Kathleens points are good except #13.
Never, ever ‘LOSE’ money on a rehab.
You make your profit when you buy the property. Fix it to make it livable then paint and carpet then sell, nothing fancy. Worst case scenerio, rent it out, never sell it for less than you have in it.

Here’s what happened to me. In May of 2006, I bought a foreclosure house in Houston and planned to “flip” it with 2 friends. One friend was providing half of the money for the remodeling (I was providing the other half) and the other friend was a plumber and all-around handyman so he would do many of the repairs and would deal with the contractors. This whole flip was a disaster from the get-go for a multitude of reasons.

I purchased the house for $90,500 and our budget for repairs was $15,000. The schedule was 1-2 months. One month into the flip, the plumber partner was diagnosed with colon cancer and with the resulting surgeries and chemo, he was no longer able to help with the house. Because we had to hire out so much of the work, our repair costs skyrocketed to more than twice our original budget. My other partner ran out of money so instead of investing 50% in the repairs, she has invested about 30%. Instead of it taking 1-2 months, it took 6 months. We then ended up with an unmotivated realtor so the house sat on the market for a couple of months. During all of this time, I’m of course paying the mortgage, taxes, etc. We finally decided to rent the house to a young couple who ended up being deadbeats that we had to evict (and they still owe me 4 months rent). And they trashed the place on top of it! More repairs, more time. Now it’s back on the market and we’re hoping for a sale soon. Our total investment at this point is about $135,000 and it’s listed for $124,500. We’ll still have to pay realtor fees once the house sells so obviously we’ll have a significant loss on this house.

So, what have I learned?

1. Expect things to take twice as long and cost twice as much as you originally think. If that doesn’t happen, great…but at least you’ll be prepared.

2. Don’t go into business with a friend unless you’re OK with losing that friend. One of my partners and I didn’t speak for months because of this flip.

3. Know your market inside and out. I don’t live in Houston but one of my partners did. She didn’t do the research so we ended up with a house for sale in an area with a bunch of foreclosure, which means that there are tons of houses on the market.

4. Always expect the unexpected!

So, would I ever “flip” again? Surprisingly, yes. But from now on, I’ll stick to my own market and do my homework first instead of jumping headlong into something thinking that it will be “easy.” I’m still proud of the work we did on the house but can’t wait until it’s sold. For anyone that’s interested in seeing the before and after pictures of the house, they are at http://www.cdjdolphinflippers.com.

Denise

Tubby great pointers !!!

- Richard Davis 7/27/2007, Charleston

1) Understand the comps for the area BEFORE purchasing the property. You HAVE to know how quickly homes are selling in that area, and for how much, so you know how much money you’ll have to spend on the rehab and the subsequent sale of the property.

2) Make a budget, and stick to it. Our lender requires that we have a budget for the repairs on the property ahead of time. We have gone over that amount once because of unforseen problems, but we did not go over the budget more than 10%. And the overages were on our own dime, not our lender’s.

3) Have an inspection done BEFORE you purchase the property. In several cases, I decided we should NOT buy a property because we could not get into it beforehand for a proper inspection. This simple step can help tremendously in weeding out serious problems with a property that will eat up all your potential profits.

4) Do everything you can to find out if the property has been used as a meth lab before purchasing it. Ask the neighbors about activity at the property. Contact the local law enforcement office, to see if there’s been any arrests for drug use at that property. If there’s any concern that it’s been used as a meth lab, PASS on purchasing it. It’s not worth your health and the money for mitigation that’s required to get that property back in good working order.

5) Make sure your subs are licensed, and are committed to you and your project. Hiring good subcontractors is a huge issue, and can literally make or break your rehab project.

6) Have your inspector, or a licensed plumber put a camera down the sewer line to scope it before purchasing the property. I have to say, in one instance, that would’ve saved me about $7000 if I’d spent the couple of hundred dollars to have the line scoped. Now, I do it all the time, and as a realtor, I recommend to my buyers that they spend the extra money and have it done as part of the inspection of a property. (For foreclosures, NEVER underestimate a previous homeowner that’s PO’d at losing their home. Pouring concrete down the sewer line is common, and it’s not easy to fix.)

