How much repair do you do?

Question

Hey,

I was wondering whether you all do a lot of repairs on the MHs you buy or do you try to buy homes that don't need them.

It seems that being open to repairs would give you a lot more homes to choose from as well as give you lots more room for negotiating for rock bottom prices.

On the other hand, doing repairs is time consuming and expensive.

Would love your opinions and advice on this.  I'm searching for my first buy right now.

Terry Drake · Answer

Johnny,
                              
                              I just used the purchase agreement that was in the back of Lonnie Scrugg's book.  Then where it says "Everything to be in good working order at settlement, which is to be on:__________________________."  
                                        
                                        But the best part of this agreement is towards the bottom.  It says "This agreement is subject to verification of information necessary to complete this agreement and subject to approval by Business Partner.  Otherwise this agreement becomes null and void and sellers agree to return all money paid by buyer and cancel this agreement".

Here is a sales agreement that I got out of the back of a book, re-typed and added a few things. (a section for clauses/addendums and added the part about deposit being non-refundable unless declined by park, and that they have 5 days to apply or they lose their deposit).  I thought it might be useful for some, and save some time.
                    
www.dndinvestments.com/mhsa.docx

Johnny P. · Answer

Marilyn,
        When you find a home you think could be a good buy, do a little advertising and see what  type of response you get.  Throw up a few bandit sings in the area, and post a few adds on CL.

I did this to get started, and once I had a good amount of responses to my ad, it made me much more comfortable with going out there and actually buying it!  Maybe this can work for you as well.

Terry Drake · Answer

Don't forget, you can always get it under contract with a 2-4 week inspection period subject to partner's approval and market to sell it.  If you don't sell it in that two weeks, then it's probably not as good of a deal as you thought.  In that case you can either walk away and cancel the contract (nothing gained, nothing lost!) -OR- approach the seller and explain to them that upon inspection, the numbers don't work and the most you can pay is: $xxxx for the deal to still work for you.

Usually by this time, the seller has already planned on washing their hands with the home, and already know what they want to blow your cash on.  A lot of the times they would rather put some money in their pocket and be done with it than pay another months lot rent, and try to (hope to) sell it.

Terry Drake · Answer

You're right about being time consuming and expensive.  I would say it's the easiest way to go over budget and eat away profits.  At the same time, if I can put a few hundred dollars in it for paint and curb appeal and increase the value of the home a thousand dollars or more then that is a pretty good return on the dollar.

It depends on the home and what you want to do with it.  My first deal I wasn't expecting to make any repairs but ended having to make some to get it sold.  I didn't do as well as I had originally thought on that one.  It's going to be about 10.5 months before I see the break even point.  The second one I didn't touch a thing.

The thing you have to remember when looking at your deals and deciding what you want to do, the more money out of pocket on the front of the deal, the less your cash on cash return will be and it will also take that much longer to reach your break even point.

It's kind of tough on your first deal because you want to jump in and get one under your belt to learn everything you can from it.  After you do one or two, the anxiety will lessen and you will be able find the good deals with confidence because you aren't beating down doors to find a deal.  They are coming to you.

After doing those two deals I had mentioned in that park, I've been approached by half a dozen people in the same week to buy their home.  I had one seller stop me in front of a home I was looking at and said 'Don't buy that one!  Buy mine!!'.  I'm getting referrals from people that I don't even know who they are.  Not because I'm wonderful, but because these people just want to sell their homes!

There I go rambling again.. Just remember that the more money you can keep in your pocket, the more deals you can do with the capital that you have.  If you dump money in repairs on everything you touch, you will run out of working capital faster.  Now, I am looking for homes that I can sell AS IS for cheap and sell them the same way I bought them.

Bill W. · Answer

I've sold mobile homes as both fixer uppers and repaired them so they are move-in condition.

After doing both and calculating returns, I come out way ahead selling them as fixers and now wont do much for repairs.  The last home I spent $100 to have all the junk in the backyard away at that was it.  I could have painted, installed new floors, installed appliances which were missing, etc and maybe squeeze out a small profit on those expenses if I'm lucky.  Not worth it.  I'd rather spend my time scouting for new deals than swinging a hammer.

Marilyn A. · Answer

Thank you all for the thoughtful and helpful responses.  I really appreciate it.
I will look for homes without repairs and hopefully I'll find them.  Terry, it's good to know that you begin getting calls from people wanting to sell after a while.  How long did you look before you found your first deal?
I will post what happens on my first deal - that is, if it's not too embarrassing!  
I keep telling myself that I can do this.  I'm smart.  I do know what I'm doing.  Don't quit because it's hard.  Anything worth doing will be hard at first, but with experience it will be a lot easier.

Greg B. · Answer

One thing to remember is your first deal will not be your best deal.  Also, there is only so much you can learn by reading and watching others.  You learn a whole bunch more when you're in the drivers seat.

I have done everything from complete rehabs to touch up work.  I haven't been selling mine though, I use them for rentals.  I do my own repairs for most things.  I will contract out things I don't want to do myself.  I'm still looking for that reliable handy man.

Johnny P. · Answer

Great idea Terry!  I would love to see the contract you use for that.  I would use it EVERY time as a negotiation tool!  I would assume you could get the homeowner to drop the price easily with this strategy, i can't wait to try it.

Terry Drake · Answer

One more thing Marilyn, if you look at my first deal post, there is a break down of repair cost on that deal.  If you are looking to buy a home that needs repairs and you will have the repairs done, figure how much the repairs would be to have someone in a tuxedo doing the work.  That way you won't be unpleasantly surprised.  Then make your offer.  If they don't accept it, then that's fine.  You don't want a deal that doesn't make sense from your end.  They have to sell but you don't have to buy!
          
          One thing I will do on my next deal, is have my handy man with me.  I will talk with the owners and build report while my handy man picks the repairs apart.  While he's showing me things that are wrong, the owner is devaluing the home in their own minds.  Not only that, but they are wondering if the next buyer will even buy it for the price they want with all those things brought to their attention.

Please remember these are suggestions from me to you based on my thoughts, opinions, and what I've learned so far.  There are many ways to skin a cat and each deal is different!  Can't wait to see your 'first deal' thread!

Loc R. · Answer

I always try to buy the best homes from the MOST motivated sellers.  Better condition = less work and more resale value on my end.

How much repair do you do?

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