Pony just got done with a thread about investment properties and Im gonna re visit it . Ready to get bored?
I have a question.
Ive spent the evening with my agent . She just left . I learned some things and found out things she didnt know . I went to a forum after she left . Foreclousure.com I read the forum for a while and this question Im gonna ask is eating away at me while IM there . Then someone asks the question , how to rehab properties and the thread is empty. I assume no one had anything to add. Yall know how forums go. Someone always knows while several dont but they will comment anyway. Anyway this thread is empty.
Ive always wondered how all these “flippers” do it with out working knowledge and tools . So thats my question. How do they buy anything without first knowing what they are looking at .
Doyle Brunson stated one time he didnt understand how a person with out knowledge could win a poker tourney. He had questions like :
How do they bet if they dont know their odds ? How do they manage their money? With out money management youll go broke even though youve been winning.
This has been a mystery to me and I thought I could fathom most anything about this business if it was explained.
You guys do the work but wont learn the business . How do business people do it with out being able to give an evaluation of a house or work on one ?
We talked about this a few years back on BT. Just that a business man had a better chance of surviving in a construction business than a carpenter. I can fathom that if hes surrounded by people who know their stuff . Normally flippers arent surrounded or experienced.
There it is,…
Ive been reading a course DW bought about flipping properties.
Replies
I hate to say it, but at least with the house flippers I know a little about, when getting bids for work they only have to say, "This is for a house flip," and all the subs instantly know the client is looking for good looking low quality at a cheap price. Many questionable carpenters/contractors make a living off this kind of work day to day so it's a natural to do it for a flip.
The bottom half of our profession is keyed in on exactly what house flippers want and need, at the expense of the buyer.
When house flippers are comparing notes on contractors the bottom line is how nice can it look for the least amount of money.
During an extensive remodel it's a shame to have to tell homeowners how bad the previous carpenters performed during the flip prior to them buying the property. The only good thing would be the small number of nails holding things together so they fall apart readily.
Beer was created so carpenters wouldn't rule the world.
Good answer like Dan.
Tim
Years ago I ran across a book by William Nickerson, "How I Turned $1000 into Five Million in Real Estate in My Spare Time". http://www.amazon.ca/Turned-Three-Million-Estate-Spare/dp/0671201255
I was interested but found the approach a little less than ethical. Some years later, I was hired to do some work by a guy who seemed to be on that path. He had a 40 or 50 unit apartment and hired me for the princely sum of about $15 an hour to make some exterior repairs. Got the work done and went to present a bill. Couldn't contact him and didn't get any response from the messages or bill I left with the complex manager. After three or four weeks, I finally caught him. He claimed the work was unsatisfactory and he would only pay 2/3 of the bill, a tactic discussed by Nickerson.
It was a small sum and not worth pursuing legally so I settled with the proviso he not bother calling again. Only time I have ever been stiffed and it soured me on the whole business and the people in it. I swore then I would never work for a property re-habber/flipper/landlord again and to this day have been fortunate enough that I have never had to.
Ive met those kinds of people . They are actually in other business too. Sorry you had that experience.
Tim
I'm glad I had that experience. A good lesson early in my career with a not too critical price for me. I'm not suggesting that all in the business are bad, or that there aren't other business' that don't have equivalent types but it does strike me as one with a higher percentage of questionable ethics practitioners than others and one I'm happy to steer clear of.I would be more inclined to trust someone who understands the actual requirements of re-habbing property than one who hasn't a clue.
The money made on the flip is made on the buy, the work on the flip is to make it marketable. So 100,000 neighborhood, house sells for 70,000, you put 20,000 in, you make 10,000. You are not going to buy at 100,000 put 20,000 in and sell for 130,000 in a 100,000 neighborhood.
So just because a house is foreclosed on does not mean it is selling at less then market value when prices are declining. It is foreclosed sometimes because it was purchased at 130,000 and now is worth 100,000.
So how does one make money with out knowing a dam thing, they know what market value is and are paying less then market for the house, the money is made on the BUY.
WALLYO
Edited 4/5/2008 1:17 am ET by wallyo
>So 100,000 neighborhood, house sells for 70,000, you put 20,000 in, you make 10,000.<
No you don't. That scenario is a loss. You're omitting the realtor and taxes. Realtor fees = 6% of sale price. $6,000. That'll leave it with a $4,000 profit to cover owners labor, risk, interest on loan or lost interest on cash and taxes. Estimate taxes @ 25% (lots or variables on that number though) and that leaves $3,000. Not very exciting. For all the headache & risk that money would've been better sitting in pathetic bank CD. The jist of what you're saying is correct but the numbers need to be much better than that.
I think Mooney is probably the one that 1st verablized on this fourm that profit is made at the purchase but with most flippers the profit is maximixed by unethical treatment of the people helping them make the profit. If it's not the treatment of the subs it's a unethical representation of the quality/material provided. They also tend to know nothing technical about a house (other than colors and flashy trinkets) so ignorance is bliss.
