These are the results of the fifth week of opening up of my business for you guys to see how my wife and I are building back up to 30 deals a year. If you missed the first post explaining what I am doing, please visit This Post.
With it warming up the fleas are getting out of control again. I don’t know what causes it, but a house can have a pet with fleas and they don’t seem to take over. But as soon as that house goes vacant, they multiply like crazy and there are billions of them. Shouldn’t be a big deal though as most people like fleas, right?
These are the things I did this week:
Found owners of properties that I ‘starred’ when driving for the dollars the other week. Basically, the ugliest and most obviously long-time vacant properties get a star marked next to the address. These are the ones that I am not only going to send letters to, but I am going to try and track down the owner’s phone number and new address if possible. I was able to find 80% of the owner’s phone numbers with whitepages.com. Half of the numbers were disconnected. One seller did not want to sell (he lived there). One of the houses was a fire-damaged house and the owner was interested in getting an offer. Left messages for the rest.
Sent list of 487 absentee owners to Office Depot to print post cards. I researched some of the online printing and mailing websites and determined it was cheaper to have them printed and put actual postage stamps on them. This should cause the recipient to feel that the postcard was not sent to thousands of other people (usually metered). The reason for Office Depot is because my brother-in-law works there and I get a 10% discount. Figured that I am saving about $100 this way for the 487 postcards. Hopefully I can pick them up today. I will provide a picture of the card next week.
Called some REO Realtors to just keep my name fresh in their mind.
Had 50 more bandit signs put out and I was livid when I drove the area and saw that they were all put along roads far away from any intersections. This guy had put them out before and put them exactly as I had told him (AT INTERSECTIONS!!!! You know, where people are actually stopped and have time to either write down the number or dial it!!!) He got an earful from me. As I drove to view a couple properties this week, I saw some more of them and had to laugh at how awful it was that I just barely caught a glimpse of them as I drove 45 mph past them. Oh well. Good thing I checked on his placement of the signs. I think the number of calls from signs this week reflects the poor placement.
Posted The Top 5 Things To Do When Getting Started Flipping Houses
Closed on the house I put under contract in week one. I will be posting pictures and the scope or work for the rehab next week.
Marketing
Total Leads This Week: 17 🙂
Leads Analyzed
Homeowner wants to get rid of a 3 bedroom, 1 bath house that is vacant.
Here are the numbers:
| Asking Price: | $65,000 |
| Amount Owed: | $0 |
| Repairs: | $18,000 |
| After Repaired Value: | $95,000 |
| Max Offer: | $44,000 (65% of ARV – 18,000) |
House needs a lot of repairs and the seller wants to sell because he has remarried and moved to another house. He has a choice to fix up this house or work on the hotrods that he owns. Which would you choose? I hope you said the house. 🙂 He is hung up on 65k but I could only offer him $40,000. I will definitely follow up with him as I know he wants to work on those cars.
House that is about 45 minutes away on two acres with a tenant. Owner lives too far away and is tired of dealing with it.
It is too far away for me as well and they want more than I would consider to try and wholesale, so I am birddogging this one.
Homeowner called from our yellow letter we sent to the owner of a vacant house we found driving for dollars.
Here are the numbers:
| Asking Price: | $92,000 |
| Amount Owed: | $92,000 |
| Repairs: | $? |
| After Repaired Value: | $110,000 |
| Max Offer: | $71,000 – repairs |
The seller just bought the house recently and got the $8,000 tax credit. If he sells now (within 3 years) he will have to pay it back. Too much is owed. I will have to pass.
Homeowner called with a 3 bedroom, 2 bathroom house in a suburb of San Antonio.
Here are the numbers:
| Asking Price: | $89,000 |
| Amount Owed: | $89,000 |
| Repairs: | $? Mostly Cosmetic |
| After Repaired Value: | $110,000 |
| Max Offer: | $71,000 – repairs |
Seller wants to move back to Dallas but owes too much on the house. When I mentioned having to buy it for around $70k I could hear the husband in background saying “YOU’VE GOTTA BE KIDDIN ME!” Not gonna do it.
Homeowner called with a 3 bedroom, 2 bathroom house in area close to my house.
