sort of cash flow. The fix and flip would provide that but we would prefer to work on new stuff.
One last thing...were not looking to make a "few bucks". Were looking to make 40 to 50k while paying out 10 -15% on that cash.
The real estate license wouldn't help us much. I'm not interested in sitting through the classes and I know Frank isn't either. His mother is a licensed agent and if we really need to we can press her into service.
blue
I was thinking a real estate license might open some doors for you.I spin my wheels and try to find a bargain here and there and many times I'm banging my head against a brick wall.A year or so ago I was monitoring what is for sale in the MLS system and I was looking at what had sold in the past 30 days.I noticed that a group of 10 homes had sold on the same day.I noticed all 10 were listed by the same realtor who handles bank repos. The home that sold were all bank repos.I noticed all 10 had been SOLD by the same realtor - (a different realtor).I wondered how the selling agent had sold all 10 houses on the same day and I called him.He indicated he was working with a group of investors and the group had bought all 10 homes from the same bank.These were 10 homes priced in the 80,000 range.They had been able to purchase these homes for about 60,000 each.These were nice newer homes and not the trash I look at with the broken windows, cockroaches, used condoms laying on the floor, mold, dead animals, horrible smells, and trash and debris througout.I cried when I saw how much money they are going to make from this one deal. Apparently the bank gave them a good price on all the homes as they were purchased in volume or in "quantity".I realized I'm just one quy and I'm no different than any other small time investor and we're like a bunch of rats fighting over one small piece of cheese.I guess my thought was with your knowledge and expertise you might as well be the person who spends a few minutes writing the real estate contract, making s few phone calls, going to the termite inspection, and then collecting the three percent fee at closing.As a Realtor you will have access to whats for sale and what has sold and there's a wealth of knowledge there.What's wrong with that?^^^^^^
"The Older We Get, The Better We Were"
Nothing wrong with that Mrfixitusa. I already have acess to the MLS so that wouldn't be a benefit.
The 3% is a factor, but not if I have to pay rent at somebody's office.
The idea of buying foreclosures in bulk is an angle I haven't thought of. I might look into that.
blue
I really disagree with your viewpoint. Not that it will end your world or ruin you day lol.
I believe that real estate is still the one place where an average guy can start with little and end with a lot. You may not be able to buy the 80k houses 10 at a time currently but working toward that there is no reason you can't in the future.
Further I have never wanted to buy a house and not been able to find one in 30 days or less. One that was a deal and a money maker in the manner I wished to make money. And I live in a small (40k) town where large numbers of houses available are not part of the deal.
Have I been out spent, out manuvered, beat to the punch, or simply tricked. You bet. But I have always been able to buy something I could make money on when I wanted to. I wished that were true with contracting. There are some dry times in this business I simply can't control. DanT
I like your attitude.
You only lose if you give up. Get beat on a deal, there's another around the corner.
One inspiration for me had always been the Colonel Saunders story (yeah, chicken). The guy would just never give up, tried everything and kept trying. Finally in IIRC it was his mid sixties, made a fortune franchising KFC. But anyway, he succeeded 'cause he would just keep trying no matter what.
Do that and something is bound to hit (and hit, and hit). ;-)
"Let's get crack-a-lackin" --- Adam Carolla
" I'm thinking out of state but Frank wants something immediate that will produce some sort of cash flow. The fix and flip would provide that but we would prefer to work on new stuff. "
Guess it's just me... I prefer if i can... to have everything i own on my normal paths...
"out of sight out of mind" it doen't always work... i have stuff in 3 states but... I prefer to be able to pass and look at it... it's what got me mostly out of the stock market.. I like to see my stuff...
I've had rental property since i was 17years old... it hasn't always fed me but it can sure make a Financial Statement look good.. and THAT is what banks care about... It's why i hate to sell anything without buy'n 2 for each one that i sell...
p
Ponyti, I don't intend to own stuff in another state. I want to leave this state and go somewhere where the economy is imrpoving, not imploding.
blue
Where are you based?
Hey Mike I am out of Butler Pa.