Posts Tagged ‘ rehab ’

Do You Have a Property Inspection Checklist?

Over the weekend, Kelly and I looked at six properties we were interested in and we ended up putting an offer on one of them.  We didn’t hesitate on the offer we put in because we were very confident in the property.  Now, when you’re looking at investing thousands of dollars on a property, it is extremely important that you know what you’re buying.  You don’t want to miss things, and looking at the property with a critical eye is very important.  It’s very easy to overlook things when you’re inspecting a property and that’s why we always take our Inspection Checklist with us.

Click on the link and you can see that this is a simple 1-page form that we can use when inspecting a property.  We simply print it out, put it on a clipboard and we use it to systematically go through each house we look at.  This checklist is a system for us and it incorporates several important elements:

  1. First of all, it provides a full checklist of potential issues with a property.  When we’re done we can be sure that we’ve completed a thorough inspection of the property.
  2. It provides a way for us to document the repairs that are necessary or the things we want ask our contractors about.  When you’re looking at six houses in one day, the repairs can start to run together and it is very difficult (if not impossible) to remember what needs to be done on each property.  The checklist takes care of this problem and gives us a way to take very good notes.
  3. For each item in the checklist we also show directional pricing for common repairs that may need to be performed.  With this information we can quickly develop an estimate for the repairs that are necessary.  This is very important for turning offers around very quickly.  If we know it’s a good deal, there’s a good chance other investors will think so too.  If we can get our offer in and accepted before anyone else looks at the property we have a big advantage.

Now, there are some houses we walk into that we know are not for us with a few sniffs (sometimes literally).  But for the properties that pass the initial sniff test our inspection checklist servers as a great tool for us to fully evaluate the property.  Once we have the checklist filled out we use it as input to our financial calculations, and we can quickly develop our offer.

So this weekend we used this system to look at six houses and we wrote one offer…we’ll see where it goes, but hopefully it will be our next property.

Stay tuned…

Day 49 – Sometimes You Don’t Need A Checklist to Evaluate a House…

Today we had intentions of showing you how we go through each property we put offers in on, but unfortunately this property was really just too rough to even complete one of our rehab checklists on.  We could tell with a simple walkthrough that the property needed way too much work for the numbers to make sense.  So, the lesson for today is that sometimes you don’t need a checklist to figure out the numbers aren’t going to work.

Honestly we probably shouldn’t have been wasting our time looking at this property, but the pictures were very deceiving online.  It happens sometimes, but we’ll have to do a better job next time…on to the next one…

More to come…

Day 19 – SOLD!

So yesterday we told you that we had completed our Michigan Cash Flow Property Tour and that we hadn’t sold a single property.  Well, about an hour after I published that blog post, one of the investors who had been in town over the past couple weeks phoned me on the way to the airport and we arranged for him to purchase one of our properties.  So, now we’re well on the way towards our goal. 

We purchased this property at the end of March, and here are the list of costs we’ve incurred for the property:

  • -$15,500 Purchase Cost
  • -$2,500 Financing
  • -$2000 Closing Costs (Buy & Sell)
  • -$15,000 Rehab, & Holding Costs
  • -$900 Tenanting Fees
  • +$1,800 Rent Collected

Total Cost - $34,100

Sales Price – $45,000

Profit – $10,900

That’s right where we wanted to be with this property, so we’re very pleased.

This puts us a big step forward in our goal, and we have now earned $12,000 towards our goal of $60,000 in 60 days.

More to come…

Day 4 – Put Some Money on The Board

Well today is Day 4, and the good news is we have money to put on the board already.  Unlike last year, we really didn’t have many investments going when we got started, but this year is different.  Through our company, Michigan Turnkey, we have set up a number of cash flow investment properties that provide cash flow to us each month, and they are also a source for flipping properties…

Essentially our business model is to:

  1. Purchase property
  2. Rehab the property
  3. Hire a property manager
  4. Place a tenant into the property
  5. Sell the property as a turnkey investment to another investor

In this process we have two sources of income – cash flow from the rental properties after they are setup, and forced appreciation from the spread we are able to achieve in renovating the properties and setting them up as rentals. 

