DawgTalkers.net Forums DawgTalk Tailgate Forum Some questions for our real estate investors

Not sure if we have some real estate investors on the forum, but thought I would ask to see. I'm always looking to diversify and my significant other and I have been been interested in rehabbing/flipping for awhile now, in part to the many shows on A&E, etc. I don't think I want to be a landlord, just find some houses that need some TLC that can be turned for a good profit. But, I have no idea where to start and wanted to hear some stories from those that have/are doing it. Of course these shows make it look so easy (even the complete idiots), but I'm sure there's more than meets the eye.

So, for anyone that has done this or is currently doing it, would you mind sharing how it works, was it worth it, etc.? Just looking for some ideas and feedback.

Thanks everyone!

In my experience, it's not as easy as it looks.........Can it be done? Yes. Easy to do? No.

Each situation is different (mine, yours, theirs, etc) For me, we obviously didn't have the cash to pay upfront for a run down home - we put a chunk down, took out a loan.

We were making the payments on the loan, buying what we needed to spruce the house up (spending money) and putting in sweat equity - at the end, while the house sat empty and we were still paying the bills for it, we agreed with a couple to a 1 year land contract - they put a fair amount down (which was ours), and agreed to pay monthly (as any land contract works). Good news, right?

Well, the couple got divorced less than 6 months into the land contract - the wife kept the house and did good paying the "rent" for the next 5 months - then, she fell behind - and it got worse.........not wanting to be a jerk, I didn't enforce the 1 yr. part of the land contract (hated to put a single mom and 3 kids out in the street.)

Long story short, after her telling us over and over that she was almost financed.....but.......I sat down with her, filled out an app on line, and bingo, she got approved.

Soon, we found out, due to her being a single mother, etc......blah blah, that she qualified for a different loan, and she would qualify for assistance in "updating" the home as well. (no money out of her pocket).

We ended up grossing about $6,000, but netting much less, due to some of the things I mentioned (missed rent payments, forgiven December payment because of christmas for the kids - things like that.)

If you want to do it, have at it. Look for a "rundown" house in a DECENT neighborhood. You can tell about the neighborhood just be driving through it. Know the market - know what similar homes have sold for in the past year or 2 - don't pay attention to a 5 year ago selling price......the market has changed immensely. You arent' going to walk in, pay $75 g for a house, put in some new carpet, paint, and flip it for $85 g in a short period of time. Won't happen.

And also, keep in mind - whatever you're looking at: the buyer will more than likely have to have an inspection done - roof, electric, furnace, fuse box/breakers, wiring, mold in the basement - it goes on and on.............if you unknowingly buy something that has a problem or problems, the inspector will find it if/when you have it "sold". To get financing, the prospective buyers bank will require you to fix it, or will require a deduction in the price of the house.

It can be done, but it's like anything: if you look at it as easy money, be prepared to easily see your money disappear.

House flipping can be done, but to make money you really need a team of people you can call upon. First a realtor, second skilled electricians, plumbers and finish work guys. If you dont have the network of people to do the legwork for less then full retail prices its almost impossible to make money. The only person I know who has been mildly successful at it is a full time realtor with her own office. So she can do all the realtor stuff for free herself, she has her own finance guy in her office to work the loans, and enough crews of the trades to get nearly anything done. With all that on her side she is only mildly successful at it.

Right along with what you said, my personal experience dictates that if you are buying through a realtor (paying a 5 to 7% commision to buy the house), and then intend to use a realtor to sell the house (paying another 5 to 7%), you'll be screwed. Not that realtors are bad - they provide a valuable service, but if you can't sell the house yourself, (and if you don't know what to look for when buying a house to flip), you'll be on the wrongside in a hurry - and then add in the "fixes" you made to the house..........selling it through a realtor? Good way to reduce your savings account.

My opinion - my experience.

And, I should quickly add: if you are looking to be only the money guy (you buy the house, pay others to re-do/modify/fix up, then sell through a realtor) you won't make jack.

