rehab question

[Aaron Cheatham]

Hello . Thanks in advance for the insight on this situation.

Here's my situation !!!

want to dive into real estate investment. Ive always been a businessmam. I want to start to rehab houses along with wholesaling houses.

Here's my question. If i find a nice reo property or owner sale property that I can rehab how do I go about this. I don't have the cash to buy properties and rehab. My credit isn't the best, I was making 4k a week fresh out of high school with a company I owned and operated. Long story story short supply went high demand went low. I racked up a lot of bills that I.just couldn't continue to pay. I also wasn't educated enough at that time to open a llc to cover myself. My credit isnt the worse but it isn't the best either.

I've been reading about hard money lenders who lend you money to rehab houses and you pay them back monthly. I also spoke with my real estate attorney and he mentioned somwthing about a construction loan. Can someone give mea little insight on hard money lenders, what so I need to qualify, what are there terms?

Also let's fast forward after I have found a lender. Do I simply find a construction guy to do the work(although I plan on doing a lot myself) and present me with a invoice when the work is done and I forward that to the lender and I am reembruised for the funds? I'm a bit confused.

Also for example is I bought property at 10k with 15k repair costs and a 50k arv how do I cash out and make money off rehabing ? I'm not onto renting and cashflow and tenants(not yet atleast) .

Thank you again in advance for the help. I'm ready to make investing my full time job.

Sorry for any typos. I'm typing on.a evo4g. The spell check kills me everytime. LOL

Aaron

[John Glover]

From your questioning there is a ton of information you are lacking and you need to learn it before attempting any rehabs.
Not being fully aware of all your costs and risk can lead to financial disaster and you don't want that.

I would suggest you learn to wholesale houses and build up a nest egg for a rehab flip. While wholesaling you can learn and study what it takes to do successful rehabs.

Don't believe the hype you see on TV about flipping houses, it's a show and many things are edited out.

[Brendan J.]

Aaron,

I love your enthusiasm, but like John, would caution you to slow down a bit. Your general knowledge on the steps required to purchase, rehab, and sell for profit seem to be quite lacking.

I would find a steady paying job and over the next 12 months work on fixing your credit, saving some working captial, and increasing your understanding of the Real Estate Investment platform. I gurantee you that in this market, 98% of people that jump into the game with bad credit, essentially no money to work with, and not even enough experience to know that in order to "cash out and make money off rehabing" you have to SELL it, are going to get absolutely BURNED. The other 2% are simply a victim of blind luck and will surely lose their money on their 2nd deal.

I'm really not trying to be rude, but seriously, for your own financial benefit, don't do anything right now. Build your credit back, save money, and study study study...

[Aaron Cheatham]

Ok thanks for the info. I'm going to focus more on wholesale for now.
Aaron

[Don Hines]

The only advise I can add is to keep reading the BP forums and articles. There are also books in the library on these subjects.
Keep your enthusiasm and learn a lot more before you jump in. Rehabbing will provide a good living and lifestyle. I don't see how it will make me a millionaire though.
Don

[Ryan ODonnell]

"Rehabbing will provide a good living and lifestyle. I don't see how it will make me a millionaire though."

To me, it's about what you do with the money once you make it. It's not how much you make, but how much you keep. That's a whole 'nother thread though. =)

[Rob Gillespie]

I am speaking as a very experienced rehabber that owns a construction company, and as a very experienced wholesaler. I say this not to impress you, but to impress upon you that out of the two, wholesaling is MUCH better in most cases.
Take that house that you can buy for 12k, and assign your contract for 3k to someone that does not mind doing the work. Then move on to the next one.
In my early days 15 years ago, I was knocking it out of the park wholesaling! Then I decided to get greedy and I wanted to rehab like all of the people I was selling to. Before I knew it, I had 15k per month in hard money payments due, and was supporting all of my rehab costs with my profits from wholesaling.
Everybody learns somehow. I learned through mistakes, lucky for you, Bigger Pockets is around to guide you a bit! Good luck man! I am sure you will be a great success! :D