Here are the numbers:
| Asking Price: | $Make an Offer |
| Amount Owed: | $0 |
| Repairs: | $20,000 |
| After Repaired Value: | $105,000 |
| Max Offer: | $48,000 ($68,000 – $20,000 repairs) |
Executrix of the estate called me from a letter we sent (found driving for dollars). The deceased was a hoarder and they are in the process of cleaning out the house. First, I told them to stop cleaning it out. I will buy it with all the junk in it and save them the hassle. They said they were in the middle of probate and were going to be there the next day. I went to see it and offered $42,000. They are thinking it over and will let me know. I am following up frequently to try and get it under contract.
Update: I called to follow up on my offer and they informed me that 2 of the heirs were complaining that the offer was low and they felt they could get more (This always happens when there is more than 1 heir!). They informed me that 2 more investors were coming to make an offer on Saturday. The only thing to do here is to be polite and tell them to call after the others have made their offers to see what you could do.
The power of envisioning what you want truly works. I was focusing my thoughts on getting this one throughout the day yesterday. This morning (before I was even awake) they called me. The executrix informed me that they had had a conference call and decided that they would do the deal for $45k. I should be getting this under contract tomorrow (seller will be at doctors office all day today).
If you have never seen ‘The Secret’, you should find it and buy it. It will change your life.
Homeowner called with a 3 bedroom, 2 bathroom house in area about an hour away.
Here are the numbers:
| Asking Price: | $189,000 |
| Amount Owed: | $151,000 |
| Repairs: | $Unknown |
| After Repaired Value: | $200,000 |
| Max Offer: | $Don’t Know |
This property is just too far for me and in an area that is just not active. Days on market are ridiculous. I will have to pass.
Homeowner called with a 4 bedroom, 2 bathroom house in a good area.
Here are the numbers:
| Asking Price: | $195,000 |
| Amount Owed: | $136,000 (first $128k, second $8k) |
| Repairs: | $Unknown (Says no repairs needed. I’ve heard that before…) |
| After Repaired Value: | $220,000 |
| Max Offer: | $143,000 – Repairs |
Took this call in my new (used) car with bluetooth link up to my Droid phone. My wife was with me and was able to take down the information as I was asking the seller the questions and the seller was answering them. Much nicer than when I would have to give her the phone and ask the questions and write while trying to hold the phone or me driving, talking on the phone and repeating everything the seller says. Gotta love technology.
Probably need to get this for no more than what is owed. He did not sound very interested in my ball park of around $150k less repairs (quick calculation in my head while talking to him to feel out motivation – he is not behind on payments). I will call him in a week or so and see how he is doing.
REO agent called with a 3 bedroom, 1 bathroom house in a bad area. I didn’t want to even bother with this one. So I didn’t. But I told the agent I was not interested in this one right away. You have to be decisive.
REO agent called with a 2 bedroom, 1 bathroom house in a blah area.
Here are the numbers:
| Asking Price: | $14,000 |
| Amount Owed: | $0 |
| Repairs: | $20,000 |
| After Repaired Value: | $55,000 |
| Max Offer: | $10,000 |
This is the time of year that I dread going into nasty houses. The reason being, the FLEAS!!! I hate those darn little things that you don’t even notice until you have been back in your car for 5 minutes and realize that you are covered in them. Then comes the dance in the middle of the street trying to get them all off for 30 minutes because you don’t want to bring any of them home with you. Luckily there were only about 5 of them on me today.
This is a great neighborhood for selling on owner financing but not so much for selling retail. I’m really not interested in this property but will make the offer anyway and see what happens. Will attempt to wholesale if I get it under contract and will owner finance as last resort.
I called the homeowner of this badly burned 3 bedroom, 2 bath house in a good area.
Here are the numbers:
| Asking Price: | $Wasn’t Going To Sell But Now Might Consider It |
| Amount Owed: | $0 |
| Repairs: | $60,000+ |
| After Repaired Value: | $125,000 |
| Max Offer: | $15,000 (75k – 60k) |
This was a property my wife and I saw while driving for dollars the other week. It had a roll off dumpster in front that looked like it was filled months ago. Nothing was happening at the house and there was a code compliance notice posted on the door. I found the owner’s name from the county appraisal district’s website and then found his phone number on whitepages.com.
He told me he was getting estimates from contractors but was not having a easy time. Contractors usually don’t make for easy times. I told him we might be interested in buying it and that I would make him an offer if he would consider selling it.
I’ve made an offer of 12k and will have to follow up to see if he changes his mind about doing all that work to fix the place up.
Homeowner called with a 3 bedroom, 2 bath house in a not so good area.
