Order of Operations

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Order of Operations

Jewel B.Pro Member
New to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 121 votes

One thing I'm currently struggling with is the order of operations.

  • 1. Browse the market (MLS, Craigslist, Facebook marketplace) for potential properties, keep an eye and ear out for off-market (network)
  • 2. Pull aside any properties that seem to have potential / fit buy box (2-4 unit for FHA househack and motivated sellers/distressed properties to HML BRRRR)
  • 3. Evaluate the comps for ARV and potential rents
  • 4. Schedule showings with realtor
  • 5. Have contractors walk the property and bid / estimate rehab costs / quote
  • 6. Submit an offer based on the ARV*70%-rehab costs rule of thumb (which accounts for the equity that will be left in the property after refi)
  • 7. Speak with HML and see what they need from me
  • 8. Offer rejected, accepted, negotiated, or ignored
  • 8a. If rejected or ignored with no other buyer, follow up every week / regularly
  • 8b. If another offer is accepted, monitor listing until sold to see if it goes back on market
  • 8c. If accepted or successfully negotiated, due diligence (with possible negotiations), then close (or back out based on contingencies / unwillingness to negotiate)

Rehab/Contractors: Bid first then offer or offer first (based on some metric, such as % ARV) w/ contingency (such as inspection or approval of business partner) then bid and negotiate?

HML: Should I speaking to the HML at a different point in the process? Before and after offering?

I would love to hear your thoughts!

Thanks

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Mike Hasson
Specialist · Columbus, OH · Member since 2019 · 110 posts · 102 votes
3y

 I like how thoroughly you think through! This looks like something I'd put together ❤️  lol

I'd make a few adjustments however. i agree with @Austen Mueller that speaking with the lender first is a good idea. I'd even go as far as lime up your refinance loan also, get all pre-approval, and learn about those costs and terms and bake them into your rehab plan from day 1. And that your realtor will be able to provide comps and ARVs, but unless they are also RE investors, I'd take their thoughts on repair budgets with a grain of salt. 

Some good interview questions for your realtor,  might include asking about how many rehabs they've done,  or how many rentals they own. You may be surprised at how many realtors don't understand the investing side,  even if theybare excellent realtors. Finding and negotiating homes for investments vs owner occupied, are completely different beasts, and finding an investor realtor will benefit you greatly.

AlWAYS do your own due diligence - trust but verify.

Then I'd switch 4 and 5. Sending contractors in before anything is under contract sounds like it will rack up tons extra cost (presumably you're paying the contractor for these bids on homes you dont even own?) and may put a strain on those relationships particularly if the homes never make it to contract. 

I would highly advise you to learn how to approximate rehab budgets on your own, which of course will take time and practice, and you may need to fork over the cash to pay contractors for bids to get that knowledge, but I would advise against keeping it as part of your long term strategy.

Thankfully BP has resources that can help! For me, a huge help getting started, was The Book on Estimating Rehab Costs by J Scott. 

There are probably some exceptions, like if you have exclusive or in-house contractors on payroll (most newbies probably dont), or if you're an out of state investor and your contractor is also your property manager, for example.

Also make sure you fully trust your contractor if you are depending on them for your budget and scope of work. I believe that a vast majority are honest, but there's something to be said about bringing in an inspector who is unbiased and not incentivesed by the scope of work.

What I recommend is to hand the inspection report to the contractor and work out scope of work from that, but you will need to be under contract to get that inspection.

However plenty of investors do just fine with no inspection and bringing in the contractor from day 1, but these are likely the seasoned pros and have excellent relationships with their contractors.

In any case, it seems like you have a good overall handle of the steps invovled. 

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  • Austen Mueller
    Real Estate Agent · PA · Member since 2021 · 240 posts · 131 votes
    3y

    Only thing I would say is Speak with a hard money lender first so you have an idea of what you can afford/ what they will loan on. You will also need a pre-approval for your offer. Its your first deal so the terms wont be as good. You may want to shop around. There are many lenders out there, I suggest speaking with a few of them. Your agent should be able to get you in touch with a decent lender.  Also you should have a contractor lined up or at least a couple your deciding between before you go out on showings. Make sure you have seen they're work and have good reviews. Speaking with past clients is best. 