[James Vermillion]

Originally posted by RobTheHouseGuy1:

I am speaking as a very experienced rehabber that owns a construction company, and as a very experienced wholesaler. I say this not to impress you, but to impress upon you that out of the two, wholesaling is MUCH better in most cases.
Take that house that you can buy for 12k, and assign your contract for 3k to someone that does not mind doing the work. Then move on to the next one.
In my early days 15 years ago, I was knocking it out of the park wholesaling! Then I decided to get greedy and I wanted to rehab like all of the people I was selling to. Before I knew it, I had 15k per month in hard money payments due, and was supporting all of my rehab costs with my profits from wholesaling.
Everybody learns somehow. I learned through mistakes, lucky for you, Bigger Pockets is around to guide you a bit! Good luck man! I am sure you will be a great success! :D

I disagree that wholesaling is better than rehabbing in most cases. If you don’t have any money, they yes, wholesaling is often your best/only option. If you found yourself owing a ton of hard money payments due, you more than likely made a mistake or several along the way. It does not take a ton of money. My business partner and I each put about 9K into our first property, and we are looking at making 35-40K. That being said, it did take a lot of work. We spend an entire year developing our business plan, becoming licensed agents, working with a mentor, developing relationships (banks, contractors, brokers, lawyers, accountants, etc), filing LLC paperwork, preparing the operating agreement, etc.

All of that work has already started to pay off. Of the dozens of wholesalers I know, very few are successful. I am not saying it cannot be done, or that you should not do it, but rehabbing can and will work if you put the time/effort/thought/planning!

[Rob Gillespie]

I agree that there can be money made in rehabbing, but it is MUCH TOUGHER, regardless of your planning. Here is a real world example from last summer. I put a house in contract for 21k 60 business day close. I cleaned it out and sold my contract for 30k! My buyer is now into the house as is for 51k. He put another 40k into it.He is into it for roughly 90k right now. +/-. Without any interest, points, or cost of capital or time factored in. The house is in a very desirable area priced at the low end of market value, with a beautiful rehab done on it. It is priced for 137k. At the end of the day, he will make money. He is also a very seasoned investor with a lot of deals under his belt. He is ok with waiting it out. However, after he factors everything in, He and I will have made just about the same amount of profit.
I have no money, and very little time into the deal, and almost no exposure, while he has time, capital and exposure. Who would you rather be?

Granted both business plans work, and I clearly had more money than brains back when I was trying to rehab so much at one time. Lesson was learned, and I COMPLETELY AGREE with having a well thought out plan prior to whatever you get into.

[Don Hines]

Originally posted by Ryan ODonnell:

"Rehabbing will provide a good living and lifestyle. I don't see how it will make me a millionaire though."

To me, it's about what you do with the money once you make it. It's not how much you make, but how much you keep. That's a whole 'nother thread though. =)

Ryan
Try living with Mrs Hines for a while. You will lose your ambition of being a millionaire too. :cry:

[J Scott]

Originally posted by RobTheHouseGuy1:

I agree that there can be money made in rehabbing, but it is MUCH TOUGHER, regardless of your planning.

That's a pretty general statement. While it may be true for you (actually, it may be true for many or most people), it's not true for all people.

Having done both, I greatly prefer rehabbing over wholesaling.

With wholesaling, I find that I have to be much more involved in the business day-to-day, I have to spend lots of time on the phone, I have to do lots of networking and "selling", etc.

But, these aren't the things I want to be doing.

With rehabbing, I can mostly extricate myself from the day-to-day business, hire and delegate most of the work out and only have to work a few hours/week. I don't have to spend lots of time on the phone or lots of time networking (things I don't like doing). I just need to focus on the numbers.

As for success, I imagine the success I've had rehabbing would far eclipse the success I would have had if I had focused most of my time wholesaling.

I can certainly understand how someone with a different personality than I have would much prefer wholesaling (and would probably be much better at it than I would be), but again, everyone is different...