John it is a stinking hypothetical situation. So, sorry not to include every detail. Since it is my scenario the house is sold in 30 days no interest, it is sold by the flipper as property by owner no realtor fees , the house is in my town taxes are 900 year one month is 75 dollars I am including 75 in the 20k budget. Any and all other fees title insurance, recording fees I am making the buyer pay.OR I used a realtor and the 20k includes that and all other fees, she has cut her rate to 4% because I bring so much business to her. I only said 20K is put in never did a line itemization of where the money went.Point is the money is made on the buy, you can not pay market value or more and flip a house and gain a profit. Oh all the work was done by me and I get paid 15/hr and that comes out of the 20K so I made 10,000+3000 for 200 hours.Wallyo
Edited 4/5/2008 9:35 am ET by wallyo
I've met some flippers, and the gist of this thread describes them: unethical, unconcerned with quality, "hide the defects" mentality. No respect for the trades. And not all were successful, either.View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
I think this thread should be renamed to "all flippers are crooks". There is a wide range of "flippers" in the real estate market. There are million dollar single family home flipped without needing any work. There are multimillion dollar industrial properties flipped that need significant rebuilding. There are malls flipped that need new facades and tenants. There are vacant properties flipped that only need a sign. It appears that the majority of the focus of the wrath against flippers is aimed at the lower end of the scale. If this were a thread on remodeling kitchens, the entire thread would dismiss all high end kitchen installers and compare them to the "hack of all trades" master of none unlicensed remodelers who install $1500 kitchens (including all tops, appliances, flooring and cabinetry). Lets face it: if a guy is buying 900 sf houses in warzone neighborhoods, should he drop 75k into a house that will ultimately be worth $35k tops and rent for $250 max? So, this discussion paints every flipper with a broad brush but I think we all can agree that that type of thinking might make us feel good but doesn't really mean anything. I think Donal Trump is a flipper and quite often his end products have been very expensive high end apartments in some of the richest real esate in America. Bob's next test date: 12/10/07
Blue I was going to re explain it but after readin my first post , I cant do it any better than that ;
"
Ive always wondered how all these "flippers" do it with out working knowledge and tools . So thats my question. How do they buy anything without first knowing what they are looking at .
Doyle Brunson stated one time he didnt understand how a person with out knowledge could win a poker tourney. He had questions like :
How do they bet if they dont know their odds ? How do they manage their money? With out money management youll go broke even though youve been winning.
This has been a mystery to me and I thought I could fathom most anything about this business if it was explained.
Ill now make a post to Dan furthering this thought.
Tim
Dean Graziosi
Lets refresh this with an example .
I want to buy a house so first thing I have to know how and where to look.
Next I have to have the means to buy it .
Ive targeted my example by the process of elimintation.
1rst house was sitting on the ground and sinking with wavy floors. Didnt look bad but made me wonder why I was feeling and seeing the floor do a slight roll. I crawl under it and find termite damage in action. I dust my britches off and move on to the next one .
2nd house I drive up to looks great and has a steal of a price on it opening for auction. This puppy should be worth165,000 and the opening price at auction will be just under 100,000. The yard jumps out at me first . Thers just enough of a top on a hill to sit this house and it drops off on the yard on three sides like a steep roller coaster . Im sitting in the car looking at it wondering what I can do to get grass to grow because its too steep. [this was yesterday] Im thinking no one will want to try to mow this yard. I couldnt in my condition. Then I see it ! This house is sitting 10 feet off the ground and theres no foundation vents. I call my agent and she does a history search on the house and she makes some calls . She tells me last night what I thought . It has settleing problems . Every agent in town thinks it has problems. Im done with it . Move on. It was top choice.
I look at a lot of houses that have problems that cant be fixed for the money turn around. No way they can be top sellers with the money I can spend so I drive on.
A couple were nice but too dadgum high.
I drive up on one that was new 7 years ago. Needs yard work and paint. Figgure floor covering and were good to go. Call agent and she works up a history. Guy bought it for 56,000 and lost his wife. He quit his job and isnt working . He hasnt made a payment in a year. Gov loan is why hes still sitting in it . Top shape , its worth 70 to 75 grand . Im figgureing 10 grand against it when Im done including the agent. We are headed to auction on this one . I might not get it done . May be high charges for that year and someone might really want it . I dont really want it all that bad . Theres not enough money there to get excited. Ill take it but I wanted the big one on the hill. Im experienced enough to fold my hand on it though. Taking a small pot on a little house sounds better than risk on a big one .
How would someone with out knowledge folded their hand on the big one ?
Would they have seen the slightly wavy floor? Would they have had a clue if they had crawled under it ?
That was a days work yesterday for me . To be able to do the work also gives knowledge about it . How else could a person know these things ? A couple entered the answer they can hire cheap labor to "fix things " . But someone has to know what the H^LL their looking at before they buy it . That is the most critical time . What keeps them from suspecting a mud puddle and get drowned by a swamp?
I watch a show on flippers . Lady bought a house that had water under it . The wood floors were separating but she bought it well under market so she jumped on it . Repair man removes the bathroom floor and finds a lake . He calls her and she decides to cover it up like its not there . What else can she do? Nothing really other than lose it . She lays viynl in the whole house to cover it up long enough to sell it . She sells it and gets sued . I figgure she probably files chapter 11 or somthing .
I got called on a house that was going to auction. I drive up and I see the yard has sat in water first off by the stained grass so I look around. Where is this water going ? I drop to a knee , look this way and that way. Not commming out the front yard . Walk to back and same thing . Huh oh. Uncover the crawl space door and there it is full of water . Tell grandson we are leaving . He says that quick pap pa ? That quick son. I explain it to him on the way to the next one .