Here are the numbers:
| Asking Price: | $45k and down to $40k when asked least would take |
| Amount Owed: | $26,000 |
| Repairs: | $Unknown |
| After Repaired Value: | $70,000 |
| Max Offer: | $45,000 (65% ARV) – Repairs |
The homeowner called from a sign and mentioned that she already has it under contract but that it had been well over a month and that there was lockbox on the house. After a little digging, found out that another investor is trying to wholesale it and is dragging it out because they cannot find a buyer. She was not sure of the closing date on the contract, but I need to find out if it has expired. If not, the next step is to call the title company and see if it was ever receipted with earnest money.
Homeowner called with a 4 bedroom, 2.5 bath house in a great area.
Here are the numbers:
| Asking Price: | $Make Offer (Darn) |
| Amount Owed: | $10,000 |
| Repairs: | $Unknown (about 10k based on converstaion) |
| After Repaired Value: | $200,000 |
| Max Offer: | $120,000 (65% ARV – Repairs) |
Caller’s sister-in-law’s house. She wants to move out of state. Not very motivated. I made a ballpark offer of $115k-$125 to feel him out. He said he would talk to his sister. I will follow up.
Homeowner called with a manufactured home north of town on 3 Acres. This is more my father’s turf, so I told her to call him.
Homeowner called with a 3 bedroom, 1 bath rental with monther-in-law 1/1 rental in back. Decent rents of $1,000/mo and owes $55k so a deal could probably be made. I passed this on to a wholesaler that has a lot of landlord buyers.
Homeowner called with a 4 bedroom, 2.5 bath house in a good area.
Here are the numbers:
| Asking Price: | $136,500 |
| Amount Owed: | $127,000 |
| Repairs: | $None |
| After Repaired Value: | $130,000 |
| Max Offer: | $Not Gonna Do It |
Too much is owed and the seller was told this immediately so as to not waste their time. These types of calls you really need to quickly get off the phone. There is nothing you can do with this, so why waste their time?
Wholesaler called with a 3 bedroom, 2 bath house, 1000 square foot house in a somewhat ok area.
Here are the numbers:
| Asking Price: | $48,000 |
| Amount Owed: | $? |
| Repairs: | $8,000 |
| After Repaired Value: | $78,000 |
| Max Offer: | $50,000 – Repairs |
Days on market are pretty high and nothing has sold in the immediate area in a while. The ones that sold last year were rehabbed very nicely (read more expensive than an $8,000 rehab). I called and said I would have to buy for close to $40k depending on actual repair numbers. I did this before going out there because I am not going to waste my time until there is room to have the wholesaler come down on his price. If it was a good price, I would not try to beat up a wholesaler as I want them to send me more deals. This is just where the numbers are at for me.
Got a text late last night from an owner in California. He is interested in getting an offer on the property I had sent a letter to him about. The house was found driving for dollars the other week. I am waiting for him to find a way to allow me to get access to the property.
Summary
Lots of leads this week. I’ve been making a decent amount of offers and nothing has been sticking. It is important to understand that this will happen. You will always have flat spots where nothing seems to be working and then all of a sudden you will get a flood of sellers accepting your offers. Sometimes the sellers you’ve made offers to months ago will call and want to deal all of a sudden. Keep the faith. I don’t let this discourage me. It just makes me try harder.
Plans For Next Week
The REO Realtor interview should be ready within a couple weeks. Subscribers will receive that.
If you have not subscribed, please do so on the right side of this page. This way you will be notified when my new posts are posted. Besides, don’t you want to read about the crazy adventures you can experience as a house flipper? Flipping houses is the best business to be in, bar none.
Follow along and learn how to flip houses.
Comments (42)
Another nice write up. Hope to be able to post a deal of my own soon. The seller I was talking with the other week did not like my seller finance offer. He wanted 50% down and I was only going to make a small down payment. Hopefully he will call back in a month or so when no one else buys.
Question about financing? Are you making cash offers from your own funds or do you have private investors?
Mike,
Keep following up. Sellers tend to change their mind with time.
When making offers to homeowners directly, I am making cash offers. The cash is from my private lenders. So yes, I am getting a loan but it is equivalent to cash because I don’t have to jump through any approval process hoops like you do with traditional lenders. Going in, I know the deal is good enough for my lenders and have never had one not want to loan on a property.
Danny,
What % of your deals would you say are from following up with the seller?? The reason I ask is we recently went back and looked up properties we made offers on but didn’t follow up. Found quite a few that sold to other investors a couple months after we made our offer!!!