Well, today is July 1st, and you know what that means – Rent is Due!

Currently we have 6 properties in our portfolio.  Of these six, four are currently rented, one is under rehab, and one just went vacant.  Here is our cash flow summary for this month:

July Cash Flow Analysis

So as of Day 4, we’re about 2% of the way towards our goal of making $60,000 in 60 days.  The interesting thing about this cash flow analysis is that the two properties that are vacant right now are really hurting our return.  These two properties alone would add an additional $1500 in cash flow…time to get them rented.  The good news is I just got word from our property manager literally in the last 5 minutes that we’ve received a rental application for one of the properties…we’ll see how that turns out.

More to come…

Our Deal in West Bloomfield is Wavering…

For those that don’t know, we’re right in the middle of purchasing a property in West Bloomfield that we are planning to rehab. We have the property under contract, and we are currently within our inspection period that is written into the contract. Over the weekend we had bids come back from two of our contractors, and the news is not good. Originally we estimated about $25,000 in repairs to the property, but the bids coming back are closer to $40,000.

Unfortunately, this overrun in the repair estimates is not something we can absorb into our numbers.  So, we spoke with the seller yesterday to present the bad news and requested we be released from the deal.  We have protected ourselves with our 21 day inspection clause, so we’re not at risk to lose our earnest money deposit, but this is obviously not how we wanted this deal to turn out.  At this point the only way we see this deal moving forward is if the seller can come down on their purchase price.  We have requested a $15,000 reduction in purchase price, but we’re not real confident this is going to happen.

We will see what happens…stay tuned!

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Day 54 – Our Plan for Due Dilligence on a Rehab Property

Today is Day 54 in our drive for $60,000 in 60 days through real estate investing. As we discussed yesterday we have gotten a property under contract that is a great rehab project. Today we are going to share with you our plan for due diligence on this property so we can bring it to close.

The Contract

First, let’s talk about the contract and how we have this setup.  The closing date is state to be on or before September 15th, 2010.  As we mentioned in Day 42 – Anatomy of A Deal – Part 8 Closing The Deal, we are making a checklist of all the items we need to do to bring this deal to a close.  Here is our list:

  1. Send contract to title company
  2. Order title commitment/insurance
  3. Obtain financing
  4. Inspect property
  5. Obtain repair estimates

The way we have structured our contract, we have one main clause that will protect us in the event that we find something in our due diligence that we are not currently accounting for.  The clause I am referring to gives us a 21 day period to complete inspections and obtain repair estimates on the property.  If these estimates do not align with our assumptions, we have the right to exit the contract and get a full refund of our earnest money deposit. 

So, we have a plan in place to act on each of the items listed above.  Some of the items like sending the contract in and obtaining title insurance are pretty straightforward.  These are things we will kickoff immediately with a simple phone call to the title company.  The other items we will discuss in more detail below. 

Obtain Financing

On Day 39 – Anatomy of A Deal – Part 7 Financing the Deal, we talked about all the different methods available to finance deals.  For this particular deal, we are going to look to a private investor and/or a hard money lender to fully fund the purchase and repairs on the property.  To present our case to these potential lenders, we have created a business plan for this project.  This plan will include the following items:

  1. Project financial analysis including all costs and expected profit
  2. Detailed information and pictures about the property
  3. Initial repair estimates
  4. Market analysis of properties that have sold & properties currently for sale (Comps)
  5. Project timeline
  6. Loan request
  7. Credibility Kit

Click this link to see a copy of full plan – 1634_Tamson_Rehab_Business_Plan.

This package did take about 8 hours to put together, but it really serves two purposes.  First, and most importantly, it will serve as a great tool to explain the project and solicit funding.  It adds instant credibility to anyone we speak with, and really shows that we have done our homework on the property.  Additionally, this will serve as a great template for us when we do additional rehab deals in the future.  It should take less than half the time to put this information together again, so we really think it was time well spent putting it together.  Now, I will also add that you really should be putting together this level of detail on your deals.  Going through this process will ensure that you are buying the property at the right price and have considered every angle.