How do they avoid it?
"Ive always wondered how all these "flippers" do it with out working knowledge and tools . So thats my question. How do they buy anything without first knowing what they are looking at ."I think you are premising your question with a wrong assumption. Many of the flippers who have gotten excited about the idea did so because of television shows or reports of huge profits. A lot of them realized that they had one of the most critical elements to get started in the business: a huge credit line. Many of them are also educated people and did what a normal educated person would do: research the subject. So, after researching (your DW is doing that now) they get to a point that they have to jump in. Then they learn from the school of hard knocks. If they've paid attention to their research, they are told to do market studies. They are told how to deal with contractors. They are told how to assemble a professional team of accountants, lawyers, real estate brokers, mortgage people etc. Some choose to pay attention to that, others jump in head first and figure it all out later. Most of these flippers already live in houses and many have done minor repairs to their own thing such as replaced floors, painted, re-roofed etc. That qualifies them to some degree to know how to supervise subs. It's not rocket science after all. The thing they don't realize is how time consuming all of the above is . They tend to miss their time frames significantly as a result of their optimistic and unrealistic time expectations. So, to answer your question: I dont think they flip things without "working knowledge". They do what they do, thinking they have working knowledge but after the first one, they figure out that they need a lot more. If they are lucky enough to be in a market that is rising, they actually make money on their first deal even though they messed it up in every respect. Those days are over for most though. Bob's next test date: 12/10/07
Read the post under the one you wrote to me .
Caught up? lets continue .
You hit another nail on the head.
I saw 7 houses yesterday and have one contender. Just a little house . I went as hard as I could go which is not real fast so I didnt break into any of them.
It would take a week to depend on other people to check all those out and those people would be tired of it .
I just dont get it . Yet like Dan T said , there out there competing against me . They never was a carp, painter , drywall guy, plumber , sparky , a day in their life . Not one day. I fully see what you and Dan said but what keeps them from falling into a swamp from the lack of knowledge?
I think all you guys take your knowledge for granted . Yes they can hire the work done . I can call an agent to price it and get history, but I cant ask someone to hold my hand on the decsions . I happen to know how to do the work but the better blessing is the knowledge from it . I told DW Im having a double knee replacement comming up and she asked what would happen. Nothing much different . Ill walk on crutches if I have to and make decisions and hire the work done for a while . I can do that . If I lost my knowledge I figgure Id be done .
Tim
"So, to answer your question: I dont think they flip things without "working knowledge". They do what they do, thinking they have working knowledge but after the first one, they figure out that they need a lot more. If they are lucky enough to be in a market that is rising, they actually make money on their first deal even though they messed it up in every respect. Those days are over for most though."
Thats true often enough.
Ill bet you can think of guys like Dan and I do. You know a man that coudnt run a caulking gun but hes been in business for a long time .
"You know a man that coudnt run a caulking gun but hes been in business for a long time ."I'll up the ante and say that if a man is smart enough to avoid running the caulking gun, he'll have a much higher chance at success! You talked about several houses that needed substantial improvements. The one that I'd be interested in is the one that needed foundation repairs and had a 65k spread to start. I don't know if the house is worth 100k as is, but I'd sure like to know what the repairs were going to cost. 20k can go a long way on foundation repairs so that particular house is close. Maybe if you could get it for 80k or so it would work...remember, there won't be many people interested in it at any price. The one with the water sounds simple too. Sump pits and sump pumps are cheap. Drain tiles are cheap. Dirt and lanscaping is cheap. Gutters are cheap. Add all the cheap up and you've got a 10k bill to drain a swamp if necessary. Yes, perhaps we take our skills and knowledge for granted but a businessman also knows he has to develop a network of other experts. All too often, tradesmen like ourselves tend to want to rely on nobody but our selves. A Harvard businessman knows that his skills are in the books and numbers and he makes money on other professionals with skills. The flipping business is just that: find a house in disrepair and hire professionals to fix it. Unfortunatly, the good deals are much harder to find and the newbies are too anxious to get into the business. They buy into marginal deals, even though the tapes and books warn against it, then resort to substandard contractors and repairs to make the numbers work. Also, a lot of people think that they are better off working in smaller numbers, so they start their flipping careers in warzones...which takes a special working knowledge of the people and enviorment. It seems simpler to start the flipping business in 30k houses but it's not what I'd be inclined to do.Also, you've said many times that you need to look at a lot of properties and make a lot of offers to get one done. You looked at 7 properties and now you think one is in play. Go ahead, make the offer for the one at the price you KNOW you will be successful at. You might be offering only 30% of the asking price but if that's the right number for your business model...then don't offer a penny more. Of course, you already know that. I've been negotiating with a guy that is selling a tear down for month now. He wants what he wants but I know what I can pay based on my numbers. His numbers really don't mean anything to me...only mine do. I know a way that he and I can get very close but he also wants a "sure deal" and "no risk". Well...I guess we aren't going to be doing business. I'm willing to accept the risk, but only at my price...not his. I think most flippers get caught buying prices above wholesale and aren't honest with themselves about the true cost of fix ups, holding costs and they mentally inflate the exit strategy. Everything looks rosy if you figure like that! Bob's next test date: 12/10/07
Exellent post Blue .
