All Forum Posts by: Kevin Barnett

I hear what you're all saying but I have to disagree with you. You say you replace EVERYTHING. What exactly does that mean? Do you always take the house down to the studs? Do you always replace the electrical, plumbing, and HVAC? What about the roof and the siding, the windows, the fence, the driveway? It's not practical to say "I replace everything" because it is cost prohibitive. Your job as a rehabber is to get the job done, spend what you must spend, but not spend any more than that. Any money you spend that wasn't necessary is taking from your profits.

But that's the hard part, figuring out what you must spend. I mentioned cabinets in my example and maybe you're just referring to those. This house is only 10 years old. Does it really make sense to replace the cabinets if they're in good shape? Does painting or restaining make more sense than a full cabinet replacement?

And if I go in with the mantra that I'm going to replace everything, then doesn't that affect my ability to make offers? If I tell a seller that I will only offer them $60K because I plan on replacing everything but another buyer offers them $125K because he is planning on leaving a good portion of the house in tact, doesn't that mean I will rarely, if ever, get the opportunity to buy a house?

That's the whole point of this post. What are the things that I MUST replace, and where can I save money? What are the things that will definitely help sell the house, i.e. cabinets and counter tops, and what are the things that won't make the slightest difference? Meaning, I can spend money replacing them but buyers won't give me any more or any less, nor will it affect how quickly the house sells. For example, is it really necessary to clean the ducts, sweep the chimney, add insulation, repaint the house numbers on the curb, etc.? And for the things I must replace, what should I replace them with? I can spend $45K on custom cabinets if I really wanted to but is custom the way to go?

Hard wood floors can range from $1.59 to $12.00 / sq. ft. I can put in real wood, bamboo, engineered, or laminate. I can glue them, staple them, or float them. There are thin planks, wide planks, and random planks. They come in dozens of different colors. I don't want to be cheap and get the cheapest thing I can find and at the same time, I don't want to buy the most expensive thing I can find. I want to put in the right material but not spend any more than I have to. But what is the right material? What will sell the house, what will be detrimental to my returns, and what doesn't make a difference.

Hopefully I'm making sense and someone can start giving advice on what today's trends are.

I am just now starting work on my first rehab. I'm finding out that there are some difficult decisions to make. If this was a complete burn-out and I had to replace EVERYTHING then it wouldn't be such a hard decision to go with $3,500 cabinets or $10,000 cabinets. Obviously, I would base that on the level of property and put in really cheap cabinets in a run down part of town with $75,000 houses and put in really nice custom cabinets on a $800,000 house in a ritzy part of town. That's a pretty easy decision to make.

What I'm finding difficult is trying to decide if what I have is good enough to pass muster or if it needs to be replaced, altogether. The difference can easily be the difference of thousands if not tens of thousands.

For example:

Are my cabinets good enough? Could they be painted for a few hundred or do I need to replace them. - $800 vs. $4,500

Do I keep the existing tile in the kitchen, which isn't very nice, but isn't very bad either? Maybe I could just steam clean the tile and grout. $200 vs. $1,500.

I know the carpet needs to be replaced but is nylon good enough with a nice 8 lb. pad or do I need to go polyester? Which rooms should be carpeted and which ones wood or tile? $5,000 - $10,000.

These are just examples but hopefully you get my meaning. It would be nice to know the minimum necessary to sell a property. What are the current trends in flooring, counter tops, cabinets paint colors, lighting, landscaping, etc. What sells the property quick and what upgrades are a waste of money? Maybe we should have a full forum category just for this topic?

Thanks for the number Baltazar. Care to share what kind of response rate you get from the 5,000, what is the quality of the lead, and how many you can close from those 5,000 each month? How many repeat mailers are you sending to the same target?

And, I can understand if you feel it is your secret sauce not to share, but would be nice to know who you're targeting and what you're mailing them.

I think the go to attorney for RE matters in the area is Gaylene Lonergan (http://lonerganlaw.com). I personally am not aware of any other specialists around DFW.

Quick and dirty is just that - quick and dirty. It's OK to use as a very, very rough ballpark when first considering a property. But I would NEVER, EVER purchase a property with these numbers.

I might use it in a scenario like this:

You find out from a friend that he knows of someone selling his house quick and is looking for $185K. Your "quick and dirty" estimate puts an After Repaired Value of the property at $200K. Your "quick and dirty" estimate of repairs is approximately $15,000, because it is just "paint and carpet". You know you can easily be underestimating by $20,000 or more on the ARV and overestimating your repair estimates by $5,000 but would it even matter? You know, even if those better numbers were accurate that you'd still need to be at around $150K purchase price just to be in the ballpark. In this case you might choose to not spend anymore of your time analyzing this property. However, in the same scenario, if you think that the seller might consider accepting $120K, then you probably want to jump all over this potential deal. I would STILL do more due diligence and try to come up with better numbers but at least I know it is now very much worth my time on this property to do so.

That is the ONLY was I would consider using a "quick and dirty" approach. I can spend 2 minutes coming up with a QaD value and easily analyze 30 properties an hour. Or I can spend 30 minutes doing all necessary comps and repair estimates for every property I look at only to find that we are nowhere close. I will gladly spend 30 minutes or more only when I think I've got something to work with. There's a lot of "junk" out there. Your time is important and you need to sift out that junk as quickly as you can.

I had applied for a HELOC with WF. My intent was to keep this money available for rehabbing projects (paying hard money lenders points, reserve funds for overages, etc.) Everything was going great and I was approved for $50,000. Then yesterday they told me they were going to reject my application because I told them I wanted the credit because my wife was starting up a home based business and needed that for reserves. I didn't state the nature of the business or anything so that was a true statement. But I thought it might scare them if I specifically stated it was a flipping business.

Before I go back and reapply elsewhere, does anyone have suggestion on stating my intended use of the funds? I can tell them I want to use it to pay off credit card debt but:

1) They know how much debt I have from my credit report. I want to borrow much more than my debt so if they ask why don't I just borrow enough to pay off that debt, I don't want to have to try to stumble and come up with a new explanation.

2) I don't actually want to pay that debt off right now and do not want them to pay it off for me. I don't know if they will or not, I just want them to open the credit line and let me do with it what I decide.

Anyone have any advice on what to tell them as my reason for requesting the credit line?

I was at a recent REIA meeting and someone asked what I did. I told him that I was currently rehabbing a house. I try to avoid using the term "flipping", especially with so-called investors savvy types, because it seems to mean different things to different people. A woman overheard me say that I was a rehabber and then asked, "So you're a contractor?" I said, no I was a rehabber. She then looked extremely puzzled and asked "What's the difference?" I told her the difference is that I own the property and I am the one taking the risk. We went back and forth a bit before I gave up and said I needed to use the restroom.

To me "flipping" means acquiring property and then selling it at a profit. This could mean turning around and selling it two days later as a wholesale deal, pre-habbing, or a full blown rehab. A flipper always has the option of doing any of these things and might choose to do so for whatever his reasons. The term "rehabber" seems pretty straightforward to me. I can see similarities between what a rehabber does and what a general contractor does but I would think a GC would say he was a GC if asked what he did. It's also possible that someone could call himself a Flipper and he is correct, although it would be more precise if he said he was a Wholesaler.

Am I off base here? How do you define and distinguish between those terms?