Inspect The Property

We have completed our own walk-through on the property and we have generated a list of items that need to be repaired on the property.  The purpose of the inspection is to determine if there is anything we have missed.  Currently we are expecting the following repairs:

  • Replace Roof / Repair Gutters
  • Remediate Mold / Repair Drywall
  • Replace Front Porch
  • Update Kitchen
  • Replace Carpet / Floors
  • Paint Interior
  • Minor Landscaping

The inspection will serve to confirm these repairs are needed and also alert us to any additional repairs that might be needed so we can account for those.

Obtain Repair Estimates

Immediately after we have the inspection completed, we will bring contractors in to provide estimates on the repairs.  Currently we have budgeted $25,000 for the repairs on the property and we feel this is a conservative estimate, but we need to confirm our numbers.  We will also be confirming any additional items that come from the home inspection.

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Day 51 – Deals, Deals, Deals…

Today is Day 51 in our drive for $60,000 in 60 days through real estate investing.  Over the last couple days we have come across three new deals, and we are working through our analysis of these properties. 

West Bloomfield Ranch

We have submitted an informal offer through email on this property, but it seems to be much lower than what the seller is looking for.  We are discussing our selection of comparables with the seller and they have brought up some good points about our comp selection, so we are going to look at this a little more closely and see if it makes sense to come up on our offer price.  This is strictly a numbers game, and if the numbers don’t make sense, we won’t be coming up on our offer price…we will see…

Sylvan Lake Ranch

We have done the analysis on this property, and there really just isn’t enough equity in the property to be able to wholesale it, so we are going to offer the potential to lease option the property.  With this, we can offer a full  price offer to the seller, but we will lease the property from them for the first 3-5 years.  That way they will be getting a monthly cashflow from the property, and we will be building up credits towards the down payment on the property.  In 3-5 years, we will execute the final sale.  This is beneficial for the seller because they will get cashflow, and they will receive their full asking price.  It is beneficial for us because we will find a tenant for the property that will pay a little bit more in rent each month than what the seller is charging us, and we will give them an option price just a little bit higher than what the seller is charging us.  Therefore, we too will make cashflow during the 3-5 years, and we will make a profit on the back-end.  We will see how this goes, it is really up to the seller as to whether they want to get into this kind of arrangement or not.

Highland Duplex

We have completed our analysis on this property, and we will be submitting a verbal offer to them today.  Our offer will be low because we plan to try to wholesale the property, so we will see what they say.  The property does need quite a bit of work, but it would make a great rental property if it were fixed up.  We will see how this one goes.

Pontiac Property

We are working with our hard money lender to finalize the closing date on this property.  Right now we are trying to get it setup for August 24th.

Highland Property

We have another showing tonight with a buyer that has given us a verbal cash offer on the property.  Of course we have two land contract offers on the table right now, but we are leaning towards the cash offer even though it is lower to avoid the risks involved with the land contract.  We will see how this goes tonight.

That’s about it for now…lots of stuff going on!!!

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Day 37 – Summary of the Deals We’re Working…

Today is Day 37 in our drive for $60,000 in 60 days through real estate investing.  We have a number of deals working, and we wanted to update you on the status of each one of them.  Some have gone very well, and others have not worked out as well.  The good news is that we are continuing to learn every day.

2846 Cherry Rd, Highland, MI

This property is a 1050sq ft home that sits on 1.75 acres and is a definite rehab because the house is currently gutted.  The nice thing about this property is that it has a lot of extra rehab materials included with the sale. 

We have had this property under contract since July 9th, and our initial exit strategy for the property was to wholesale it as is, or rehab it ourselves.  We put the property under contract for a very fair price to the seller, which made it very easy for them to say yes to our offer.

Since then we have employed our full sell that home fast marketing strategy and we have had a lot of interest in the property.  We have received well over 20 calls on the property and have had about 8-10 people out to look at it.