You picked what you have worked on top of all these years .
I wanted the house too as I said .
Heres what little I know about that . Im sure there are foundation, concrete experts here and Im not . From what I learned as an inspector and memory is foggy but not missing , is that fills are done in lifts of like 1 foot and packed . For a lift of 4 feet or more then different materials are necesary. Big rocks under smaller rocks, gravel, then donafil or sand . Seems it has a limit though I cant precisley remember . Id have to refer to the code books I dont have anymore. The thing is though this slab was 10 feet high on one corner. I know I could not have passed that inspecting and guessing its probably fill from the eath surrounding which is red clay. Red clay packs well if given time but not in short time building . . Im talking about 1 foot maybe . It would be soft that deep no matter what . I also dont know if it has poured walls or cinder blocks. I could ask the builder but he probably wouldnt want to talk about it and if he did would defend it. The main thing is that "all" the re agents have black balled it . Ive got a burn out and it has a stigma as well. I just dont need it . Ill look at 7 or 8 more Monday.
With my health the way it is , Ill be picking my own battles I can win easily. Ive got a lot of different tools and a backhoe but I dont have a ramset. I want painting, drywall repair,carpentry, electrical, plumbing, and land scaping . My knowledge is much greater in other areas than it is in concrete. Thats one of my less areas of knowledge.
"I've been negotiating with a guy that is selling a tear down for month now. He wants what he wants but I know what I can pay based on my numbers. His numbers really don't mean anything to me...only mine do. I know a way that he and I can get very close but he also wants a "sure deal" and "no risk". Well...I guess we aren't going to be doing business. I'm willing to accept the risk, but only at my price...not his. "
That might be the smartest thing Ive read you said since you started prospecting. Keep being stubborn. I got a good offer for a house of mine last week. I asked for 1,000 dollars non refundable down payment and they went away although they were willing to give the price by the counter they signed. They wanted to tie my house up in the top time of the year for 30 days not even offering a dime . I rejected it and it fell through. Her agent said , shes looking at other properties . I said yea and someone looks at mine every day so were even, but Ive got the property and she doesnt have any money. Thats not even. At least Ive got the goods. Shes seen it but I havent seen any of her money.
Tim
Why you reading Flipping books/programs? Seems like you could do a school on rentals and wealth building. You just interested in what you might be missing? You going to be on late night TV w/Carlton?
Just seems like you have a good program going yourself.
It's a different program. The two business share the words "real estate" but are two entirely different animals. I don't blame Tim for investigating a different business model. Done right, he'll be fine in either deal. Bob's next test date: 12/10/07
DW ordered ths course for her . But she cant read a chapter with out telling me all about it . Blue probably knows more about this course than I do right now .
I dont know whether I need it or not to tell you the truth.
Im old school she says but old school works. I dunno.
She quit her job managing a plant and shes throwed in with me . That means IM gonna have to step my business up for sole support . Everything was in turmoil for a while till we headed a direction. Plan calls for me to do more buying and selling and less landlording . Ive got 15 right now so theres not a lot of time for anything but rentals . Were gonna change that and start selling rentals . I ment to take them to retirement but we didnt make it . I need to be released of the time and I can use the money to pay cash at goverment sales.
If it works out the way I think buying is all Ill be doing pretty much . Ill be brokering too. Ill work as a buyer for myself and other people . So yea , were changing up. She wants to make sure we have all the information thats out there . Shes white collar so thats natural. Shes gonna line up investors and dispatch my leads.
I always thought I could make a living doing it and she agrees . Theres not any buyers around here .
Tim
Nope, never heard of the author. I never believed there was much value in those courses that sell for hundreds of dollars. They'd usually repeat the same information that you could find in any book. I have read dozens of books and each author has the same basic information in 80% of the chapters because thats how real estate transactions are done all over the US. The other 20% is somewhat unique and gives insights into how they did their business depending on which business they were doing. For instance, guys that flip won't be giving good instruction about landlording. Guys that focus on buying on the steps don't give good instruction about finding pre-foreclosures. They don't give advice about negotiating them either. I'll put it another way. If I wrote a book about Carpentry, 80% of the book would be generic and explain about the terms and types of houses etc. Then, 20% of the book would be about my particular style of framing since that is where my expertise is. If Grant wrote a book, about Carpentry, he'd have the same 80% but then he'd deliver his 20%
section on his copper flashings and piping and such. Both books would be important in their own right but the carpenter reading them would pick his specialty and favor one over the other. We are both carpenters but I know for sure that I couldn't do what Grant does LOL! That same thought goes to real estate. I enjoy being out there talking to sellers but I know I wouldn't do well with tenants. Commercial tenants...maybe, residential tenants...nope! Bob's next test date: 12/10/07
Edited 4/6/2008 9:23 am by Jim_Allen
Ive experienced the same thing reading different books . I agree and marvel at it .
When I started it , I didnt have the internet . I went to a book store and ordered every book there was on landlording . I bought some of them that night they had in stock and they shipped the rest by mail.
Then I learned pretty quickly through the books and experience trying that the buying was the hardest part for me . So I bought all kinds of books like wealth in real estate to you name it . Another bunch of books hit the mail slot.