So I guess I just answered my own question.
Another thing…..have you heard the saying “If there’s equity, go”? Meaning, if the house has equity go meet with the seller and make an offer.
See ya
John
John,
I’ve had quite a few deals from follow ups and are always worth pursuing. I cannot give you actual numbers though. To be honest, I tend to work really hard at following up and then slack up as I get busy with rehabs. Even more reason to do it as this happens to a lot of people. This blog is helping me to do these things more consistently.
I agree with the make an offer if the equity is there saying. You never know when a deal can be made. Never judge a deal by their asking price. This is why I still at least make ball park offers to feel for motivation when they do not seem motivated at all. I try to follow up on these also.
Danny
Another great post. The video of the burned house was nuts, I can’t even imagine rehabbing that beast. Appreciate the work you put into this, it is easily my most anticipated post on the internet.
Thanks, Dan.
It’s a lot of work and I appreciate the great compliment.
Danny
How long are you on the phone with the sellers? What sort of questions are you asking them? When do you decide to go meet with seller?
Great blog!!
Bobby
Bobby,
Great questions. Come to think of it, I bet a lot of people are wondering about this.
I’m usually only on the phone with sellers for less than 5 minutes. The things are I want to know are: address, bedrooms, baths, garage, repairs needed,why they are selling,how much is owed,how much asking,least they will take (this knocks off several thousand usually),how much houses like theirs are selling for (if they know),how soon they want to close.
I go to see them if what is owed is low enough to permit me buying it at 65% of ARV with some room for repair costs. If it sounds like it is while I am on the phone, I will schedule to see the house. When they don’t seem motivated at all and/or what is owed is pretty high, I tell them I will call them back after doing some research to schedule to see the house.
Danny
Danny,
Thank you for this blog. Really good.
A few questions:
1. How did you find your private investors?
2. What is the deal you work out with them?
3. Do you have forms you use – e.g. contracts, agreements, checklists, evaluation forms? And would you be willing to share?
4. How do you find your people to whom you wholesale deals that you pass on?
Thank you and I really appreciate this blog.
Andy
Andy,
Great questions.
I found my private investors through word of mouth and by looking at recently bought investor houses through the county’s deed records to see if the investor got a loan and then contacting the lender with a letter. When they called, I set up a lunch meeting with them and told them what I was looking for. It’s important to go into these meetings realizing that they want to lend money just as much as you want to borrow it. Do not go and act like you are desperate. It might be better to use the more expensive hard money lenders at first so that you have some experience and can tell them about the successful deals you’ve done.
I typically get 10%-12% interest only payment loans with 1 point origination fee.
I use the standard Texas Real Estate Commission contract. I do have some forms but they are mostly from courses I’ve studied over the years and have modified for my needs. I might make these available to my subscribers.
You will find wholesalers as you work this business and network. My ‘go-to’ people are people that I found, well – they found me, when I was wholesaling a house and they bought it.
Danny
Danny,
Oh, and another question that crossed my mind:
When people call you, do they have the expectation that you will buy their house? What I mean is, although you DON’T say “We GUARANTEE we’ll buy your house”, is there some sort of implied or expected guarantee that they can sell their house to you regardless of the deal? And if so, do they get pissed off at your offers?
I know you say to make your offers low enough to be embarrassing (or something like that), and I haven’t done step one yet, but was just wondering how you deal with the seller expectations – or is just a case of “some will, some won’t, so what….?” and you really don’t care about the deals that won’t work – they’re just part of the sorting process.
Thanks.
Andy
Andy,
“or is just a case of “some will, some won’t, so what….?” and you really don’t care about the deals that won’t work – they’re just part of the sorting process.”
This is correct. Sellers are hoping you will buy but they understand when you cannot buy and don’t usually get upset. Sometimes you will be accused of trying to steal their house with a low ball offer (even if it isn’t a low ball). These you just have to tread lightly and remain calm and polite. Tell them you are sorry they feel that way, but that is all you can offer them. If they don’t like it, they don’t have to take. I always have to try not to laugh when they accuse me of this. We aren’t putting a gun to their head, we are simply making them an offer. Oh well. Doesn’t happen that often. I think I actually had one of these accusers call me a couple weeks later and agree to sell at my price. You never know and this is why it is best to remain professional and keep your cool. Treat them with respect.