    Have the contractor meet you during the first showing so you dont need to schedule two. You wont be able to make an educated offer without their quote. Your realtor should be able to provide you with ARV and rental comps so you can run your numbers and work with your contractor to figure out where your offer needs to come in at.

    1Reply
  • Mike Hasson
    Specialist · Columbus, OH · Member since 2019 · 110 posts · 102 votes
    3y

     I like how thoroughly you think through! This looks like something I'd put together ❤️  lol

    I'd make a few adjustments however. i agree with @Austen Mueller that speaking with the lender first is a good idea. I'd even go as far as lime up your refinance loan also, get all pre-approval, and learn about those costs and terms and bake them into your rehab plan from day 1. And that your realtor will be able to provide comps and ARVs, but unless they are also RE investors, I'd take their thoughts on repair budgets with a grain of salt. 

    Some good interview questions for your realtor,  might include asking about how many rehabs they've done,  or how many rentals they own. You may be surprised at how many realtors don't understand the investing side,  even if theybare excellent realtors. Finding and negotiating homes for investments vs owner occupied, are completely different beasts, and finding an investor realtor will benefit you greatly.

    AlWAYS do your own due diligence - trust but verify.

    Then I'd switch 4 and 5. Sending contractors in before anything is under contract sounds like it will rack up tons extra cost (presumably you're paying the contractor for these bids on homes you dont even own?) and may put a strain on those relationships particularly if the homes never make it to contract. 

    I would highly advise you to learn how to approximate rehab budgets on your own, which of course will take time and practice, and you may need to fork over the cash to pay contractors for bids to get that knowledge, but I would advise against keeping it as part of your long term strategy.

    Thankfully BP has resources that can help! For me, a huge help getting started, was The Book on Estimating Rehab Costs by J Scott. 

    There are probably some exceptions, like if you have exclusive or in-house contractors on payroll (most newbies probably dont), or if you're an out of state investor and your contractor is also your property manager, for example.

    Also make sure you fully trust your contractor if you are depending on them for your budget and scope of work. I believe that a vast majority are honest, but there's something to be said about bringing in an inspector who is unbiased and not incentivesed by the scope of work.

    What I recommend is to hand the inspection report to the contractor and work out scope of work from that, but you will need to be under contract to get that inspection.

    However plenty of investors do just fine with no inspection and bringing in the contractor from day 1, but these are likely the seasoned pros and have excellent relationships with their contractors.

    In any case, it seems like you have a good overall handle of the steps invovled. 

    1Reply
  • Lawrence Potts
    Real Estate Agent · Member since 2018 · 459 posts · 414 votes
    3y

    Not bad @Jewel B.!

    If this is to house hack, then you will not be able to get HML. Almost all HML will not lend to owner occupied properties. So you'll need either private money, creative solutions, or go FHA for your buy box.

    If you're going FHA/multifamily route, I'd say talk to your lender first and get preapproved and then start looking at what's available. That way you are not casting such a wide net.

    6 is subjective. Every house is different. If you're going to have a contractor walk a property and give you a bid and then just use the 70% rule, that seems redundant. What if the contractor gives you a bid for $100k rehab on a home ARV $300k? 70% rule goes out the window then. A way you could do it is walk through the property yourself, ballpark the ARV and rehab costs, get it under contract, then have contractors come in during due diligence and confirm rehab. If it's more than you calculated, renegotiate the offer or back out if they refuse. There's nothing wrong with going under contract, you can typically back out anytime (depending on what the contract states).

    7 should happen before you submit your offer.

    I’d recommend adding a step: talk to the listing agent when scheduling a walkthrough and try to identify motivation of seller. That will determine your offer as well.

    Hope that helps!

    1Reply
  • Jewel B.Pro Member
    OP
    New to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 121 votes
    3y
    Quote from @Austen Mueller:

    Only thing I would say is Speak with a hard money lender first so you have an idea of what you can afford/ what they will loan on. You will also need a pre-approval for your offer. Its your first deal so the terms wont be as good. You may want to shop around. There are many lenders out there, I suggest speaking with a few of them. Your agent should be able to get you in touch with a decent lender.  Also you should have a contractor lined up or at least a couple your deciding between before you go out on showings. Make sure you have seen they're work and have good reviews. Speaking with past clients is best. 