I enjoyed them all but like you mentioned I got tired of reading driving hoods and what to look for and decided it wasnt for me . It took a lot of unproductive time but I did it and still do but hate it actually. So I found too that 80 percent of the book had nuts and bolts . The read was that 20 percent flare. There were some hot licks there. Some worked for me but most wasnt for me and my area just like this place. We are all different too. Mike Smith was mentoned in this thread as a business example . I imagine he would turn his nose up to what I buy somtimes for his own reasons . Dan did an exellent job at explaining that to a T. Our experience can be a collar around our neck thinking somthing has to be a certain way to please us .
My wife and I are a perfect example . I would like to think that she thinks like Mike . Of course IM not sure but both are concerned with public conception. She views it like shes living there . Time and time again I remind her she will not live there . She wants to bring in some flare and some wow factor. I wont say shes wrong but its her style. I on the other hand have a geter done attitude . Im a boogerin person. Things that will work I leave alone and only replace what wont . In my judgement if it has to go my boogerin mind is thinking around it somehow. Can I fix it , can I smooth it over ? I had a commode bone yard till yesterday when I smashed them all with a back hoe and buried them but I needed fill for a hole . The wife wanted them outta the back yard. <G>
I got numbers off a couple and dont remember them now . I thought it was strange the others did a poor job with numbers. I use numbers to simple math extent and love to figgure odds as a game to me . But to the extent of calculating cap rates , I dont . All those tables I dont use for me . I want to know what Im paying and what Im getting back but thats truthfully about it . I go by feel about a property more than anything ese . I use an acountant and hes the best I could find. Thats one thing I dont do. Hes out there and I use him. Same with my agent . Ive got two of them that share my account . They are on speed dial on my cell phone and I use them. If they ever fail me Ill be looking for someone else . They are only with me because they are productive at somthing Im not .
I remember scanning chapters passing by part of the 80 percent you mention but the books were worth the money for the 20 percent which keeps bringing us back.
Tim
"I remember scanning chapters passing by part of the 80 percent you mention but the books were worth the money for the 20 percent which keeps bringing us back."There is a guy on talk radio, Bruce Williams, that has been around for years and years. I don't hear him any more, but we is still on in some markets.MrFixit (IIRC) that he is on in Wichita. He mostly talks about small business and related life issues.I remember manytimes when people would call asking the latest $250 get rich quick realestate seminar.His comment was based on the seminar that no one was going to "get rich quick". But at the same time he has some heard of one that does not have some idea in it that worth $250.BTW, heard this on a local realestate radio show today that 50% of the foreclouses that the residents damage the property when being evicted. Anything from holes in the DW, to flooding, to stealing the copper.This was an "retail" show talks about mortgages, title insurance, disclouses, staging for showing. And he quoted some from a national source. He also said that more and more place are paying the HO to move rather than forced eviction and possible damages..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
I remember hearing Bruce williams and seeing him in print too, I think.I'll agree, there is always something worth $250 in every seminar or expensive real estate course. The same could be said for every seminar offered for brain surgeons, dentists and roofing contractors. Seminars teach ideas, concepts and procedures. It's up to us to implement them. The idea that all real estate course are "get rich seminars" is a misnomer. I dont' think I've ever heard or read anything about any of them that claim that anyone will "get rich". In fact, most will tell you exactly what guys like DanT and Mooney always mention: you will have to work hard at it, looking at lots of properties and studying your target market well. Without knowing what the finished product will sell for, there really isn't any hope of "getting rich". If someone wants to think that making $50k on a real estate deal is "getting rich", then they ought to establish a new dictionary because that ain't a "quick rich scheme" to me. Bob's next test date: 12/10/07
"If someone wants to think that making $50k on a real estate deal is "getting rich", then they ought to establish a new dictionary because that ain't a "quick rich scheme" to me."
Youre right its not . It is however better than framing houses in all kinds of weather and 50+yrs old isnt it ?
Im not getting rich. Im just trying to make a living easiar.
Im gonna try to phase out the physical work .
Dad told me a man learns to make money @20 to 30. 30 to 40 he spends it . 40 to 60 he builds his empire and retirement .
That was really old school becasue he didnt mention 60 to 70. So it was not the perfect country and western song. Im 55 now and Im thinking about 60 to 70. Theres plenty in better shape than I am at 60 now so thats why Ive got the mind set . Im ready to give up the rentals and just buy. I doubt it will be any better money. Ill worry about it more I know that .
I think what ever a man does at 60 to 70 though he should enjoy. What else is there? I love the chase but not fixing them anymore. Mebbe Ill feel differently with two new knees . I would enjoy it if I felt good . I never lost the desire till now . The pain is winning I guess.
Tim
Edited 4/6/2008 2:32 pm by Mooney
I'm not saying that 50k isn't a good deal to go after. I'm just saying that it doesn't make you a rich man. That 50k might take you 3 to 6 months too and require lots of risk. That changes the equation in a big way. Thats not "easy money" and a "quick buck scheme" to me. That's good old fashioned hard work. I think you'll be a natural at it and I know you'll make money because you already know the market on the exit end. Now it's just the matter of getting it right on the entering end combined with the middle fix up business. Bob's next test date: 12/10/07
Bill, here's Bruce Williams websitehttp://www.brucewilliams.com/I listen to the radio when I'm walking in the evening and sometimes I pick up Bruce Williams show but the signal isn't very good.I need to figure out how to download his show into my computer or an MP3 player.
