Money for Rehab

Hi Steve. Are you going to buy the home as an investor. If so some loans will include money for repair cost. Also you as the investor can pay for the repair then you sell the home for a profit and get your money back. If you are going to wholesale the property then the end buyer will take care of the rehab.

If you don't have Dean's books go and get them. Read the books they will help you under stand real estate investing.

I hope this has helped.

Steve and Veronica.

Thank you very much Steve and Veronica. I do have the book "Profit from Real Estate Right Now!" I love this book!! It's helping me and my wife get started in Real Estate! So my understanding is if you purchase the property that needs rehab under contract like Dean's book talks about, the buyer that you are passing this onto is the one who takes care of the rehab. Is that correct?

Steve B.
(stevejen)

They will ask you how much rehab needs to be done and if the numbers work, you both have a deal.

Steve

Thank you very much for your help Steve!

Steve B.

Hi Steve,

Thank you for the last answer. I just wanted to give an example so I can learn how the rest of the process works. Let's say the home has a FMV of $250,000, the negotiations with the seller get him/her down to $190,000, you put it out there for $210,000 because you know as the investor the fix ups that the house needs is equal to $20,000. Your buyer accepts the offer for $200,000. The end buyer only has $10,000 for the fix ups. Half of the money. Where can you get the other $10,000 without money of your own pocket since the deal dropped to $200,000 from $210,000?

Steve B.

My credit is real bad so a loan would be out of the question, I didn't see this scenario in Dean's book, so I just need clarity how to do the above according to his "no money out of your own pocket" scenario.

Steve

Steve B asked. Hi Steve,

Thank you for the last answer. I just wanted to give an example so I can learn how the rest of the process works. Let's say the home has a FMV of $250,000, the negotiations with the seller get him/her down to $190,000, you put it out there for $210,000 because you know as the investor the fix ups that the house needs is equal to $20,000. Your buyer accepts the offer for $200,000. The end buyer only has $10,000 for the fix ups. Half of the money. Where can you get the other $10,000 without money of your own pocket since the deal dropped to $200,000 from $210,000?

Steve B.

Okay lets say FMV is $250,000. you as the investor pay 190k you sell it to the end buyer for 210k you make 20k the end buyer pays for the rehab of 20k. The end buyer now has 230k into a home worth 250k. It is a win win for everyone. Now that is just the basics of the deal. Keep reading Dean's books and read as many post here on the DG site as you can it will all start to make sence the more you read.

This is what we are going to do. We are going to purchase a place that needs $50,000. in rehab we are going to pay, $150,000 for the house. Thats $200,00 that means we have to sell it for 210,000 or up. You have to make sure you can get what you put into it. We will borrow the money from a private investor and give them 6% more then we borrowed when the house sells. We will not pay the owner a dime until a years time which will give us a window of opportunity to complete the rehab and get a seller. Our goal is to do a back to back, double closing. Looking at what I just wrote, makes the figure of $25,000. for the rehab sweeter. I will work towards that figure instead. I will ask the owner to hold with a promissory note. We will paint, do the floors, counters, facets, doors, decking and landscaping.

What I was telling you was on a wholesale deal so that your are not confused on what I have told you.

Charisse's information is good stuff also. Just a different type of deal.

Thank you for the information all of you. Thanks again.

Steve B.

I'm in the midst of doing due diligence on a rehab property on the edge of Uptown Charlotte, NC.
The numbers seem to work except the house needs MAJOR repairs- everything from electrical to plumbing. I've set up appts w/ some contractors to view the property & give some idea of the total costs involved- whether it'll be prohibitive or not.
Here's my "issue": The deal is fantastic & the seller seems highly motivated, willing to provide financing, anything it seems to get it off his hands.
Am I just being cynical here that this smells "too good to be true"? Is that just the skeptical NY'er in me? Also, this is my 1st deal as an investor- is there something I'm overlooking, am I too eager for a deal that may not be exactly what it seems?
Yes- I'm nervous & scared, but almost willing to jump in just to get my feet wet. However, I don't wanna be stuck w/ a money pit.
Are there any method(s)/advice that any of you experienced investors can give that would mitigate some of the risks involved? Perhaps state the one thing you ALWAYS do that gives you confidence to pull the trigger on a deal?? It would be greatly appreciated.