    Have the contractor meet you during the first showing so you dont need to schedule two. You wont be able to make an educated offer without their quote. Your realtor should be able to provide you with ARV and rental comps so you can run your numbers and work with your contractor to figure out where your offer needs to come in at.

     Thank you for the feedback, Austen. Yes, it did occur to me after posting that I would need to speak to lenders beforehand, in order to obtain pre-approval and letter to present to sellers. Great point. It also occurred to me to speak with refi lenders in advance as well. I have several recommended and seemingly professional and reputable HMLs (and refi options) in mind. I understand that my terms the first go around especially, as well as the first few in general, will not be the best. I definitely intend to shop around, as I want to get fair rates, fees, and terms, but I do accept that the first is the worst, as the saying goes. Getting the experience and the momentum is key for me regardless. I have a contractor lined up I know personally and have seen his work, as well as a few others on my list. My intention is to have 3 of everyone on my list. GCs and subs. 

    1Reply
  • Jewel B.Pro Member
    OP
    New to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 121 votes
    3y
    Quote from @Mike Hasson:

     I like how thoroughly you think through! This looks like something I'd put together ❤️  lol

    I'd make a few adjustments however. i agree with @Austen Mueller that speaking with the lender first is a good idea. I'd even go as far as lime up your refinance loan also, get all pre-approval, and learn about those costs and terms and bake them into your rehab plan from day 1. And that your realtor will be able to provide comps and ARVs, but unless they are also RE investors, I'd take their thoughts on repair budgets with a grain of salt. 

    Some good interview questions for your realtor,  might include asking about how many rehabs they've done,  or how many rentals they own. You may be surprised at how many realtors don't understand the investing side,  even if theybare excellent realtors. Finding and negotiating homes for investments vs owner occupied, are completely different beasts, and finding an investor realtor will benefit you greatly.

    AlWAYS do your own due diligence - trust but verify.

    Then I'd switch 4 and 5. Sending contractors in before anything is under contract sounds like it will rack up tons extra cost (presumably you're paying the contractor for these bids on homes you dont even own?) and may put a strain on those relationships particularly if the homes never make it to contract. 

    I would highly advise you to learn how to approximate rehab budgets on your own, which of course will take time and practice, and you may need to fork over the cash to pay contractors for bids to get that knowledge, but I would advise against keeping it as part of your long term strategy.

    Thankfully BP has resources that can help! For me, a huge help getting started, was The Book on Estimating Rehab Costs by J Scott. 

    There are probably some exceptions, like if you have exclusive or in-house contractors on payroll (most newbies probably dont), or if you're an out of state investor and your contractor is also your property manager, for example.

    Also make sure you fully trust your contractor if you are depending on them for your budget and scope of work. I believe that a vast majority are honest, but there's something to be said about bringing in an inspector who is unbiased and not incentivesed by the scope of work.

    What I recommend is to hand the inspection report to the contractor and work out scope of work from that, but you will need to be under contract to get that inspection.

    However plenty of investors do just fine with no inspection and bringing in the contractor from day 1, but these are likely the seasoned pros and have excellent relationships with their contractors.

    In any case, it seems like you have a good overall handle of the steps invovled. 

    Thank you for taking the time to leave such a thorough and thoughtful response, Mike. I'm very analytical and love my lists and plans and details and what not.

    This is something I definitely came to realize just since posting this, so I appreciate everyone confirming - I will definitely be speaking to both HMLs and refi lenders in advance for preapproval and planning purposes.

    I do have a realtor (a married couple actually) on my team - both have invested both individually and together.

