Am I going too fast?

Question

I spent the weekend going through listings in what I call "practice" to see if I can find deals. I believe I have found 3-4 great deals, some rentals and some for a quick flip.

I am eyeballing one property in particular, a tiny TINY house that needs major repair but will only cost me $5k-$10k to buy and probably another $5k to rehab.  I expect a $5k-$10k profit.

Am I going too fast?  I have no attorney, accountant, or "team" setup yet.  I have a few local investor contacts giving me positive feedback, and I'm working with a realtor that someone referred me to.  I am incredibly green but maybe that's normal?  Should I take my foot off the accelerator?

Joe Villeneuve · Answer

Major repair = $5000 in rehab cost....HUH?   I wish "Major repairs" in my market only cost $5k.  What are you basing that number on?

Here is my analysis, not seeing the property, not knowing the market, but knowing how to add and subtract:

$10k to buy$  5k to rehab (??)$  5k expected profit

$  2k one "ooops...how did I miss that?" in Rehab$  3k new projected profit$  2k in misc costs not mentioned here (like carrying costs, utilities, etc...)$  1k NEW projected profit$??k Money lost from other areas (job) not mentioned here due to the long time on this project

If you are willing to spend $10k+ on "education", I would recommend learning  how to do it right, from others that have done it right.

John Powell · Answer

How much is $10K in your world? If it's money you could loose and be ok I'd say go for it worst case you lose the money and learn a ton. If you have to borrow the 10k and it would affect your family if you had to pay back the loan on your own then you might want investigate it more or partner with someone giving them the risk and a large portion of the reward. I recently bought a house for 13K and ended up spending almost 30K to fix it up as a flip. I could probably sell it around $65K but decided that I would rather keep it as a rental. Which leads me to my second point before you start any work know what you plan to do with the property. I made the mistake of planning to flip then changing my mind so I over improved the property for a rental. But I learned a lot like I don't like the time a flip takes or dealing with contractors. In the future I will be buying houses that need minimal work like paint and carpet and get them rented out.

Chance Housos · Answer

As mentioned above, remember carrying cost as well as selling cost. I caution you with a tiny house as that is a very specific market and you may sit on this one for a while. What can it rent for? Always have a back up option to stop the bleeding.

Luka Milicevic · Answer

I don't think you're going too fast.

There is of course a balance, but most people seem to have the problem of going too slow!

I also think it's fine that you don't have an actual team in place. If you are only getting started it's rare to have a team in place. You will build that up as you make more deals.

Luke W. · Answer

@Travis BenhamDid you end up doing anything with this property? It sounds like something we are working on right now.

John Powell · Answer

I would agree just rent it out it will pay for itself very quickly. You will get to learn both rehab and landlord in a very low risk scenario.

Scott England · Answer

I think this sounds like a great property to start with.  I agree with Rhett, it's going to be a hard sell as a micro home, but it appears to be a good rental candidate.

Rhett Tullis · Answer

20k house will be a hard sell unless you are selling to another investor so you might want to go ahead and lease it out.  also if its been vacant that long there may be some other issues with permits etc that you may run into so we sure to research everything as much as you can.

Travis Benham · Answer

This house is a 350sf micro house on about 1/6th an acre in Oklahoma City.  It was bought in the 80s and has been handed down in estate 5 years ago.  It hasn't been well taken care of, but it's not destroyed.  I think it just hasn't been lived in because there is so much overgrowth of plants.  It's been put up  with a price of $10k, "subject to court approval".  One of the investor contacts I'm talking to said with a house that small and in bad shape I could probably get it for $5k to $7k.  (I should have stated $7k I know but I got punchy with the keys)

The neighborhood isn't great, but it's not ghetto.  Most are kept up, painted, with cut lawns. Cars are decent and modern.   Nearby houses range from 450-900sf, and have a market value of $63/sf-$88/sf.

I thought I could get a cheap roof for this tiny house, some flooring, remove the vegetation,  new low-end appliances, for around $5k or so.  I've got a contact that will handle the vegetation part for a discount.  Planned on putting it on the market for $25k, hope to sell for no less than $20k.

If I've missed something, please let me know.

John Hamilton · Answer

@Travis Benham

I agree with @John Powell, but if there is no impact financially, why not do it. It's such a low cost that it could be a great lesson, even if you broke even. I wouldn't want to invest $10,000 and lose it just to learn a lesson, but it's your dime...Well, 100,000 of them. :)

Where did you find these deals and what do the numbers look like for the selected property? We could tell you if you are way off or on target. Also, rehab can come back and bite you in the rear end if you do it wrong or take too long or get ripped off. I'm not trying to scare you off, just preparing you for things to watch out for as you are going through it.

Much success to you my friend.

Am I going too fast?

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