Way to go.

I believe in if you are just starting out you should wholesale to end buyer
for pay,so you can learn more as you go into the realestate process deeper
,then move up more wnen you no more to with the property,but that's me .

Wilson

A rough stab at a full rehab is $50 per SF, for everything on the inside of the house (my experience). So a 1500SF house = $75k in rehab costs.

Is it a good deal or not depends on the comps. Using the standard 70% ARV rule:

Comp = $150k (as an example)

x 70% = $105k

rehab = 75k

max price you should pay = $30k (105k - 75k).

Again, these are rough numbers but should give you a feel for what's a good deal or not.

- Tom

Found a house or should I say a "SHELL" because the inside needs to be gutted out has mold. If it wasn't nailed down the took it. It has about 4,348 sq ft on almost 2.8 acres with built in pool. The price was as of tax for 2009 $360,800. Well just a few days ago the owner has it up for sale for $150,000. But it needs everything. I did a tax search and the owner has not paid the taxes since 2006 he owes certificates for 2007,2008 & 2009 is unpaid about $30,036. Who pays these taxes?? Do the come out of what ever the house is paid for. Or the new Buyer?? I would just guess the house needs about $100,000. just to fix it up. This not liveable in. Any help please

Thanks,

Bertha

I would pass on it for these reasons:

1. If it's a shell and needs almost everything, you're looking at $300-400k to replace a 4300SF house, not $100k. I own a rental that's 4500SF and the replacement value per the insurance is $425k. Even at $50/SF for rehab costs, you're looking at $215k.

2. The mold makes the situation even worse.

3. Back taxes should be paid by the seller, but have to be paid by someone, before title can change.

4. I don't see any potential for a profit here.

- Tom

Looking @ a rehab house owner went into chapter7 and was discharged in 2008 Bank has not proceeded with any foreclosure proceedings. After getting owner to sign Release the lender told me they see no value in taking the property back as an REO. note is 52K property worth 8-10K. Owner willing to sign any blank P&S agreement and warranty deed to trust. Will not agree to any deficiency agree with lender. Lender will take 2K. Property needs about 10k to be rental aprox 13K to sell. Nothing to assign House 3 bed 1 bath comp sales in 3 block area mid to upper 30's. What is the specifics on property discharged thru a personal Chpt-7 bankruptcy? Taxes paid no other liens except for lender note.

Thanx for this, Tom!

Using this formula, I ran the numbers & realized my offer was too high- so that deal is off for now. Also, the person I was dealing with was another investor trying to do an assignment. If I didn't have the advice from folks on this site, I might've pulled the trigger & ended up getting burned.
Currently I'm looking at 2 other rehabs (I'm drawn to rehabs for some reason).
I've been using the $50 per sq ft as a benchmark- its a great tip.

Much obliged!

Z

Z... Just wanted to add to Tom's Formula because when you get close to making that first rehab deal, you want to be able to work the 30% to get a better idea of what your MOA (Maximum Offer Amount)... Using Tom's example of 150K ARV (This number comes from Recent SOLD COmps and ACtive Sales).. The 70% of ARV is 105k - REHAB Cost = MOA... Start your offers bellow this amount but never go above it...

So the 30% difference breaks down:

Commission (Realtor) to SELL (say 5%) = 7.5k
Closing Cost (to buy and sell the House) = 6.5k
Holding Cost (6 Month) = 8k
Profit = 20k
Totals = 42k

150K - 42k = 108K
108k - 75k (rehab) = 33k (MOA)

From my 2 Flip Experience, the numbers I used for the 30% are Close... Of course if you can do a FSBO, this would minimize the cost you set aside for Realtor commission and more money in your pocket...

Hope this helps,
Dan (Mcarlo24)

Thought we had funding secured for our rehab. Now the lender has put the brakes on funding. Need to find money for a rehab deal in St. Louis area. Anyone know where to find funding in this area. Closing is in a couple of days or we are going to lose the deal Please any suggestions.