Good article another good place to find numbers is telephonenumber.com I seem to have better luck with it.
Greg,
Thanks. I will have to give that one a try.
I might end up getting an accurint account again. That one really kicks butt.
Danny
Danny,
I gotta say, I’m impressed with the 60k+ repairs on the fire house. Seemed like “to the frames” would be only the beginning of the work. Either way, I’m impressed with your marketing efforts and in-depth post.
Jason
Jason,
60k goes a long way here. A couple of years after I started flipping, while still working full time as a software developer, we rehabbed a house that was 4200sf (~3400sf after) and burned nearly as bad as this one. Damaged throughout. We ended up just over $80k.
Glad you like the blog.
Danny
We just finished a rehab on our house 64k for 3900 sq ft and really we only refinished 2400 sq ft. Nothing near as extensive as a fire rehab. Colorado is not a heck of a lot higher than Texas. As always, I have a lot to learn. I look forward to learning how you accomplish better rehab numbers.
Jason
Jason,
Don’t get me wrong. It really has a lot to do with what materials, fixtures and finishes you are using. I could easily spend $60k+ on a 1000sf house if I put in custom cabinets, granite countertops, copper bathtubs, etc. Not that you did. It is just hard to compare prices for rehabs without looking at what is being used.
On the huge fire damaged property, I acted as the GC. It was mainly to save money and learn what was involved (this was not too long after I started in this business).
Thanks for the input.
Danny
I notice your leads usually grow each week, which isn’t surprising, huh? Not only is your marketing snowballing, but you’re seeing results in the number of leads. That’s got to be encouraging.
10% discount saves you $100, so you’re spending $1000, or $2 per postcard. That seems like a lot to me. Are these better than your typical postcards? I look forward to the picture next week.
Lead #11: “After a little digging, found out that another investor is trying to wholesale it and is dragging it out because they cannot find a buyer.” How did you find that out?
#4: “YOU’VE GOTTA BE KIDDIN ME!” – Love it!
Mathew,
Snowballing marketing is awesome. Sometimes it is tempting to slack up when they keep coming, but I am trying this time to keep it going.
I was just saying I get a 10% discount on my order at Office Depot. I saved $100 over having them ordered and mailed online. It ended up being about $270 for printing and first class stamps.
The seller ended up telling me that that was what the situation was. That’s the beauty of open ended questions that get people talking.
Danny
Danny,
Can you put together a future post that talks about how you handle the financing? I know you’ve mentioned that you don’t use a lot of your own money in your deals. I’d love a walk thru, I’ve never really seen how hard money/private money works in the transaction works.
Arthur,
Good idea. I will try to work in somehow in the near future if I can.
Danny
Danny,
love the blog man,i think you’re really detailed with it and numbers wise and very educational as well,are u using any lead tracking system for follow up letters or anything of sorts? I also see that you are only mailing to absentee owners right now,from time to time do u mail to probates,tax delinquent owners etc?
Stephen,
Yes. I have a web based system I programmed to keep track of my mailings and leads. It has been a huge help.
We must be on the same wavelength. I am meeting with someone this morning to show them how to get the probate leads for me and was planning on working on the delinquent taxes in a couple of weeks.
Danny
Hi Danny,
Great blog. I have learned a lot and have a questions about your 65% purchase rule as follows; is my assumpti0n correct that your maximum offer price at 65% of ARV less repairs accounts for the cost of money, hold and selling costs?
I look forward to your reply.
Thanks.
Barry
Barry,
You are absolutely correct.
Danny
Danny,
Once again info and a great post! I’ve noticed since I began reading your blog a few days ago that the leads you’re getting on you “Driving for Dollars” usually don’t owe any $$ on their property and you’re usually looking for homes with an ARV of $85-$150k. Are you doing your driving for dollars in older neighborhoods that were once very nice neighborhoods 15-20 yrs ago. Also, It seems that you spend a good bit of money on bandit signs as you’re constantly putting out new signs every couple weeks. Are you placing these new signs in new areas or areas where the county has picked them up?
When you first began flipping how many flips and how long did it take before you could quit your J.O.B. and do this business full time? Did you use HML for the first several?
Thanks,
Steven
Steven,
You are correct about the neighborhoods that I drive for dollars in. They are still decent neighborhoods and they are at the age where it costs more for maintenance as the houses age. Some people defer the maintenance to where they cannot afford to fix the place up anymore or just don’t have the desire to do so.