BillAnd others, Bruce is on xm satellite radio now, when I got my new truck I had a one free year subscription, when I found him I paid three more years up front.Wallyo
"I asked for 1,000 dollars non refundable down payment and they went away although they were willing to give the price by the counter they signed. They wanted to tie my house up in the top time of the year for 30 days not even offering a dime . I rejected it and it fell through."We all have our ways of doing business. You and I wouldn't have any chance at reaching an agreement. Around here in Austin, they think the buyer should be offering up non refundable monies too. The agents tell me that they need to get a couple hundred dollars of option money that will be good for a week or so. After that, if I continue my due diligence, the option money is theirs and a larger "earnest deposit" gets paid which is non-refundable. I'm from MI and that doesn't fly with my way of thinking. I was ready to make an offer on a property and the agent started with that stuff. I just flat out told her "I'll be willing to give $200 option money, but there isn't any way I'll be able to do all the due diligence in a week...surveys, mold tests, asbestos tests , title searches etc". And, "I'm offended that someone would want to steal my money if any of those things didn't pan out after seven days." I continued "so, I'll offer the $200 option money but I want a clause that forces them to pay me $500 to read my offer...no refund!".Then, the agent asks me if I'd allow someone to make an offer and "take my property off the market". Yes, that's how I do deals. If you want to buy my property, I'm confident that they won't find anything wrong and I'll gladly give them their money back. In the meantime, I'll accept backup offers. I know a guy that refused sales because there were contingencies on the offer. One time he refused a sale that was within 5k on a 200k property. He ended up needing more than a year to sell that property. The property is now selling for 75k less...Sometimes the sellers don't understand when the market is transitioning from a sellers market to a buyers market. That is happening right now in Austin and I'll be the most accomodating seller in the MLS! I already learned my lessons in the MI buyer's markets. These folks here will have to relearn that lesson. Bob's next test date: 12/10/07
Well it didnt work so we will see if I made a mistake .
I dont think shes got any money. If thats right I needed to run very fast away from her .
Im working with another buyer thats got 20 grand to put down but I dont have a rope on her yet. Ill carry it with 20 down. She said she would do it but she needs to sell her house . Im gonna look at her house Monday. I dont think I can help her there but Ill look at it . Might be able to advise her I dont know . Id like to have my hands on her money and a good note on the house .
Tim
Wallyo nailed it, early in the thread. The money is made on the buy. I found out that for an FHA buyer to qualify, you have to own the house at least 90 days. I had to explain how my partner and I were making $38000 on one house in less than 90 days.Greg
Im gonna have to charge a foul against your team. Youre off subject of the question. <G>
How do they do the rehab knowing nothing about it ?
Ill answer a post that dealt with the question but question deeper.
Tim
"Ive always wondered how all these "flippers" do it with out working knowledge and tools . So thats my question"The above is what you asked, no foul here at all this is the way it is done.The point is they don't need to know anything just that they are buying the property at less then market value, that is it. So what they need to know How much the house costs, how much other house like it are selling for, with that info they then know they can only put in 20,000 ( not a penny more) and make a profit. Maybe spend 300 on a home inspection to be sure the structure is sound.WallyoEdited 4/5/2008 7:41 pm ET by wallyo
Edited 4/5/2008 11:17 pm ET by wallyo
"The point is they don't need to know anything just that they are buying the property at less then market value, that is it. So what they need to know How much the house costs, how much other house like it are selling for, with that info they then know they can only put in 20,000 ( not a penny more) and make a profit. Maybe spend 300 on a home inspection to be sure the structure is sound."
Well you did mention home inspection and that would do it if they had the money to spend and the time to wait . I would have spent 3500 on 7 inspections today and I dont know how long I would have waited on them. Ill do another 7 Monday.
Since you dont do it , Ill explain one thing Blue mentioned. I get one out of ten offers or trips to auctions. I looked at 7 today and still not sure we are going to auction on the one house but it was all day long . Ive looked at over 20 before I was able to make a run at one many times .
I didnt do a home inspection either to be fair . I saw enough to get into the car for the next one .
I dont know what you know and I was kidding about the foul.
Im saying if they dont know what they are looking at they will screw up. You gotta be looking for curve balls on houses that go to auction because theres good reasons. I dont know how informative I should be here but I will mention repos sell with out keys and power on most of the time .[auctions] Theres no agent involved or anyone for that matter . I couldnt even get a balance Friday on the house Im iterrested in. They arent interrested in helping me . DW called them but she said she didnt get anywhere with them. I can break in the house and hook power up to a generator but it wont run the unit . You buy auction properties as is , like it is , and no returns. I pay for them before I get a deed . They are cash sales. Theres no room for screwin up. On a goverment auctioned property , you actually own the house when you get done bidding successful. No insurance or warranty.