If that's the case, where you want to front the money and pay others to do the work, don't even look at doing it. Keep your money invested in something that will return a profit while you sit on your keyster. Flipping houses, for the common joe, flat out won't work if you're paying someone else to do the work.

Yes, I know, someone will come along and say "I did it", and there will be a few true stories of that happening........but barring extenuating circumstances, don't count on it.

I'm no expert ...... but that doesn't mean that I won't put my $0.02 in anyway. lol

What I would look for are houses that are sound structurally, and appropriately sized for the market ...... but have paint/carpet and landscape issues. All can be easy fixes .... and all can dramatically improve the value of a house. If you are handy, you can even tackle things like bathroom and kitchen updates that will yield substancial profits. Unless you are an electrician, I would suggest staying away from homes without updated electrical service. (Loans can be difficult for buyers ... and the fewer problems a buyer has getting a loan on your for sale property ... the better for you) Have the heating, plumbing and structure checked by someone knowledgable in these fields. There are many home inspection services that work with investors. Look for below market buys that meet your criteria in good neighborhoods. A house needing substancial updating .... such as paint, landscaping, kitchen and bath rehab can run into $5000 and up even if you do the work yourself, so buy wisely.

I bought my new home in April, and have probably put about $1500 into my new home thus far. I'm not flipping it ..... but I have substancially updated the house and landscaping (especially in the back yard) I expect to have $3000 or so into this house by the time I am "done" (I still have to redo an upstairs bathroom, and expand the bedroom closets to "walk in" .. or at least walk in and kneel down size. lol) .... and a couple thousand more if I replace the furnace and install central air. However, I bought the house for much less than the appraised value ... a couple thousand less than the tax appraisal .... and expect to live here for years .... so I consider the money well spent. I have no doubt that I could sell this house for more than I have invested in it if I really had to.

I appreciate the input so far! Those darn shows make it look so easy, don't they!

I am NOT handy, so I would just be the 'money' man. And I'm sure that impacts the bottom line quite a bit.

Follow up question - what about just looking to buy homes at the sheriff's sale and resale them? Here's why I ask - the girl that cuts my hair recently got a house they actually had a bid on through a sheriff's auction. Apparently the couple got a better bid than what she offered, but that bid fell thru and off to the auction it went. Anyways, she got it for 45 THOUSAND dollars less than what they had just bid on it one month ago! I was shocked. I had heard of sheriff's auctions, but never knew someone that took advantage of it. Glancing thru the paper today I see that the houses in a sheriff's sale must sell for 2/3 of appraisal (at least in Lake county). Assuming the appraisals are decent (are they?) could you not get a property at a discount, sell it below market value the 'normal' way and make money? Maybe not after realtor fees and such, but it was an idea.

Thanks for the help and keep the ideas coming!

Be wary of auctions.

Make sure you can have access to the property in advance, and have a plan on what you want to check. Most auction properties are sold as is ..... so "let the buyer beware".

Further, sometimes people go to auctions and fall in love with a particular property. They are willing to bid up beyond a reasonable level for investment.

There are bargains to be found at auctions ..... but, like everything else, auctions have pitfalls. Be aware of requirements for financing and down payment at bid acceptance requirements. Be prepared in advance as far as what the unpaid tax requirements are. Just prepare in advance as if you were spending thousands of dollars .... because you are.

Just my own personal opinino.........if you're looking at being the money man, try something else........the return won't be worth it, and the possible loss could be big.

Sheriff's auctions - many times you can't go inside the house to see what's up - not all the time, but most of the time..........each county is different.

However, let me ask you this: I have a 2 apartment building for sale. One apartment rents for $500 per month, the other for $650. (let's say this is a sheriff's auction). You know nothing more than that. It's appraised at $95 g. What would you pay?

