All Forum Posts by: Charles Whitaker

Hassan,

I too enjoy this thread, very informative and chocked full of reality.

One issue that I would like to clarify is your calculations for purchase price (MAO).

In my part of the country you would not get many deals AT ALL using this formula. An average of the numbers posted above shows that you are typically buying at 30% of ARV. That's great if you can find deals like that all day, however, realistically you are leaving a lot of stones unturned.
A recent example of one of my rehabs:
ARV 90K - 95K, purchased at 61K with 5K repairs.
After HML financing = 66K
Holding costs/misc = 3.5K
Repairs = 5K
Total = 74.5K

Sell for 93K
Net after commissions, closing costs = 84.4K
Net gain = ~10K

I typically use the 65% of ARV minus repairs to arrive at my MAO. According to my formula I should have paid 53.5K but the risk was low so I went for it anyways.

Now, this was a slim deal compared to most that I do, but, is an easy 10K something that you would pass up. I performed a rough calculation your way, MAO of ~32K. Around here, other investors would out-bid you constantly, severely reducing your volume for the year.

Thanks for reading, this was just an issue that I thought could use some debate.

Maybe I'm moving to Georgia!

Quick question to follow an earlier reply, How do you settle the chart of accounts after a home is sold?
How is closing costs, warranty, fees, etc associated and used in the chart of accounts?

Thanks for any info.

Ryan,

Excellent post...........Have you decided to write a book yet? I'd buy the first copy, promise.

No, really, thanks for the info.

Originally posted by Cody Clark:

thanks guys Im really just starting out and rehabing seems like a good way to start off and build capital. Do you guys have any advice for a first rehab? Thanks

Take out the notepad and begin learning.

Really, just be conservative and watch the numbers. Knowing where the rehab is at in terms of completion and dollars at all times is helpful. Also, take on a smaller rehab to start; I have seen a lot of folks take on large projects as their first. I am also seeing a lot of folks that aren't doing rehabs any more.

Andrew,

Other than having your offer look great to a seller, why do you have to pay all closing costs. I give this option but usually, due to the seller or circumstances, we end up paying our own costs. Enlighten me please.

Originally posted by Patrick E:

How do you find the investors??

So you don't need any money to do this correct? You just find a house, make a deal, sign the contract, and then sell the contract to an investor??

Patrick, Investors are found by searching; sometimes they find you but most often you have to dig them out of the bushes. An aggressive approach will yield the best results. Narrow your focus and search for only those who will likely be cash (or cash equivalent) buyers.

Yes. You do not need money to assign a contract, however, you must be ready to either back out of the contract at closing or have cash ready to purchase the property. Beware, backing out of contracts consistently will start your reputation off in the wrong direction and will lead to fewer leads down the road. If you are not willing to purchase the deal after not finding a buyer, it probably wasn't that great of a deal to start with.

A very important aspect of assignments is the time issue, most owners prefer cash now. Can you find a buyer for your potential property within 10 days, maybe 3? This is why such an emphasis is placed on building a solid buyers list; all of which are ready to buy. I recently assigned a contract to another investor with a much stronger buyers list; due to my lack of such I lost out on an extra 5K. Experience is painful at first. Build that list constantly and relentlessly and you should be fine.

Originally posted by Inamiks:

(for reference, is that for end buyers and investors alike?)

Most likely yes. most homes need to have functioning living quarters which include a usable bathroom and kitchen.

If a few of you don't mind sharing, How do you (or your CPA) prefer to setup Quickbooks for rehabs.

Do you use class tracking?
Use a new company for each account?
How do you setup your chart of accounts?

Etc, etc.

The CPA that I have worked with is backed up horribly and I would like to make some sort of progress.

Thanks

Inamiks,

Most investors want a deal where they are in and out; to be able to take full advantage of the cost of their money with as little risk as possible. A gut project involves many more and expensive items than a typical rehab and is very time intensive. Excessive overhead and material expenses is likely to incur for the less experienced investors as well as management problems associated with such a large project. These items will bring on a narrowed buyer pool.

As for relating the hidden potential of a gut project to a retail buyer...........................Good Luck. :mrgreen:

These buyers want a finished house or something that can be repaired. Notice the word repaired, not rebuilt. Once again your customer basis is narrowed and don't forget about the lack of bank financing.

I don't see this method being viable or profitable. Just my $0.02

Another source of this data can be your local tax assessors office, and they don't require you to bring them business. You might have to pay some property taxes, though.