From our buyer list, we have had 3 people who I would categorize as serious rehabbers out to look at the property, and the consensus is that the repairs are probably too much for the property to be profitable.  We have confirmed this with our own contractor estimates.

Because of this, we have changed our plans on this property a little bit.  We have spoken with the seller on a couple of occasions and discussed the feedback we are getting from the buyers.  I think at this point, it is really going to take the right buyer to see the value in the property and it is going to have to be someone who is looking to do the repairs themselves and live in the house afterwards.  We have a couple of people who fit this profile coming to look at the property in the next couple days, so we will see…

2080 Commonwealth, Auburn Hills, MI

This property is a duplex and is currently rented.  Both units were completely rehabbed earlier this year, and at the price offered we’re estimating the property will cashflow at $371 per month.  This is a great deal for any investor!

We put this property under contract on July 16, 2010, and we have used the same marketing strategy to market this property.  To our surprise there hasn’t been near the amount of interest in this property as there has been on Cherry.  We think the price point may be the main factor affecting this. 

At this point we are going to try a few more things with this property.  We are going to put up some more bandit signs for the property, send out more emails to our ever-expanding buyer list and put out some more online classified ads. 

We will see what happens…

630 Lydia, Pontiac, MI

This property is a condo that is currently rented.  The intriguing thing with this property is that the lease is structured giving the tenant the option to purchase the property within 5 years.  They receive $100 per month towards a down payment, but they also pay the taxes, association fee, insurance and maintenance.  This has a huge impact on the cashflow, and our analysis shows the property will cashflow almost $400 per month!

We have had this property under contract since July 31, and we plan to purchase and keep this property because the numbers are just too good.  We will list it for sale, but we are going to be pretty stingy on the price because the cashflow is just too good to pass on!

Right now, we are just running through our due diligence on this property, but everything (including the financing) is looking good.  So, hopefully we will have this one closed in the next two weeks…we’ll keep you posted.

Royal Oak Bungalow

We are still in negotiation on this property, but things seem to be stalling out.  This property is a 4 bed / 2 bath bungalow and has a finished basement.  It’s in a great area of Royal Oak, and we’re estimating it needs about $18k in repairs to make it a really nice home. 

We submitted our initial offer on the property giving the seller two different purchase scenarios.  One was simply a cash offer, and the other was a scenario where we would delay closing for 6 months and we would have the opportunity to go into the property, make the repairs and find a buyer…then close.

I just spoke to the seller yesterday about the offer, and he told me the offer is really too low for him, and he thinks that with minimal repairs (paint) he can get a much higher price. 

At this point, we’re going to look a little closer at the comps we pulled by driving by them to get a better analysis of our after repair value.  We have also discussed offering him a piece of the deal on the back side if we are able to sell the property for more than what our analysis showed.  So this deal is not dead yet, but it’s definitely not looking that great…

Bloomfield Hills Ranch

This property seems to be fizzing out because we are simply too far away on price (about $150k) with the seller.  This property is really intriguing because it is in a great area.  There are literally homes on the same street that are valued at $1.5 million.  The trouble is, this home is a 1300sq ft 3 bed/2 bath home with no basement.  Everything else in the neighborhood is 2500sq ft plus and are quite frankly nicer homes. 

For our analysis, we are showing that the property needs about $15k in repairs, but we really don’t think the home will sell for more than $158,000.  The trouble is that the seller wants $200k and they’re being pretty firm on that price. 

At this point, we have to let this one go because we are just too far away on price…maybe they’ll come around 6 months from now after they figure out that they’re priced too high…

Summary

So this is where we are at after 37 days.  We’ve had a lot of activity and we’ve learned a tremendous amount just by attempting to execute these deals.  We need to hustle if we’re going to make it to our goal of $60,000 in 60 days, but we’re trying…Stay Tuned!

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Go to www.2846CherryRd.com for all the details on this property.  Attached is the video tour for the property we just got under contract.  It is for sale for anyone interested…please contact Todd Brittingham at 248-917-4416 or email todd@michiganpropertybuyer.com

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