I am targeting two large areas and I alternate putting them in those areas. So yes, I am repeating the locations. The signs end up on different intersections though most of the time.
I don’t remember know how many deals I had done before I went full time. My J.O.B. was as a software developer and I was making very good money so it was hard for me to quit. The part-time investing helped me learn how to manage things so that it did not require so much work. I guess it made me a lot more efficient. Looking back, I could have quit long before I was laid off. Trust me, I was super excited when I found out I was getting laid off. My manager was trying to fight to keep me and I told him not to bother. One of the best things to ever happen to me.
When I started, I had a mentor that I split everything 50/50 with. My wife and I did all of the work (marketing, taking calls, analyzing, making offers, rehabbing and selling) and he put up all of the money. We had no risk. We gave up a lot of profit, but we learned a lot. Most of our learning about the business was learned from courses and online. The mentor helped fill in the gaps and teach us things he had learned in his 20+ years investing that could not be learned elsewhere (maybe it could, but it’d be hard to find at the exact time that we needed the information). After the mentor, we found private money lenders on our own that we still use to this day.
Danny
Danny,
Couple more quick questions. You mentioned above going to the county deed’s records and looking for recently bought investor houses and then seeing if those homes had lendors on them. How do you know if its an investor home and where do you look in the deed room?
Also, what points are reasonably expected when using HML’s? What interest rate, etc? I heard there is a new law that says HML’s must have 3 months seasoning before being able to refi. Are you aware of this and what are your thoughts when considering financing with HML’s?
Take Care,
Steven
Steven,
I found the recently bought investor properties by looking at the REO properties that sold on the MLS. You can have a Realtor pull a list of REO addresses that sold over the last 6 months and start checking the deed records for those addresses. You only want the ones that were in bad shape as the REO’s that were in good shape are usually bought by regular homeowners getting conventional loans. The properties that went to investors and include a deed of trust or mortgage are the ones that used a lender to purchase. After a while, you might notice the same lender for several properties and several buyers. These are the ones you want to make contact with. Some of these will be private lenders (don’t actually have a hard money business, just lending money for higher returns.) The REO purchases that were bought with cash (no loan) are the ones you want to write down the buyers because they could be good wholesale buyers.
There are HML’s that will charge upwards of 5 points are more. I feel this is ridiculous. Maybe not if you have no other option, but you should look for one that charges no more than 1 or 2 points. You should be able to find one that charges between 10 and 14%. Most private lenders are happy with 10%.
I have not heard of the seasoning issue. Why would you want to refi? You should find a lender that will lend for at least 9 months or more and offer extensions (usually for another point).
Danny
Danny,
Thanks for the info on HML’s as well as REO’s! How many months of holding costs are you accounting for in the 35% off FMV(65% ARV) when doing your financing analysis?
I read how someone else does it from another forum as follows:
“-” stands for subtract
“Fair Value of the Property
– Profit of at least 10%
– Fix up costs
– Holding costs (value of the property x 1.2% x number of months I will hold the property to sell or rent)
– Closing costs (3% of the value)
– Realtor Fee (6% of the value)
= the most I will offer on the house.
Holding costs: I use value times 1.2% because I have seen that this will cover my mortgage, taxes, insurances and utilities for one month. The amount that is calculated actually covers more than I need but I include it to take care of my what ifs.
I use this formula on properties I rent or flip because I want to build in profit regardless of whether or not I rent. In addition to the formula if the property is going to be rented it has to cash flow. If the property does not cash flow with my offer I go low enough the property will cash flow or at least cut even.
he offer is always done from the FMV. Asking price means very little when creating a real estate transaction because anyone can ask anything they want, high or low.”
Are you accounting for roughly 10% of FMV/ARV to cover all closing costs, holding costs, realtor fee’s, etc.?
Steven,
I don’t really try and figure out how long I am going to hold the property and break down the costs because I don’t feel I will ever be able to be lucky enough to be exact. What I mean by this is that I am figuring out rough estimates of the big costs and am buying cheap enough to be ok if I have an unexpected repair or end up holding it 3 more months than I thought. You never know what can happen, so why try to figure it all out exactly before hand. This is how people get ‘analysis paralysis’. They get bogged down worrying about every little detail that they are never confident enough in their offer, so they never make an offer.