(and no, I don't have it for sale - I don't own it, my neighbor owns it and is selling it - and I am not buying it)

You CAN make money on properties, but honestly, in my opinion, if you aren't doing the work yourself.........I don't know how you can make more than what your money would be making in interest, at the bank.

These are good thoughts. Currently my income and majority of liquid cash is in the markets and I do well there; however, always looking to expand and diversify. Real estate has always seemed like a possible alternative, but not sure where to start. Great advice here though!

arch - no idea what to pay for the apartment... I have no idea if you pay above, below or at appraisal on an apartment.

My wife and I have flipped several houses over the last 10 years of so..

First off, the best advice I can give you is this:

Don't do it if:

You are not financially sound.. what I mean by that is this. If you buy a house to flip and you sink money into it, you have to be prepared for it NOT to sell. Meaning you better have some money put aside to make those payments until it sells or you can rent it. Unless you pay cash for the initial purchase and the work that ends up needing done. (which is what I did)

Don't do it if:

You don't have EXTEMELY reliable trades people that will do the work on time everytime and that you trust to give you good work for fair prices.

Don't do it if:

All you are looking for is a get rich quick scheme. Flipping is not one of those. You can make a lot of money. But if you can make a lot, then the option to lose a lot is there also.

Don't do it if;

You and your wife don't have a HIGH Tolerance for RISK!

My wife and I flipped a home in Aurora. It was in the old section right off Bissell Road not far from the point where it intersects with RT 43 (aurora road).

The home was in foreclosure... The people owed 86,000 on it and that included all the late fees, penalties etc etc. I had a lawyer investigate it..

So, if I put up 86K,,, I owned the house outright and it would stop the foreclosure dead in it's tracks.

Homes in the area of the same style and quality and general make up were selling at the time for about 120K to 140K. But being that these people were Dumber than rocks,,, instead of keeping the house in good condition, they just destroyed it.. It just wouldn't sell for the market,, NO WAY!

I had a very good contractor that was strong in Construction and Plumbing. He had a guy that worked for him that was a licensed Electrician. So between them, we had about everything covered except landscaping and cement or Asphalt.

An investment in the property of 29,000 which included kitchen update, two bathroom updates, carpeting and some Pergo Flooring in the right places,, and another 6000 in exterior repairs including the sidewalk and resurfacing the Asphalt Drive way,,,,

I was into the house for 121k. I ended up not selling the house for 2 years. During those two years, I rented it to a nice young couple that had just gotten married.. Got 950 per month. That's a total of 22800 in rent receipts. I had to pay taxes on the property which if memory serves me correct woere about 2800 per year. Or a total of 5600.00

Math works like this:

86000 Purchase price
35000 Repairs and upgrades and updates
5600 Property taxes paid by me
126600 Total cost over two years

Cash received

22800 Rent received

Net cash in the house at that point 103800

Sold the house for 138900. Paid a realtor 5300 in commission (yeah, they cut me a break)

So for all my troubles, I made 20K roughly...

If you ask me, I probably could have taken that entire amount of money and put it into some other investment, not lost a minute of sleep and made about the same over that 2 year period.

I don't flip houses anymore! This should explain why

shot - thanks for sharing your experience!

I'll give u a few...Done about 24 myself and rehabbed contractually another 52 myself...

#1...Utilities...In Dayton the WATER STAYS WITH THE PROPERTY...Gas and Electric are wiped clean by the Sheriff's Deed at time of Sale in Foreclosure Suit...CALL your water company and find out how large the bill is...Then make certain that it is put in the Closing Statement as an expense paid by the SELLER...These bills can get way over $1000...

Always be prepared to run new water and gas lines to the street...These are unexpected costs that can hit u hard...ALWAYS upgrade 60 Amp Fuses to 100A Breakers...There's a reason for this...It is an FHA REQUIREMENT to have 100A MINIMUM Service...If it doesn't have it they will deny financing and could kill a deal u have to sell...