7) Don’t cut corners. That’s not a good way to build respect in the business community, or with the buyers of your rehabbed property. As a realtor, I WANT that buyer to use my services when they sell that home, so I want the buyer to be happy with the home, and tell all their friends about the wonderful experience they had.

8) Make sure to pull the proper permits, and have the proper inspections done on the completed repairs. You’re asking for trouble if you neglect this important step.

9) When establishing a budget, don’t forget to add in all your additional costs. Those include; holding costs (if that house doesn’t sell right away, you need to make the mortgage, tax and insurance payments until it does.) Selling costs (as a seller, you’ll need to pay the buyer’s realtor the appropriate fees for bringing in a buyer.) Marketing costs (don’t underestimate how much money it will take to market the home for sale once it’s completed.)

10) Don’t expect to sell the rehabbed property for higher than the comps. Trust me…it’s a much easier sell if you’re within the comps.

11) Get an appraisal on the property once it’s done. (Post #22 - Justin is correct. A realtor gives a broker’s opinion. It is NOT the same as an appraisal.) Especially because I’m the selling realtor on the properties my husband does, we get an appraisal done by a third-party appraiser. That way there’s no questions about what the property is worth when potential buyers come to look at it.

12) Be flexible with your investment strategy. In my area, even a year ago, it was an easier sell for rehabbed properties. It’s taking longer for properties to sell these days, and sellers are giving lots of concessions along with huge price discounts. We’ve changed our strategy for the time being, and are holding, and renting properties. The time will come to rehab and sell again.

13) Understand that sometimes you’ll make money and sometimes you’ll lose money on rehabs. That’s just the nature of the business. If you buy right to start with, you’ll have a better chance of making a profit. But there can always be unforseen problems that crop up during a rehab.

14) Above all, have a GREAT time! Rehabbing is a lot of work, but it is a lot of fun seeing your vision come to fruition, and even more fun when it sells for a profit!

As an appraiser, the fact that they say the realtor comes to appraise the house, really bothers me because it’s being disingenuine to the process, it’s a flat out lie.

Appraisers write actual reports and use various approaches to arrive at valuations, and we’re bound to the guidelines set by USPAP, we are objective and impartial with our assessments.

Realtors are giving a broker’s price opinion (BPO), that is NOT an appraisal, furthermore realtors are advocates, they aren’t impartial, because they represent the interest of a party, whereas an appraiser is not an advocate, we don’t care that you need a certain value for your property for whatever reasons.

The fact that you never see appraisers on these shows, just goes to show the disparity in the level of reality and entertainment that they offer, plus you couldn’t get an appraiser to go on a show and give some bullshit value or make any sort of false claim just so they end up with their license revoked for violating USPAP, realtors don’t have to worry about those repercussions.

To follow the spirit of this request, here’s something to follow……..not a real specific ‘tip’, but THE ‘Golden Rule’, and an explanation.

The ‘Golden Rule’, is this…….
Make your money when you buy!
In simple terms, it means, buy ANY property, using any method, well under TODAYS value.
The benefit of this strategy, which should be common sense, but sadly, is not these days, is that when you buy for pennies on the dollar, you allow yourself MULTIPLE exit strategies.
Transalation, if you buy cheap, you can GET PAID, in several ways.

My local market is currently one of the ‘worst’ in the country, according to ‘those in the know’.
The thing is, they all advise NOT to buy now.
I’m ingoring them, and in fact, bought two houses so far this month already.
at 50% or less of TODAYS value.
My exit, to keep them, as rentals, or, sell, and hold paper.
or, sell for cash, and be done.
My options for a profitable exit are endless, because I follow the golden rule.

And YES, I am a full time investor, and do not play one on T.V.

HTH,
BikerJim