Tim
Edited 4/6/2008 1:29 am by Mooney
Tim you did not say you are looking at buying repos, there is more then one one to buy a distressed property auction is only one, and it is a risk, a big risk sometimes not even enough time to do a proper lien search.Another way is to buy before it is foreclosed on, a third way is the little old lady that lived there fifty years and just died but in fifty years she did nothing to the house and to buy from the estate, go to estate sale and look at the china to find out what is to become of the house. When i mentioned home inspection I meant after you have a signed excepted offer with the clause sale dependent on out come of buyers inspection. It has been a bit since I looked at a HUD house, don't know how it is done now in the past you had plenty of time to inspect and offers need to be in by a certain date, closed like a regular house.A house flipper will look at 100-200 to find the one worthy of flipping.Even an untrained eye can tell the general shape of a house, is the ridge straight, do the walls bow, any evidence of water in the basement, sometime your nose can tell that one? Does the panel have screw in fuses? Severe cracks in the foundation?May be you and I are too honest, most real estate forms ask do you know of any defect, not are there any. As a Flipper it is not ones job to find every defect so as to disclose them. You want to be in and out in as short as a time possible. New paint in and out new carpet the HUD minimum, whack down the over grown bushes, replace the roof, plant pansies and sell the thing.Wallyo
Edited 4/6/2008 1:09 am ET by wallyo
I think you nailed it. If they're not concerned with ethics, (and they're usually not), they don't want to know. The buyer's HI will only report what they can factually see anyway, not what an experienced builder can (correctly) sense is going on behind all that fresh paint.
k
I frankly think sometimes our knowledge is an anchor around our neck.
We over think, over anylize and work our butts off to do a couple of houses a year. The guy I mentioned earlier does 6-10 a year and has soft hands and a lot of money!
All to often we get lost in "making the house right" vs making it profitable so we either don't make enough or we can't find any to buy. Ethics? Maybe. But my example guy views it as he is making the house as good as any other used house on the market, it will pass inspections and be a safe home. Does he add 200amp electric service when the existing 100 amp will do? Nope.
He and I looked at a house together 10 years ago and while we were looking at it I said "little bow in the basement wall" he said "a lot of them have that, besides it took 50 years to get there, so what?" He was right and I was being picky. He also thought a floor furnace was fine as long as it would heat the house. I mentioned kids get burned on them all the time and he said "those things have been heating houses for years and they still sell them, what's the issue?" Again an area that we feel needs fixed but a pure investor knows it will still sell so don't screw with it.
I admit though I have bought a couple doing nothing but walking around the outside. I just figure it needs everything inside and often it doesn't. My view is that roof ridgelines, side walls, age of line drop for the electric service, overall condition tell the story. Everything indoors is pretty cheap so I just figure it needs it all and we go from there.
But to flip one I can't imagine not having to look at 30-50 to find one that will flip and make money. I can look at 10-15 and find a rental but flipping is a harder find in my book. The one we are doing now I just fell into but the last one I did I looked at 20 or so before I ran across it and originally I didn't want to look at it!
In all I think most guys that don't know the trades well do know how much they can expect to pay for the areas that need repair ie: $1500 for a roof, $600 for a an electric service etc. So they just ball park it and add a little extra for safety and bid accordingly. And I am sure they lose on a few also. People like you and me aren't built to think that is ok, but they do. And they are bigger operators because of it I imagine. DanT
I agree with that too.
Tim
I just got done painting and was thinking (painting is a good thinking sport) that I have another associate that is more like us. And he has done well. Just differently.
He is the only landlord I know that actually bought a rentable house and (as he always does) completely renovated it. Now get this, he moved the stair way from one side of the house to another. He didn't think it fit in it's current location.
Now he is regimented, uses 5 colors of paint and always the same 5. But he does do trim, walls and ceilings in different colors. Different rooms are different colors too. But he really goes through them the first time. He has a full time crew (3) and aruond 80 units the last I knew. So it can work the other way too I guess. DanT
Wow .
Ive got two colors I use . White and off white .
I just did the new house all off white on ceilings , walls , trim , and closets. I did all the doors and cabinets white.
I buy Color Place paint from Walmart. 8 bucks a gallon for flat. I buy it and stock it cause they normaly dont have enough when Im using it . I stock flat and satin in 5s.
Tim
"flippers" do it with out working knowledge and tools
Looks like some perscentage have dumb luck on their side.
Some percentage were in markets rising so fast (think Bay area) even idiots could make some profit. The bad part is/was that others blandly assumed that the same conditions existed everywhere.
Then there are the flippers who have been leveraging each flip, and not bothering to work out if they've actually made a profit on any of them (back to not owning the tools . . . )
That appears to be who "owns" between 6/10 and 8/10 of the bad notes either in foreclosure or at high risk of foreclosure. Bad thing is that these clowns may bring down otherwise "honest" would-be home owners. With the very real problem of the 'honest' folk will make grat sob-story TV, the donkeyclowns trying to make a fast buck cutting corners in the RE market, will not be rightly ridden out of town on rails as they so richly deserve.
One of the two or three biggest real estate flippers/landlords in our town couldn't operate a caulk gun well. He operates just like the books tell you. Finds guys that will just "fix" anything quickly and cheaply.
And as mentioned above he makes his money at the buy. He just doesn't pay much for anything and has every vacant property he owns for sale, for rent, for lease, land contract, lease to purchase, self finance etc. etc. Anyway you want to do it he will as long as he feels the odds are in his favor.