More FHA REQUIREMENTS

1) 100A Electrical Service
2) NO BROKEN GLASS
3) No Light Switch BEHIND a door that is opened
4) Splash blocks on all downspouts

HOLDING COSTS...6 month MINIMUM from time of purchase to time of Closing on the sale of the dwelling...Mortgage...Insurance (And it can be HEFTY on Vacant Properties)...RE Taxes...Utilities...Lawncare and snow removal...

And for GOD SAKE keep the heat at 55 MINIMUM to prevent bursting water pipes!!!!!!!!

And 1 HUGE ONE...

MOLD...Be very careful with mold...Basements are huge molders for a reason...When the electric is shut-off so is the sump pump...Foreclosure can take up to a YEAR...That's alot of water for a long period of time...Not to mention roof leaks...And NEVER let anyone tell u CLOROX KILLS IT!!!!!!!!!!!!!!!!...It will on the walls but not even close BEHIND THE WALL...U get this CHIT inside the walls and u best be guttin' every bit of drywalll...Replacing infested studs and the like...And CLEAN THE HVAC DUCTS...PROFESSIONALLY...Mold spores travel and are invisible...

Wait till u ever get a Mold Remediation Lawsuit against ya'...BIG BUCKS...

DnD sure has pinpointed some dangers.....

Listen carefully to what he's saying.. I've felt some of that Pain..

I have a lot of construction experience and have "helped" many people "flip houses". The reason I never did that myself was because of the mixed results I saw from the people I was helping. As was mentioned by many,it's VERY difficult and far less likely to achieve positive results without a "network" of people that do the construction work required,"on the side" for far less cost that a contrctor or by doing the vast majority of the work yourself.

What I have seen people be far more successfull at is "unimproved property investments". Such as purchasing unimproved property in a potential area of growth. It's usually more of a "long term investment" than a quick turnover. But the risks are much lower and your basic out of pocket expences amount to keeping up the taxes and equipment to keep the property bush hogged and kept up in appearance. Which is not terribly difficult to do on your own.

Most I've seen do this with success have told me that they look at the tax rate of an area,combined with the job base. ie...A community bringing in technology jobs and growing, would seem a far more likely place to find good dividends on your investment than a community that is manufacture based economy. They look at which direction the building trend in those communities is headed and invest in unimproved property accordingly.

Obviously I'm no "expert" on the topic. But I've seen this approached several times from both directions and seen far more positive results in the long term investment of unimproved property than flipping houses.

And with the housing market trend headed downward to the extent it is now,the odds are worse than only a few years ago.

JMHO

The best case I can think of is a salesman that calls on us alot. He also has a antique business where he goes into foreclosure sales and estate sales and tries to make money by buying antiques that people do not want or just want to get rid of and he sales them in his business. But, in going to estate sales, alot of the families just want personal effects and want to get rid of alot of the "junk". Also, he checks to see what the families want for the house and if they want to get rid of it to move probate along. He then tells them to take their time and get everything they want out of the house and he comes in, buys the house, purchases the antiques off of the family, and tells them in good faith that he will clean out want they don't want in the house.

He then has a crew that he has been working with come in and start renovating, he tells his crew that he will buy all materials and cover all bills and he will split 50/50 the profit with the crew. He does this to get his crew moving and to get them finished as soon as possible to minimize the amount of money he has to spend on utilities, taxes, house payments, etc. They make money and he makes money. The crew has made as little as 8-10 an hour on a house or they have made as much as 40 an hour on a house that total profit was almost 60k.

But it is not easy and he can get in early on an estate sale and he has a pretty good crew that can wait a month or two to get paid. And there are ALWAYS some sort of unexpected problems that pop up that affect the bottom line.

CDawg...Sheriff sales typically require 10% down the day of the auction and you are not technically not allowed to view the inside of the property prior to purchase.

Another note on Sheriff's sales is that a lot of times a member of the bank is their and will bid whatever the amount is due on the mortgage.

So, yes, you can get a good price on the home if what is owed on the mortgage is significantly less than the appraisal value.

