New Investors and Due Diligence

[George Foster]

I met a new real estate investor today that purchased a property at an auction. He contacted because of Bigger Pockets. I am known in my small circle as being someone that does not hold his tongue, for good or bad, and loves to help others. This investor calls me and tells me that he would like for me to give an estimate on his property and as per my usual response, "Do you own the property" the answer has to be yes or I won't consider going. He responds by telling me yes. My next question is do you have a budget for your project and then I get a long silence. Once the silence is broken, I am told, "I want to see how the bids come in". I would like to say that the only reason that I ask this question is to determine if the potential client is realistic with what they want to do. I also asked if he had a scope of work and specifications that he would like for the home. I again did not get the correct answer of yes. Against my better judgement, I decided to take the appointment. I only did this because of my relationship with many here on BP. When I get to the property, we begin to go through the property and he tells me of what he wants to do. I also asked how many properties has he done, a question I should have asked on the phone. He tells me that this is his first property. I congratulate him for taking the plunge then I asked if he knew what other homes that have sold in the area had in them. After a brief silence I realized that he did not know. I encouraged him to find out as this is what buyers in the market will be looking for when the home is finished. After we walked the house I let him know that it would take about an hour for me to get all the measurements and other details that I would need to get him a detailed estimate. He told me that he only allocated an hour for our meeting so I would have to come back. Now shame on me for not telling him the length of time it takes me to accurately review and prepare a detailed bid. This won't happen again. I told him that before I go through the time that it will take for me to provide such a bid, I think that the construction costs will come in at a minimum of 65k. He looks at me as if I used profane language and tells me "this was higher than what I wanted to pay" This is the exact reason why I ask the budget question on the phone. While walking the new investors home, we both commented on the nice job that a similar house across the street that was done on that home. After the awkward budget conversation, we walked out of the house to say our good byes and the owner of the nicely done similar home walks across the street to speak with us. The owner said "Did you just buy this house", the investor said, "yes". Owner across the street said, "Well, if you plan on fixing and flipping this house it won't work. The house next door was purchased to be fixed and flipped and the house across the street was purchased for the same reason. You will have to rent this house out because ultimately that is what they had to do." He also goes on to tell me that he spent $60k on fixing his property. The investor looks at me like, wow you did say 65k.

Newbies, you have to do your research on an area and try to put together a reasonable budget for renovation. You can't expect to garner top value for a house by putting the absolute minimum in the house. This gentleman didn't even want to put in insulation in the house. What will the poor future owner have to endure because he want to maximize his profit at the expense of the future owner. I am not the contractor for you because that is not how I do business or how I do others.