In that article I described investing from what I’ve found is typical in doing this business. I wrote about where I TYPICALLY find the deals. Well, what IS typical in this business?
No two deals are the same, that’s for sure! Every rehab itself is different with different problems to solve. So, in describing a typical deal, I’m referring to the spread involved. The spread is the different between what I can buy the house for, and what it’s value will be when it’s brought back up to standards.
The next big question is, “What will the rehab going to cost.”
For instance, if a property in my market has a $25,000 spread between what I can buy it for and what I can sell it for (the as-repaired appraised value), it’s a “maybe” in my book depending on how much rehab it needs. If it needs much, I would probably pass unless some external factor makes it a good buy, like the neighborhood. In other words, if it needs much rehab, I’d have to be convinced enough to put some of my own money into it.
I typically look for houses with a $30,000 spread or better. You have to decide for yourself, based on values in your area and what is the minimum you want to make, what spread you’ll be happy with.
So, what is a rehab real estate investor’s “homerun? ”
Homeruns occur at the outer edge of what is typical. My homerun deals have occurred one of several ways.
– The spread is stellar. Let’s say the spread is $45,000 and the rehab is a manageable $5-10,000.
– The spread is good, but the rehab is very light. Wham-bam, I’m looking for tenants within days of closing.
– The cost is exceptionally low for a given area. Sometimes the spread on paper will not be anything to get excited about, but the property has a huge lot, extra bedrooms, or is located an area that is in serious demand.
– There is NO rehab, and the spread is sufficient that I can buy it with none of my own money.
True story – I’ve only had one NO rehab deal. Wow. This house had been recently rehabbed, clean and didn’t need a thing! This was a homerun just due to the ease at which I added this property to my inventory! The spread wasn’t great, in fact, I had a local hard money lender make up a story about being out of money because he thought the spread was too narrow and didn’t want to lend on it. He wrongly assumed there was a significant rehab. (Being straight up with me was too hard, I guess.) I consider this a homerun because I bought this property, changed the locks, put out a sign and had it rented within two weeks. Mind you this is a beautiful well-built brick/block home in a great neighborhood. Cost to me…nothing. This house has one of my best cash flows month-to-month. online iop