You can search what is owed on the homes quite easily by going to the county website for which you are looking to buy the home in. All of this information is public record.

Good Luck.

well not really into flipping, but when i bought my first house, i bought it from a bank repo for 61k, just doing minor stuff like paint, landscape carpet etc all out of my own pocket without a refi. less than 7 months later it now appraised at 89k. Just some food for thought. The kinda houses to look for are the keys for cash houses, where the realtor/bank give the people in default money to move. Its kind of a win/win, the owners get cash even though they are in foreclosure and the realtor/bank get a house in somewhat decent condition. As opposed to someone who was forced to leave. So luckily i had a decent piece of clay to mold. But if i buy more houses, which i am already thinking of, def. going that route again. It's all sweat equity as i've done everything myself. Which is basically stuff anyone can do. I replaced toilets new outlets, trim etc. If you find a house that needs rooms gutted and redone, can't say that i would think it would be too profitable in the end.

More great info coming from our experienced real estaters! Wish I was more handy...

Hey C!
I'm a Realtor working with a couple groups of investors. Having one Realtor can be good because if you do enough business with them, they should start cutting the commission down a little.

And you are right about tv making it look easy. It is a lot of work. Make sure that you and your partner(s) are all on the same page. I'm working with two brothers and one has the money, the other has the common sense. I guess what I'm saying is think wisely (and listen to others) about what NEEDS to be done. Know your place. Don't put money into things you can't get money out of.... little things like don't replace carpet, just clean it. Don't spend $3,000 when you can spend $300. Most times when you sell that house, those people are going to want to change things anyway. Do the minimum, with keeping it nice. Lowe's will give you a contractors discount if you have a company... check into that and see what you actually need.

Also, be prepared for your house to sit on the market for a while. I'm not sure how Cleveland's market is doing, but in Dayton they sit for an average of 6 months... and half of them don't even sell after that time. It's not hopeless though! All that means is that you need yours to be just a bit nicer than the one down the street. Another advantage to having a Realtor list it for you is that they can get your house WAY more exposure than you marketing it for yourself. Plus if you list it For Sale By Owner... believe me you will have Realtors calling and mailing you daily. Just a heads up. We go after those FSBOs because we know we can help ya.

If you put in more that $20,000, it's usually not worth it. Places to find properties... well, we're back to the Realtor. We have access to properties that aren't on the MLS. HUDs, bank owned, and court ordered sales are the gold mines. Once you find out how to find some of those on your own, you may not need a Realtor, but it's always nice to have someone fighting for you. One more bit of advice, I don't personally recommend sheriff sales because you get it "as is". Only the banks can go in and inspect. If you go to an auction and the banks aren't bidding, you better not either.

Let us know how it goes. If I think of anything thing else, I'll let you know.

Good luck.

OnB - thanks for that info, good stuff!

No problem. I'm fortunate enough to have a boyfriend who was a general contractor for years. If you can get in with someone like that, you'll be good. Contractors can go though and give you an estimate of what needs to be done. You don't have to actually use their services for all of the work (or any of it). Just be careful not to take advantage of them... what goes around comes around. It'd be nice to have someone experienced to go to for advice though. If you can't find someone, the internet or your local library are the second best sources of info.

Hey, the trends don't lie. It's just my job to help the public be informed.

Well,I have to give you credit. By cleaning old nasty carpet for $300 instead of new carpet for $3000,it will help offset the money they'll be spending for 6 - 9 months on mortgage payments,property taxes,utilities and insurance trying to sale the place.


But you did forget to tell them that you know a pretty sharp,young,good looking Real Estate Agent to help them out!

She is smoking hot, leave her alone.

I'm honest though. I'm not the type to lie just so I get paid.... those are the bad people. That's just how it is in parts of Dayton right now. Cleveland may be totally different. The the beauty of the market. It's not hopeless though. You just have to try a little bit harder and think like a buyer.