Real Estate Investor · Southeast, FL · Member since 2008 · 73 posts · 3 votes
I generally run under the assumption that most investors here (those that do rehabs)... either do the rehab entirely or partly themselves to save on cost, or do the deal finding themselves, so as to save on wholesalers assignment fee and thus allow themselves room for profit. But has anyone here done (or currently do) this before:
Bought a house from a wholesaler.
Paid a general contractor to deal with the rehab for you.
Sold it for an "acceptable" profit.
I am interested to know how viable this seemingly turnkey "hands off" strategy would be for someone who has a full-time job with no immediate plans to quit that job in the foreseeable future. And of course the idea of an "acceptable" profit would differ from person to person. And also just how turnkey and hands off this really is.
I'm sure as in everything in life there are hidden hassles with this, some of which the end profit (if there is any) would make worthwhile, and some that make it too much work for too little gain. I'm interested to know others thoughts and especially experiences with trying this or something similar out. Also what kind of profits are you seeing and how long does it take to realize those profits. After all profit isn't just a function of how much but how quickly you achieve it.
Real Estate Investor · Southeast, FL · Member since 2008 · 73 posts · 3 votes
19y
After looking back at my post I realized that the word "turnkey" isn't exactly what I mean as that seems to suggest no work at all, but I think you get my drift from reading the post. I am basically asking how feasible it is to have as hands off approach as possible to rehabbing if I have a good team. And exactly how hands off is it?
Hey SoBeREI, I have recently done 4 rehabs in the Houston area and I don't live there, so they were 100% "hands off". The best one worked out as follows:
Purchase: $23,500 (1226 sf 3/1 on 1/3 acre with garage and workshop!)
Rehab: $20,000
Financing/Carrying/closing: $8000
Sale Price: $66,400
Profit $14,500
I sourced the deal through another wholesaler whose contract was about to expire and he made a $5000 fee.
I found my rehab contractor through "virtual networking". He sent me tons of photos and video clips during the rehab. My hardmoney lender advanced funds upon completion of different stages of the rehab. They went and inspected the work, then advanced funds, and I advanced funds to my contractor. Between pictures and the lender inspection I thought I was OK.
I put a tenant in the property and sold it to another investor. The property actually appraised for $80,000 so I "wholesaled it".
I took a big hit on carrying costs for holding it too long. I bought it early October, the rehab was done mid November, and I got caught in the hoiday season delays (December), which rolled into the January adjustments in lending practices that affected everyone.
Then there was a title issue because the escrow agent goofed up and didn't record my deed. My buyer's lenders needed 90 days seasoning before they funded the loan.
The sale finally completed in early March so I held it for over 5 months.
This was a good learning experience and there are things I would do differently:
1. Do a very detailed contract with my contractor, articulating EVERYTHING I expected, and get receipts from his purchases for my rehab. This would have meant taking a lot more time to determine exactly what I wanted instead of letting the contractor have his way, and cheap out on everything.
2. I would have an independent professional inspector do the inspections in addition to the hard money inspector. The hard money guy was looking for the general work to be completed, in order to advance funds to me. The inspector would be looking for the specific items and quality of workmanship articulated in the contract. This would have cost me extra but, I would have had a much better quality job done. The professional inspection would have revealed things to be done BEFORE I advanced the next payment to the contractor. ...Try getting your contractor to come back and fix things once he is fully paid!
3. Doing a rehab just before the holiday season isn't good timing. I think I will stay away from that time of year for future rehabs, unless it's such a screaming good deal that I just can't say no to.
Overall, though, the "hands off" virtual reahab worked for me, and I will do it again. It was a lot more time consuming because I was learning, and a lot more stressful, because I was carrying 4 mortgages.
I am primarily a wholesaler and likely could have made more money just wholesaling, with less stress and less risk, in the time it took me to do these deals, but with more experience and "tweaking" the process I will get more time efficient!
The previous poster has had success with "hands off" appoach. So have my husband and I. We live in CA, do our RE investing in MO. We have built up a team of reliable people to work with us from the the beginning to the end of the process. We go out 2-4 times a year to connect with them.
Every person came recommended to us through other people we worked with. The first person came recommended through a friend of a friend.
OUr front runner (bird dog) finds REO's and bids low on our behalf. We have a mortgage company we deal exclusivly with. We have 2 RE agents who handle the buy/sell process. We have learned who is a reliable contractor and who isn't (and trust me we ran into the bad ones).
We bought an REO last year for $33K. Put $40K rehab costs in. The listing price is $105K. We staged it and expect to sell it within 3 months for about $25K profit.
We have 3 other houses that are on lease option, coming due this year.
It's possible to do this but you must be prepared for things taking longer than you expect. I can't imagine doing a rehab in 3 or 4 weeks like on that TV show Flip This House. Just doesn't work that way.
Don't over extend yourself financially - there'salways something that throws a little monkey wrench into the deal.
Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
19y
I agree that those rehab & flip shows on TV are not real world. You might get the rehab done quickly but they always seem to show an open house and sale the next day. Never happens that way. They also show gross profit but rarely the cost of selling and never the cost of money. But it is entertainment so what can you expect.
I agree, it's all in the "virtual team" you build, and you don't always get the "best of the best" first time around, but networking with people on the ground, you get referrals to the right people.
Even my initial "not so reliable/not so top quality" people did an OK job, they took a little longer than I expected, and I had to pay extra to have things "done better" which ate into my profits, but my profits were good anyway.
Doing a "virtual rehab", you really have to buy right and give extra cushion for error. And since you can't be there you have to pay someone to inspect the work and not pay the contractor until you can verify they gave what they promised and with the workmanship you agreed to.
I made the mistake on my first ones, to trust the hard money lender's inspector to verify the work done. For instance: my contract called for new cabinets in the kitchen. My contractor painted the old ones and made them look good, bought partials and painted them so they looked (almost) the same, but I paid for ALL new cabinets.
When I went back to the contractor after i paid him and told him I expected new cabinets... well lets just say it would have taken more time and energy (and that is a finite commodity) than I was willing to engage, so I licked the wounds and made sure I didn't make the same mistake next time.
The other thing with the "Flip that House" shows, their numbers only reflect: Expected sales price - Purchase price - rehab cost =profit
What about carrying costs, realtor fees, taxes, insurance, etc., and the possibility that your buyer doesn't pay full price?
I am a contractor and have lots of absentee clients. I am always very frank with the budget and most often we come in under what we tell the client as I always build in contingency.
I say look around very, very, very carefully for a contractor and I keep hearing horror stories from folks about just this sort of thing