The last I talked with him he had around 60 properties. I know he had one for sale for 6 years. Just because it didn't sell did not mean he sat there and waited. He upped the price yearly. And sold it. Most patient guy I know. If it doesn't rent at his price he waits. Always has something going on and yet from anything but the numbers side he knows little except that he knows who to call.........cheap. DanT
I guess I like your answer the best , but for me its not complete for my head to wrap it up.
What I got from your post mainly is percentages. Most big boys play them.
If Ive got a lot of chips . I get dealt pocket aces and you pocket 4s , we go to the flop. You spike a 4 and its invisable to me you have a trey. Ill bet the aces because of the odds. Odds are Ill win with pocket aces but I know the hand can bust me so I wont risk my chip stack on it . Ill play more hands. Thats an exellent business approach.
Ive got 15 houses . If I take a hit on one Im not risking going out of the game because the other 14 will pick it up . Unless IM taking a hit on three. Good house odds should prevail and you made an exellent point.
Ill make a new post on what I really dont understand past what you said .
Tim
Who is the author of the course that DW bought? I'm just curious.
I'm not sure I understand your question. Are you trying to figure out the mind and motivation of the novice flipper? Are you trying to figure out how to do the calculations on the flip?
I think you know its a fairly straightforward formula: know the true market value when it is fixed up and work backwards from there. Decide what profit margin you want to work from, then figure out how to get it.
A business person and put those figures in a spread sheet and it's all right there. They'll know the end product, the budget for the repairs and improvements and the acquisition costs. There will be columns for the carrying costs and selling fees. It's no different than any other business calculation: just think of everything that will cost and plan for it!
The challenge is getting vendors and subcontractors and not losing your shirt in the process. But it's also like any other business: it takes experience to do well and sometimes you lose during the first few years.
Bob's next test date: 12/10/07
As others have mentioned and from what I have seen it is about cutting corners and not being concerned about the quality of product provided. Many of us pros are bound by state mandated criteria-here in Texas two years cosmetic and 10 year structural-most flippers could give a damn.
Several properties in Austin have been on the shows. Two never sold ended up being rented-probably did not cover their note.
One was bought at 150, spent 50 on remodel, agent came in saying it would sell for 300 yielding 100k profit before expenses. The house sat on the market for over a year and sold for $220. I guessing a year of carrying costs and fees, they probably lost 20K. Never saw that on the flip show.
On projects that I look at, the only way I can make money is to add significant square footage around 1000 to 1500 and be in a neighborhood that sells in the $250 to $300 per square for range. These projects would yield about 20% based out of pocket expenses assuming 80% or 90% financing of the original purchase.
Holding the property for year as a rental a getting long term capital gains rate is significant as well.
I believe it is doable, but for me the capital expense is very high and limits the types of projects I can pursue as I will not cut corners. As mentioned earlier, the key is the acquistion price-must be below area averages.
Bruce
I think there are good opportunities to buy houses at auctions.
About a month ago a guy sold 42 of his old rentals homes at one auction.
He essentially got rid of 42 properties all in one day.
He got LESS money by selling the houses at auction BUT in return he did not have to spend hundreds of hours going through the process of selling each home individually.
He didn't have to go through price negotiations on each one. He did not go through the process of getting an offer, making a counter offer, receiving another counter offer, and on and on and on.
He didn't have to re-negotiate after a buyer had the home inspected and the inspector found a leaky faucet in the bathroom or a bathroom that did not have a GFI outlet, or an old roof, old furnace. old electrical panel.
It doesn't matter. The house just gets sold.
He did not have Buyers who flaked out after a few weels and backed out saying they couldn't get financing.
He did not have the deal fall through because of the appraisal.
He did not have the deal fall through because the roof was uninsurable.
HE GOT RID OF ALL OF HIS PROBLEMS IN ONE DAY.
In return he sold the homes for a lower price. He was happy. The Buyer was happy.
It's a win win deal.
The best value is at auctions.
I took a few minutes and thought back. The best deal[ percentage wise ]I ever did was a goverment repo that an agent had listed. The house was over priced and the agents got cold feet on it over some time that had went by. It is in a very small town where no agents live and was just out of the way. I offered half the price and they took it . Agents dont mind submitting low offers to the goverment either which helps.Still It was a fluke deal I was amazed at .
One time a banker had a repo and he had a 56,000 dollar appraisel on it. I bought it for 14,000 dollars. The hardest thing was to convince him to go look at it . It was eaten up by termites on the front two rooms and he was afraid he was going to fall through the floor so he didnt see the rest of it which was just fine.
Ive still got both of those homes since the rental cap was so good .
Day in and day out though the front steps auctions offer the best value . They also have the greatest risks as you pointed out . Normally when an agent gets to list a house then its put on the retail market for veiwing . I cant pay retail and sure cant compete with it .
All the things you explained as a result of that mega auction that happened is where I walk. Small legal adds for advertizing in my case where a handful shows up. No showings at all. Theres no keys to the house in the best cases . I walk the outside like dan says or break into it . I can normally crawl under it and on top of it if I want to. Normal people dont do that . Cash at sale time is the best feature for me . Its a done deal . That scares people just like it scared the lady to put down one thousand dollars non refundable money down payment . I wanted her invested in it on the spot before that iffy process started as you did a good job explaining . It didnt work but I tried it .
Tim