Houses Into Gold
by Robyn Thompson
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The Basics of Turning Ugly Houses Into Gold by Robyn Thompson
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You must first determine what the value of the house will be after you have completed the renovations phase. This is a term called "Market Value" or "After Repaired Value". Realtors and appraisers are the best source to help you determine what the home will be worth.
The second critical factor will be to accurately estimate the repair cost. This will be the hardest task for the beginner. Many first time investors underestimate the repairs because they do not see all of the structural issues. A home has to have a new or recently updated furnace, roof, and electrical system. When you are selling the home to a first time homebuyer they will also want a new kitchen with all the appliances plus a new bath. In my expert opinion the renovated home must be "drop dead gorgeous". Your house must be better than everything on the market for sale if you want it to sell quickly. An experienced investor will also spend $3,000 to $5,000 on the extras to sharpen the appearance of the property; like chandeliers in the dining room and staircases, gold handles on all cabinetry, mini blinds on all windows and gold fixtures for the vanities and kitchen sink.
The next step is to figure out what all of the renovations will cost. If you do not have a construction background, you need to get in touch with 3 contractors. As a beginning investor you should always get 3 written quotes. You must make sure that they include everything that you are asking for.
Good sources for an ethical contractor are your city planning and zoning officials and other investors in your local Real Estate Investors Association. You should always check at least 3 references and get a copy of the contractor's license before you hire one.
Now you are ready to determine what to pay for your ugly property. This is the basic buying formula for any home that will have an after repaired value of $50,000 - $175,000. You take the market value and multiply it by 70% then you subtract out all of your repair cost and a flat $5,000 for the cost of borrowing capital to fund the project. The figure that comes from this equation is the highest purchase price that you can pay for the ugly house.
The formula provides the investor a 20% profit and allows 10% for closing costs. Lets illustrate this equation with an example: the home will have a market value of $100,000 upon completion; we multiply by 70% to get $70,000. We will use $25,000 in repairs, so we now subtract $25,000 from $70,000 to get $45,000. You must then reduce the purchase price by another $5,000 for the cost of financing the project. The highest price we could pay for the house would be $40,000. Your initial offer should be between $32,00 and $35,000.
The last critical step is to go out and actually look at and make offers on the junkers. The more you explore, the more you will learn. You will know when you find profitable deals to buy. Just stay with the buying formula and you too will begin making thousands of dollars a year in the ugly house business.
© Copyright Robyn Thompson
Robyn Thompson owns and operates Home Buyers LLC, a real estate investment company which specializes in purchasing, renovating, and selling single and multifamily homes in and around Waterbury, CT. Under Robyn's direction, Home Buyers LLC has grown phenomenally over the last few years. Robyn purchased 50 homes in 1998. In 1999, only her fourth year of operation, she will purchase 52 homes! Robyn cashes out 97% of her houses to "A" credit buyers in record time. She has made retailing a science and knows every technique imaginable to reduce rehab time, minimize holding costs, attract and qualify good credit buyers, and expedite closings! If you've ever wanted to get started in the rehab business, Robyn's courses are invaluable!