I am a beginer when it comes to rehabbing houses. My first house was purchased from a Realator in Joplin, MO. The house was owned by another investor that lived in California, who had a very difficult time with his contractor.
The house was built in the 1940's, 1 1/2 stories with the original oak flooring and 10′ high ceilings in the original portion of the house and had seen two additions onto the back.
I purchased the house after I inspected the house, made a spreadsheet of needed repairs with costs and then I negoiated with the Realator on the price. My first offer was $3,000 below what was asked and I stated that I could close in 7 days. The Owner made a counter offer; I then made a counter offer and agreed to close within 45 days if I could begin to do minor repairs on the house. The offer was accepted and I bought a 1632 SF house for $36,000.
The only reason I went this high on the offer was the Owner had already installed new kithcen cabinets, sink, bathtub, shower and had a new toilet, still in the box, sitting in the closet.
The construction took approximately 90 days and I have a ballon payment due in 120 days with my bank.
After construction, I listed the property in the local newspaper as a newly remodeled house. I had 0 calls. After that, I listed it in the Rental Section of the newspaper saying “Why rent when you can own…” and my phone rang off the hook. If you can get brain cancer from using a cell phone too often, then I am a qualified canidate. In two weeks, I had over 70 calls. This is the beginning of my data base. After narrowing it down to three people, I gave the names and other info to my bank and to a mortgage company. This was done with a signed agreement with the potential buyers that their credit would be checked. Out of the three, one had a 500 credit score; just enough to be qualifed for an 80/20 loan. I did not want to carry a second for the house, so I then listed the property with a Realator for 60 days. She says she has a potential buyer but I do not have an offer.
My next move, if it does not sell, is to list the property on a Lease Option Agreement. This will give me a year of depreciation on the property, and when I refinance the loan, I will get money out of the property. I have already spoken with my banker and told her my plans. My 120 days grace period will be up in 30 days. So even if my original exit strategy does not work, there is always an option.
Oh yes, my numbers. I bought the house for $36,000 and budgeted $20,000 for repairs but the actual numbers were $25,317.45. Within the actual numbers, I will reimburse myself for $10,125 for the time I worked on the project. The house is appraised at $85,900. I will have approximately $800 in interest costs which will leave me $23,783 profit on my first deal. Actually, I will make $33,908 if I include my $10K in labor.
Not too bad for my first rehab project.
My second project was a 1,032 SF REO from my bank. I needed another project to keep my crew busy, so I hurriedly negoiated this deal through the same Realator that sold me my first rehab. I paid $50,500, which was too much to pay for this property becuase when I did my spreadsheet, I would profit just under $10k.
We began work and the bank wanted to use a different apprasial company than was used on my first project. The bank had used this apprasial company before so I felt comfortable with their decision. After all, I got their name and phone number so I could call them and tell them the improvements that I was going to make on the property. (This protion of the story will be continued in a moment.) Come closing day, I still have not seen the apprasial and the loan officer promised they would have it at the closing. It did not happen. The Realator assured me it would appraise as she said it would (it didn't), and when I called the bank before I signed, the loan officer was not there.
When I finally got the apprasial, my thoughts turned to rage: why did I trust these people!
I finally got the apprasial 10 days after I closed. My loan officer was on vacation in Jamaica (I hope she enjoyed my money), the other loan officer that was left in charge of my account was new and did not know what to do besides say wait till the other loan officer gets back (by the way, this “new” loan officer does not work at the bank any longer.)
The apprasial company did not take into account any of the improvements that I stated I was going to make on the property. However, after my constant calling, they did give my a new apprasial……..for an additional $150.
Before I completed this project, I had a call from a person that contacted me about my first rehab. They came out and saw the house, and we have a signed Lease Option Agreement which will net me a little over $200 per month profit for the rental of the house. This will be in addition to the $9,067 I will make when they exercise the Option. I also get to take deprecation off of my taxes on this house.
Not too bad for my second rehab!
In less than 6 months, I will make an estimated $42,975 on two rehabs.