All Forum Posts by: Jason Richards

Hi Zach,

This is a common forum topic on Bigger Pockets.  

In short, it can be done.  However, it is substantially more complicated to manage than a flip in your local market.  Having a trustworthy network of real estate agents, contractors, inspectors, project managers, etc. is key.  

I recommend doing a search on the topic and reviewing comments in prior postings.  In addition to the comments you receive on this discussion thread, you'll find a ton of useful information in other discussions.   

Andres,

You nailed it.  Both questions are pretty open ended.  The best I can do for you is to offer up what hopefully amounts to a useful nugget or two of information to build upon in your business.  

First off, (and I hope it goes without saying) purchasing a property site unseen is risky.  Books could be written - probably are written about the myriad of things that could go wrong with that.  We've seen it done.  It can work, but I think it should be avoided if at all possible.  If not possible, make sure someone you trust in the deal is giving you a reasonable idea of what the condition and scope of repairs are.  I'll leave it at that.  

That aside, I think the real question is "do I need an inspection"?  The answer depends on a few variables.  Are we talking about an experienced investor and experienced contractor that have done a decent volume of remodels in the past?  If so, the real benefit of an inspection would be to document the scope of work and perhaps use it as a tool to renegotiate the price with the seller.  When working with a wholesaler, a formal inspection probably won't carry much more weight than your or your contractor's own opinion on the current condition and required work.  

Order of work for a rehab can vary from project to project.  For items that require permitting, such as new roof, new plumbing, new electrical panel, etc., line up your trades to get you bids and start the permitting process as early on as possible to ensure you don't have any unnecessary delays.  Big ticket' or small items should be prioritized in a manner that works with contractor/trade availability and the natural progression of the project. There are, of course, some sequential components to every project. For example, framing new rooms is always done before plumbing, mechanical and electrical work if and when each applies to the room(s) you are creating. Drywall work generally follows that, then texture, then paint, and so on.  In general though, you do what you can as soon as you can.  Time is of the essence - especially if your project is financed. The interest and carrying costs can really eat into your profits if you're not effectively planning out your project and managing the workflow efficiently.  

Hi Cole,

The purpose of a real estate agent in Colorado is to have representation in the transaction from someone with with familiarity with the process and applicable laws.  For more experienced investors, one could argue that the benefits and agent provides is diminished.  Even for an experienced investor though, an agent handle the transactional details that take the burden off of the investor and allow him or her to focus on other more crucial aspects of the business.  

Since you're new, I'm sure there are several benefits to having an agent represent you in the transaction.  If you want to hire one and pay the agent yourself, maybe the seller wouldn't mind going along with that?  Just a thought.  

That pretty much answers question 1.  For items 2 and 3, check the Colorado Division of Real Estate website (do a search for colorado division of real estate forms).  You can find a purchase contract and other useful forms there.  To be clear, agents are required to use these forms, but you are not.  You are free to use any purchase contract form/language you and the seller agree to use.  That said, I wouldn't recommend drafting your own purchase contract without getting some expert and/or legal advice first.  As with any legal document, you can get yourself into a mess of trouble if you not careful.  

Kitchen and bathroom renovations generally increase the value most.  It is imperative that you coordinate with your refinance lender ahead of time.  Most conventional loan programs require you to hold the property for at least 6 months, but usually 1 year after the purchase date before you can do a cash out refinance.  

Aldo,

I agree with @Steven Rubino.  It does depend on the price point of your home.  I would also recommend looking at the heating/cooling solution of the flip comps in the area.  If I'm understanding correctly, the home currently does not have a central air system.  That may not be an issue, but could result in a lower sale price than the comps if they all have A/C.  

Agreed!

J Scott, this is a general comment. 

Every appraiser in the nation is required to comply with USPAP standards. However, each state has its own overlays of various degrees when it comes to appraisal practices. I don't mean to claim any particular act performed with the intent to influence the appraiser's opinion of value is illegal. I'm merely trying to convey the importance of ensuring the way one goes about doing so does not violate regulatory rules. In my personal opinion, the advice you have provided (build rapport, provide honest comments, provide accurate data to support a potentially higher value) is good advice.

@Matthew Paul, that's semi-national phenomenon currently.  Crazy market...

Hi Matt,

Be careful with the term 'influence'. In many jurisdictions, the legal definition of the term carries a negative connotation and is not allowed. I will first disclose that I'm not qualified to give you legal advice regarding what is or is not allowed in your great state of Wisconsin. That said, USPAP guidelines generally allow an appraiser to accept data that helps the appraiser properly valuate the subject property.

I recommend consulting with your real estate agent on the process, but generally the appraiser could be provided a list of comps, a schedule of repairs/upgrades performed on the property, or a variety of other data points that could help the appraiser better understand the condition and value of the subject property.

As an example, I know of instances in Colorado where a specific model or style of home sells for a higher premium than other styles.  In one instance, our borrower (flipper) was selling a mid-century modern home.  The agent provided comps of other mid-century modern homes of comparable condition to prove the value for this model was higher than other so-called 'comps'.  In this case, the appraiser was able to justify and appoint a higher value.

Again, be sure to know the rules in your area.  Going about the process the wrong way could jeopardize the deal or maybe even result in regulatory consequences.  Make sure you consult with a professional on the matter.  

Hi Matt,

Be careful with the term 'influence'. In many jurisdictions, the legal definition of the term carries a negative connotation and is not allowed. I will first disclose that I'm not qualified to give you legal advice regarding what is or is not allowed in your great state of Wisconsin. That said, USPAP guidelines generally allow an appraiser to accept data that helps the appraiser properly valuate the subject property.

I recommend consulting with your real estate agent on the process, but generally the appraiser could be provided a list of comps, a schedule of repairs/upgrades performed on the property, or a variety of other data points that could help the appraiser better understand the condition and value of the subject property.

As an example, I know of instances in Colorado where a specific model or style of home sells for a higher premium than other styles.  In one instance, our borrower (flipper) was selling a mid-century modern home.  The agent provided comps of other mid-century modern homes of comparable condition to prove the value for this model was higher than other so-called 'comps'.  In this case, the appraiser was able to justify and appoint a higher value.

Again, be sure to know the rules in your area.  Going about the process the wrong way could jeopardize the deal or maybe even result in regulatory consequences.  Make sure you consult with a professional on the matter.