    I will definitely be switching 4 and 5 based on a lot of feedback I've been getting. I am actually just about done with The Book on Estimating Rehab Costs (will finish it today in fact) and then will also read The Book on Flipping Houses, which I also own. I seem to have lost my BRRRR book so I'll have to reorder that at some point. I aspire to own all BP books pretty much haha. I feel relatively confident in my ability to sit down and work up rehab costs, as I love numbers, data, analytics, research, spreadsheets, match, accounting, financials lol. So hopping online, on the phone, in my book, and in a spreadsheet for a bit is no issue. With experience and actual post-offer bids, I'll improve this skill.

    I like the idea of using both an inspector and a contractor. In fact, I heard on the podcast that someone recommended sending them both in at the same time, as each may catch (different types of) things the other doesn't and point them out. I like your idea too.

    As a newbie, I am definitely happy and willing to spend an extra few bucks (again, with fair prices and honest service) in the beginning to develop certain skills and gain experience. An inspection fee seems a small price to pay when buying an entire property.

    Thanks again!
    0Reply
  • Jewel B.Pro Member
    OP
    New to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 121 votes
    3y
    Quote from @Lawrence Potts:

    Not bad @Jewel B.!

    If this is to house hack, then you will not be able to get HML. Almost all HML will not lend to owner occupied properties. So you'll need either private money, creative solutions, or go FHA for your buy box.

    If you're going FHA/multifamily route, I'd say talk to your lender first and get preapproved and then start looking at what's available. That way you are not casting such a wide net.

    6 is subjective. Every house is different. If you're going to have a contractor walk a property and give you a bid and then just use the 70% rule, that seems redundant. What if the contractor gives you a bid for $100k rehab on a home ARV $300k? 70% rule goes out the window then. A way you could do it is walk through the property yourself, ballpark the ARV and rehab costs, get it under contract, then have contractors come in during due diligence and confirm rehab. If it's more than you calculated, renegotiate the offer or back out if they refuse. There's nothing wrong with going under contract, you can typically back out anytime (depending on what the contract states).

    7 should happen before you submit your offer.

    I’d recommend adding a step: talk to the listing agent when scheduling a walkthrough and try to identify motivation of seller. That will determine your offer as well.

    Hope that helps!


    Thank you for taking the time to respond with an insightful reply. Yes, to clarify, FHA(203k) house hack is a strategy I'm interested in, but the HML was intended to be used for BRRRRs. I do appreciate pointing out that HML don't allow for owner-occupied properties however - great to know!

    I will definitely be updating the order of operations to include speaking to a HML as well as refi lender sooner. For FHA, my 2022 taxes will be done shortly here (getting my last document the 11th) and then I will be getting prequalifications and preapprovals in the coming weeks. I am, however, self employed and may be looking more at nonQM/DSCR loans, but we'll see how it goes!

    Thanks for the feedback on the timing of bringing in contractors and getting bids. That seems to be the consensus for multiple reasons so that's what I'll be doing. Makes sense to me!

    Great idea re the listing agent and determining seller motivation.

    Thanks!

    1Reply
  • Jewel B.Pro Member
    OP
    New to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 121 votes
    3y
    • 1. Shop HMLs and refi lenders and get preapproval
    • 2. Browse the market (MLS, Craigslist, Facebook marketplace) for potential properties, keep an eye and ear out for off-market (network)
    • 3. Pull aside any properties that seem to have potential / fit buy box (motivated sellers/distressed properties to HML BRRRR)
    • 4. Evaluate the comps for ARV and potential rents (enlist help of realtor)
    • 5. Have my realtor contact the listing agent to gather information on seller's motivation, as well as request any available documents and disclosures
    • 6. Schedule a showing and tour the property, taking pictures and recording (video) the walkthrough for later reference when estimating rehab costs
    • 7. Submit an offer based on the ARV*70%-rehab costs rule of thumb, estimating the rehab costs myself
    • 8. Offer rejected, accepted, negotiated, or ignored
      • 8a. If rejected or ignored with no other buyer, follow up every week / regularly
      • 8b. If another offer is accepted, monitor listing until sold to see if it goes back on market
      • 8c. If accepted or successfully negotiated, due diligence (with possible negotiations), then close (or back out based on contingencies / unwillingness to negotiate)
        • Due diligence: Have contractors walk the property and bid; inspection; HML appraisal; title, etc.
    1Reply
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