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Rehabbing Made Easier

Richard — Wed, 04 Jan 2012 06:00:22 +0000

The Federal Housing Authority (FHA) has extended the temporary waiver through the end of 2012 which allows Sellers to flip property they have just purchased with an FHA loan sooner than the normal wait time of 90 days. The idea was to streamline the process, and eliminate the backlog of foreclosed homes, getting them ready for new owners sooner. But not only does this apply to foreclosed or abandoned homes, but to any property that used FHA financing. There are a few conditions and special exclusions (more details) but the greatest impact helps investors who will not have to wait as long to sell a property they have aquired and rehabbed, which will cut down on their holding costs and allow more flexibility in the marketing phase.

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Rehabbing for Profit

Rehab Logic

Richard — Fri, 04 Nov 2011 15:39:51 +0000

A few years ago, a small but consistent percentage of business out there came from rehab investors looking to buy a property, fix it up and resell at a profit. There were lots of people trying to do it. The good deals were always hard to find, and you really had to know your numbers on rehab cost estimates, holding costs and probable selling price, but a savvy investor who was careful and picky about which home to buy could usually turn a profit. The market was steady and you could count on the market turning up a buyer if the property was done correctly. But times have changed. Not that it’s impossible to do a rehab venture now, but you have to be even more careful than before. You’d think that with all the news you hear about foreclosures and short sales that there would be more homes that were candidates for rehab. But that’s not the case. Foreclosures or short sales are just a small part of all the properties for sale, and just because they are financially impacted doesn’t mean the sale price is discounted at all or enough to be a good investment. Market values for homes have softened in some areas which means the profit margin has as well. The main reason rehab ventures are tougher is there are a smaller number of buyers and more sellers than in a hot market, which means more competition from other sellers who often have had to lower their price in order to get a sale accomplished. If you can’t sell at a decent profit, why take the risk of an investment that might not work at all? There are safer things to do. Still, there are some homes occasionally available where the numbers actually work. Few and very far between, but they are there if you are diligent about looking, experienced and know what you are doing.

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Rehab Reservations

Richard — Fri, 06 May 2011 12:40:10 +0000

As the market slowed during the last few years, it’s been obvious that fewer speculators were choosing to purchase homes with the idea in mind to rehab them and sell for profit soon after. While once that was a steady portion of the market, that part seems to have dried up almost entirely in recent years. A few projects still go forward, but it takes sober insight by an experienced rehaber and just the right circumstances, such as an extremely good buy on just the right home in just the right neighborhood for it to work. That’s always been the formula for success on these kinds of ventures but critically even more so lately. One can get caught really easily holding the property with any hope of profit disappearing unless the situation is perfect. Some would-be entrepeneurs have had to sell at a significant loss in order to stop the bleeding as holding cost mount up every day the property is unsold. An attractive low price on a bank owned foreclosure for instance, may entice someone to think about rehabing a home for profit. That still could be something worthwhile, but one should proceed with caution and reserve. As the market continues to stabilize, that segment of the market will improve just like everything else. Driven by consumer optimism or lack thereof, every job created here and a hiring there improves that one consumer at a time.

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Sunbeams

Richard — Thu, 16 Jul 2009 14:00:51 +0000

It’s common knowledge now that in previous years, some mortgage lenders loaned money to some people who never should have received a loan. That led to many defaults and foreclosures and added to the other troubles in the lending and housing industry. So we all should welcome recent credit tightening as a positive step toward helping to strengthen that part of the economy. The bar has been raised a bit on who qualifies for a mortgage and who doesn’t. Anyone who has a decent credit score and income are unaffected, but some people cannot get a mortgage now who want one.

Even in the dark woods, the sunbeams break through sometimes. One of the positive things about this is that rental properties are making a comeback. Several years ago, I heard more than one investor who owned rental properties complaining about empty units that were unrented. Or they had to lower the rents just to entice renters or compete with other properties. Several investors I know were so discouraged that they sold some or all of their rental properties. But lately I’ve been hearing that there are more renters out looking now and that rents are firming up. I’ve even been getting a few calls from investors asking about rental properties.

It certainly is something that should be revisited again since other areas of investing, like the stock market, doesn’t always cooperate like you want. You can control the outcome of an investment property more than other types of investments where you are at the mercy of the market. If you have a good rental property and are selective about your tenants, it’s truly a wonderful thing. Tenants pay your overhead while your equity grows.

If the idea of rental properties seems appealing, they might be worth a look again.

Rehabbing for Profit

Richard — Sun, 12 Jul 2009 16:03:14 +0000

The idea is simple. Find a home that’s offered at lower than market price and needs some fixing-up…buy it…put some work into it…and flip it for a quick profit. With all the stories about foreclosure and bank repos, one would think there would be a ton of them out there that would work. The trouble is, there really are only a few homes that fit the correct model. A home might be offered at lower than market price, but typically when the cost of fix-up, holding and marketing costs are added, the real cost isn’t below what market price would be for the same home if it were in good condition. I used the word typically because every once in a while there is a home that is worth a closer look. The purchase price and cost of repairs would seemingly leave enough room to make a decent profit.

What a lot of would-be investors don’t figure in though are the incidental costs that come up. Example: a furnace that looked and ran good when it was first looked at, but when the home is being sold, an inspection from a buyer’s home inspector reveals a crack in the heat exchanger that requires the purchase of a new furnace for $3,000 in order to make the sale. Or, after rehab work is started, you realize that the main service drain for the plumbing needs to be replaced. “Uh oh… that wasn’t in my budget” Usually there are at least a few minor “surprises” and some moderate ones that change the amount that the initial fix-up budget didn’t include. The key is to know what you are doing and to analyse the property carefully. Experience helps.

Another area to consider is Holding Costs. While the home is owned until it is sold, the meter is running on things like home owners insurance, property taxes, interest on any borrowed funds, utilities, Home Owners Association dues while it is being marketed. One never knows for sure how long it will be until the home is sold, and these items will eat into the profit margin quickly. Everything must be thought out and included when analysing a property as a rehab/flipper candidate.

Every once in a great while there is a home that still looks good after close analysis. The challenge then is to beat all the other investors who are looking for the same thing. An investor must be diligent at watching the market for potential rehab candidates. After one is identified, they must not hesitate to look at it. Then they must be very good at analysing the property to see if it meets the investment criteria. Then submit a written offer in that is accepted before someone else does it. Again, experience helps…plus a little luck. I’ve assisted a number of investors through this process.

I make this sound difficult because it is. It’s very hard to do and be succesful at it. Difficult?… Definately. Impossible?… No.

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