My original intention was to start with the no money down deals so the end buyer would be the one to pay for the fix ups if I bought the home from the seller on contract. Is that correct? Can I use the down payment from the buyer for fix ups and to also make the profit from the deal?

Steve B

If you tie up the contract with the seller for a certain price. Say $100,000.

Find a buyer who will buy from you at $110,000. When you close, you get a ck for $10,000. All done.

Now you need to make sure your initial offer is far enough below ARV so that the end buyer will be able to pay for his rehab costs and still make a profit or you won't have a deal.

This is wholesaling. You don't have to worry about finding the money to fix it up.

If you are buying as a rehabber, then you worry about the money.

Wholesaling is much simpler when you are starting with no money, no credit. Now that you know the correct terms for the correct practice you can research more info on here and in the books.

Does that clarify things a little more?

Karen

If you are wholesaling this deal to the buyer, once he buys the property from you at $200K, it is his to rehab however he can. You are out of the mix.

Karen

So basically what you are saying is from the Offer Calculator if the FMV is $200,000 I get 25% offer off the FMV, then the house needs at least $3000 of repairs and I want to make $10,000 on the deal in this Wholesale scenario then I get an offer for the seller at $137,000, purchase it on contract, and then I turn around sell it to the buyer for $150,000 then my profit and the cost of the repairs is covered. Is that correct? And how does the buyer make a profit also if this is the correct scenario?

Steve B

Most investors will want at least 30-35% off FMV

You get the FMV from CURRENT COMPS. This is what houses with similar features (sq footage, number BR, number BA, etc), within half mile (if neighborhood is comparable) and have sold within the last 30 days.

So then if you come up with $200K FMV

$200,000
- 60,000 (30%)
- 3,000 (try to have an accurate number on repairs, not "at least". If anything, estimate "at most")
- 10,000 (your profit)
_______________
$127,000

This is the highest that you will pay for the property. So you will want to actually offer less to give you some wriggle room.

Then you add your $10,000 profit you want and sell to the buyer for $137,000.

If your cost for repairs is correct, buyer does repairs himself for the $3K and now has $140K in the house. His profit comes from how ever much he can now sell the house to an end buyer/occupant.

DID I DO THIS CORRECTLY, ALL YOU EXPERIENCED GUYS/GALS?

Karen

That definitely clarifies it all!! Thank you so much for your help! I understand now that the way the buyer profits is by doing the fix up themselves and that way the value of the home goes up. Is that correct?

Steve B

Just got more answers in the book. What the heck am I waiting for? I'm out there now!! Already got a real estate agent in mind. Met him at a church function.

Steve B

Go out and make it happen Steve. Good luck to you.

Steve and Veronica

To the mix of things I just roughly skimmed through the posts because I have other things I am attending at the moment but I want to throw my scenario out there. Jim has already broke it down for me but if I could get a different light on the situation that would be great.

Ok I have a new investor that I added to my buyers list today. Talked over everything with him over the phone he wants all rehab properties the info is as follows:

Wants homes built after 1980

SFR-Homeowner police watched picket fenced happy go lucky neighborhood

Price range really doesn't matter but prefers (I'm guessing) 125-135k homes and wants em to be a steal (OF COURSE)

1,300 SF and up 3 bd/2ba with 50% equity and wants HIS profit margin between 25-30k

Rehabs can be cosmetic or a complete full rehab

Repairs could be 20-30k (20k-30k being an example) so If repair is gonna cost 30 he wants to go all out and do 30k+

Now I know I want to at least walk away with close to 10k myself

Still a little confused about how to get the ARV before the property is redone and how to do comps for the target area. I am by no means saying that I do NOT know how to do this just saying I need a little extra advice/guidance

Any suggestions out there to as what needs to make this deal happen??

TheYungGun

Thank you so much Steve and Veronica. I just emailed a bunch of real estate agents in my area! It is a little scary but just I have been encouraged once I enter the market and do this once, and get my first deal, then it get's easier from there. I'm excited to get out of my parents house and live the life with my wife that she and I always dreamed of. Thank you all so much. We thank God for Dean and our Lord for saving our lives and giving us a future. Thanks again!!

Steve B