Rehab "levels" and ARV...Questions

Also...shouldn't the rehab evaluations ALWAYS be for the "Grade A" Rehab? I always use full price for materials (not discounts), and full installation pricing, even for DIY items.

Jon you answered most of your own questions. But the amount of upgrade should be determined by the neighborhood. If the rest of the houses have granite then you should try to install it also. The same as the rest of the work and materials.

But don't go in a neighborhood with prices 100k and do the same level of upgrades. It sounds like house A took the cheap route which will hurt in the long run.

There is really no way of making a scale system, because of all the different factors that come into play,purchase price,amount of work required to make it salable, and the value of the end product the investor prides himself on.

I was thinking that when I do my evaluations doing the following:

1. Always price the "A" level rehab evaluation...to insure that the house markets quickly.
2. Have a "Renter" level rehab evaluation and subtract 15% from above to go to "renter grade" materials.
3. Do a "Economy Level" evaluation with bottom grade materials and only the "bare minimum" to get the house on the market and pass code / inspection.

I was just wanting to know if anyone has a certain "formula" for what percentage of the investment should be spent on "frills" and how in the planning / purchasing process it affects the numbers. That way I can be sure that when I am wholesaling properties, I provide the right scenarios in my presentations to my buyers.

Thanks for the help all...

Jon

I go along with what James said. It's a matter on knowing the area, what rehabbed properties are actually SELLING for. Buying at the right price, making your house the nicest in the area at the lowest price. Not going overboard or not doing enough. Some areas are Formica counter tops and painted appliances, some are granite and stainless etc. Each property is unique it seems. This of course is if you plan on doing the rehab yourself or wholesale it. I don't do rental estimates because my landlord buyers have their own ideas and know what they will do to make it rent ready. I just give them a rough number to make it rent ready.(cheapest way possible) If your rehab numbers work for a rehabber they will certainly work for a landlord.
Good to see you are out there and looking, you should track those two houses and see what happens. B will sell before A I am sure. Check DOM, any price reductions needed to sell, etc. See if you can find out what the properties were bought for by the investors. That would be interesting to know what they paid.

Michael Mangham
MD Home Acquisitions LLC

Maybe you can up with a medium estimate, between renter economy N ritzy top A rehab.
But, remember a retail buyer will want different things than the rehabber or landlord. Landlords want something that will bring great cashflow, without all the headache and maintenance to go with it.

Thanks guys...

I am going to track them and see what happens. I am going to continue doing my "Rehab Evaluation Reports" based on the Grade A level so that I (and anyone who needs them) am / are covered. I always go "full out" because one can always "back the cost down"...but having to go up after you have already budgeted the job is a bummer.

I have several "pocket" REO's lined up and am dropping the "offer train on them next week. What I am finding is that I really don't have any room to wholesale to other wholesalers...so I am working overtime to get to the "end buyers". I have 2 GREAT buyers who want to rent houses and I have ramped up my classified, internet and networking strategies. My "bird-dog" / wholesaling strategy has cost me one deal (but I have PLENTY more). Now I can focus on working a "rental", just get it ready cost in and all will be GREAT!

Thanks for the encouragement Obi-Wan (Michael)...I am on the roads everyday putting out signs and looking at properties. I am going to hit my goals and I am going to be a millionaire in this. I think I figured out that I can learn ALL I WANT TO...but if I am not DOING...then I will get nothing in return.

Off I go, to make some dough!

Jon

You are SOOO right. You will be a success because you are getting out there and learning what is MOST important in this or ANY business. What your product will cost, how you can get it and how you can sell it to make customer!!! Everything else is a waste of time or should be much lower on the priority list. First things first! Again, way to go, you are moving from the top 5% to the top 2%. You are DOING!!!!
By the way, I'm doing bandit signs this afternoon myself.

Michael Mangham
MD Home Acquisitions LLC

That a buyer may have access to better costs than the rehab estimate, too. But, the estimates come in pretty close, as well.

Every once in a while that second one may have been a rehab and covered up what once looked like number one

You are right housebuyer. I ALWAYS do my evaluations based on the actual 2011 Insurance (RS Means) numbers for demo, materials and installation. I have over 40 years of combined experience on my team (between me and my "VP of Rehab Management...a fancy name for my "head contractor", but they asked in my articles of incorporation and I figured that having him on the team was invaluable, plus it sounds good, huh? )in construction management, production management, entrepreneurship and marketing / Sales Management. My evaluations have been on average $3,000 - $4,000 over where they really "should be" and I know that how I am going to approach my own rehabs, we can "shave off" even more money because of our connections (as some others could too...like you mentioned), friends and our time in the business as well. We should be able to add another 10% - 20% in savings with that, and then there is the ever-present DIY.

The reason I am really "delving into" the rehab info and how it affects the marketability of the houses is I have decided to take advantage of our experience and to add "Rehab Management" to our list of services...to try to help other investors, and help me grow my business. I know that we can use what and who we know to get savings without sacrificing quality and I was also thinking of ways to save costs to improve the "level" of rehab and make sure that my projects, while still priced to sell, had more "POP" and would move quicker. I am setting up this service to try to gain even more savings by giving other Investors (and myself) even more local "buying power" by all of the projects being ordered through one company (Me). As we all know, he who buys the most, gets the best price AND the best service / goes to the top of the list when it comes to scheduling (it also helps to know virtually everyone in the business...). So, like Dean says, I want to take what I KNOW I can do and find creative ways to make $, gain equity in projects, find buyers and network, etc...I can also help some people who may not know about construction...a "win-win" for everyone, right? .

I am telling you, though, when I walked in to house "B", my jaw dropped. Whoever did that rehab did a GREAT job and I am anxious to see (as Michael stated, I will keep an eye on it!) how much more it sells for, and how much faster it goes than the other.

Michael...on the Bandit Signs...do you ever have someone come and steal, or knock down, your signs. I think that the local "1-800 Sell Now" franchise guy is going around and knocking mine down and taking them! makes me pretty mad considering the investment I have in those things! I got a great deal...but it wasn't cheap! Do ya'll have that going on? and what do you do about it?

"Anakin" Lubin

They get taken down all the time, I put them in different areas, wait a week, whatever. I figure if they last 24 hours to a week I am happy. It's just something you have to put up with. I think a lot of times it's local businesses or neighbors that are sick of we buy houses signs every where. Sometimes I think it is fellow investors. Write off that 100% advertising expense!

Michael Mangham
MD Home Acquisitions

I have one area in particular that I think the "locals" are grabbing them. Oh well...If that's what it is...I'll just keep at it.

Happy Easter all!

Jon