As an example: If I figure a house will sell for $100,000, after repairs of $10,000 are done. If I buy at 65% minus repairs, I need to buy for less than $55,000. If I buy at $55,000 and repair the house, I am at $65,000. Realtors commissions and closing costs (escrow fee, title policy, insurance, closing costs assistance) of 10% of the sales price would be $10,000. Now we’re at $75,000. If I held it for 6 months with a loan costing me 1 point and 12% interest (interest only payments), it would have cost me $4,450. This leaves about $20,000 potential profit. This allows quite a bit of room to have misjudged things to a certain extent. You can break it down to this extent with your typical numbers (i.e., if your loan costs are different) to build your basic formula.
The important thing is to stick to your basic formula and be conservative and accurate with your ARVs and repair estimates. Keep it simple. 65% of ARV minus repairs is good enough for me. When you analyze a lot of leads you will be glad you didn’t try to break everything down to the penny.
Danny
Wanted to tell you a story about the burned house. My grandfather who was the first house flipper I ever knew actually looked for houses that had been burned back in the 1980s. Everyone thought he was crazy (including my grandmother) because of all the work they needed. But, he bought them cheap, fixed them up, and needed wheelbarrows to carry all the money he made off them. In fact, one of the houses my grandmother liked so much that, when he was done, they moved in and lived there until she died 20 years later. I must admit, I learned a good deal from him, but the number one thing was that it’s not the repairs needed, it’s profit you can make. (LOL, I must admit though that, even 20 years later, when we left the AC off and left the house empty for a couple months, and returned to the house there was still a slight smell of burned wood).
BTW, this blog is one of the coolest things I have seen in a while. Just stumbled across it yesterday. Thanks for doing it.
Brad,
Thanks for the story about burn houses. The first burn house I did had the smell problem on certain days (higher humidity days maybe). I agree that they can be very profitable if you know what you are doing.
Thanks for the compliments.
Hey guys, here’s a quick tip to return the favor of the blog posts:
bucket o’ water,
box of borax (in the laundry section @ WM)
box of baking soda.
Make a wet paste. get a roller brush or paint brush and have at it on the wood. let it sit while you haul debris… brush off the powder when it dries. repeat if necessary.
I haven’t tried this on burned wood, but I have tried it on pet urine & other smells.
Would run you about $5 out of pocket. worth a try if it ups your value.
B
Thanks, Bailey.
You’ve Gotta Be Kiddin Me
[Source: Website]
Homeowner called with a 3 bedroom, 2 bathroom house in a suburb of San Antonio.
Here are the numbers:
Asking Price: $89,000
Amount Owed: $89,000
Repairs: $? Mostly Cosmetic
After Repaired Value: $110,000
Max Offer: $71,000 – repairs
Hi Danny, my question is let’s say the owners took your $70,000 offer. So basically they would still owe $19,000 to the bank. How would or can you even get the title to the house until they pay off the $19,000? Or would the title company not go through with the deal until the owner has the rest of the money to pay the bank? I am just trying to understand, just because they accept your offer, that doesn’t mean you get the house until they have paid off the remaining balance is that correct?
Alex,
They would have to come to the closing with the difference. Yes, they would have to pay the $19,000.
There are a lot of these leads where too much is owed. The only way around it is for the lender to agree to a short-sale, which is where they agree to take less than what is owed. I don’t like short sales. Usually, the seller needs to be behind on payments and there needs to be a reason for them to accept less (house needs a lot of repairs, etc.).
Hi Danny! I have two questions.
1. I would never think to prospect burned houses because I would assume the insurance money would repair. So obviously, not everyone who’s house burns down either has insurance or uses the money to fix it. Is that why you go after those homes?
2. House #11: “If not, the next step is to call the title company and see if it was ever receipted with earnest money.” Why is that the next step? If the money hasn’t been receipted, what does that allow you to do.
Thanks so much!
Sharon
1. Yes, you are correct. It can be overwhelming to a lot of people and they don’t like the stigma of it having burned.
2. If the contract was never receipted with earnest money, it wouldn’t be a valid contract. The seller could then contract to sell it to me.
Im curious if you get much pushback from the sellers when you ask them what they owe? They would be giving up their bargaining power, right? Do you find that you are employing sales tactics on the first phone call? Or is it a pretty casual convo to just get the info quick?
Chris,
No, I do not get pushback from sellers when I ask what they owe. Maybe one out of every 100 or more will not want to tell me.
I do not employ sales tactics on the first phone call. I simply find out about the house, their situation and set an appointment to see the house. It’s very conversational.