I love those TV rehabbing shows like Flip That House. On the
show people buy a house needing to be seriously updated and
repaired. Usually the kitchen is heavily upgraded with new
cabinets, cutting edge appliances, new countertops and more. The
bathrooms are completely redone with new tile, tubs, showers,
sinks and more. The living rooms and other areas usually have
walls taken out to open up the floor plan and usually carpet is
replaced with some type of hardwood flooring. It's realistic to
do what they show in a high dollar housing market like
California to make the huge profits they usually get on that
show. In a lower priced market like Memphis, TN rehabbers are
looking to make $20-30,000 per house minimum. In California and
on that show they are looking for $50,000-150,000 per house.
That's because homes are so much more expensive in California
where the show is produced. In a market like Memphis many of the
same upgrades are done but maybe skipping the granite
countertops and some other high end upgrades. In any market you
are going to repaint and redo the floors. The areas to spend the
most money to upgrade are the kitchen and the bathrooms. A great
value add that sometimes adds tremendously to the value of the
home is if you can add a 2nd bathroom to a home with only one
bathroom. While this will probably cost in the $10,000 range to
do, it could increase the value of the home by $20,000-40,000
and significantly add to your profit potential.
To do deals like this you need to go through several steps.
First of all you have to get set up with a hard money lender as
you cannot get a normal mortgage on a house in disrepair. You
need to see what homes are listed for in your area and figure
that when you fix it up you want it to be nicer and cheaper than
all other equivalent homes on the market for that neighborhood.
Working backwards from the price you could sell at to undercut
the market, take out the repair costs and pad it by at least 50%
for unforeseen costs(always there) and then subtract your
expected profit and holding costs(interest), realtor fees(if you
use), advertising and more. If you can still make at least $20k
it should be worth doing.
Managing your contractors is a very important part of this whole
process. Ask other investors who they know and trust to come in
and do your work. Require the work to be done on time and put
penalties in the contract for late completion. Don't pay for the
work up front, but agree to pay them a part like 25% as each 25%
of the work is completed.
One thing important to understand about these types of deals is
that they aren't super quick money. Typically the work will take
a couple of months and then it will usually take a month or two
to find a buyer. Hard money lenders typically loan money for 6
months as this time frame usually is sufficient to sell the
fixed up home.
Homes like these may be homes the sellers can't afford to fix up
or simply don't want to fix. In real estate listings these may
say things like handyman special. Foreclosure homes and bank
real estate owned(REO) listings are generally good candidates.
Mailing to out of state landlords can produce some homes that
are good as rental homes typically need updating as they aren't
set up to sell retail.
About the author:
David Neese is a real estate investing author who offers a free
course for real estate investors delivered by email, audio and
teleseminar which you can get for free at:
http://www.FreeRealEstateInvestingCourses.com You can find more
information about David at http://www.DigitalSuccessCoach.com
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