We just picked up House #12 this week…
It’s in a part of town that we haven’t purchased in before, mostly due to the fact that there is such a surplus of inventory in that area that little is moving and prices are continuing to drop. So, you might ask why I decided to pick something up there now…
And the answer is: I don’t know. 🙂
I took a look at this house last week, and its had three characteristics that stuck out at me:
- It is small (hence, “The Mini House”)
- It is cheap
- It needs little work
Okay, it’s not that small; but it seems really small. It’s a 3/2 with a full garage built in 1993, and it probably encompasses about 1400 square feet. The fact that the kitchen is situated right in the middle of the house (open to pretty much all sides) is probably what makes it seem small.
And it’s really not that cheap. It was listed for $56K, and we picked it up for $50K. By our standards, that’s not tremendously cheap, but given how little work needs to be done, the all-in cost is very low.
We believe that we can get this into resale shape for about $5-10K. I’m not sure exactly what we’ll do yet, but it will likely be paint, carpet, and fixtures (both light/fan fixtures and plumbing fixtures).
If we can turn around and sell it for even $85K, we should make our desired $15K profit, and it’s not unlikely that we could get closer to $90-95K if we’re lucky. There’s only one other house for sale in the subdivision, and it’s listed at $109,900 (and has been on the market for over a year). But, it’s a very cute little neighborhood, and a very cute little house.
We may also end up partnering on this house with another couple — investor friends of ours — so all-around this project is going to be a good bit different than our previous projects.
I’ll post some pics and have more information next week after we’re through due diligence and we’re certain that we’re moving forward with this one…
Hello – i have been observing your site for about a month now and appreciate all the good info that you have on this site for newbie investors like me – i have been noticing that on alot of your offers your profit spread or margin is not really that much – i know this is your strategy and you work it well -but aren’t you worried that some unforeseen structural, mechanical or any other problem and possibly holding costs could eat up your projected 15K profit?
Hey Eric –
A couple things to answer your question:
– First, $15K is our minimum acceptable profit. We tend to be very conservative, and so far, our actual profit per house has averaged $27K. So, while we shoot for $15K, in reality are margins are a good bit higher.
– There aren’t too many issue that could come up that would eat $15K all in one shot. The most expensive parts of a rehab are typically the roof (max $6-7K), new HVAC system (max $4-5K), replumbing a whole house (max $4-6K), rewiring a whole house (max $7-9K), new kitchen cabinets/countertops (max $4-5K), etc. If I’m at all worried about these things, I will assume the worst-case costs until we dig in and find out what’s really going on. If it’s worst-case we have the budget to cover it; if not, we add to our profits.
– Certainly, something like a major structural issue could be very costly, but that’s why we get our houses professionally inspected if there is ANY concern whatsoever about structural issues. In fact, if the house isn’t build on a slab (such as a crawlspace or basement), we’ll almost always get an inspection. If necessary, we’ll bring in our structural engineer to give us a detailed assessment.
– Lastly, the profit margins are more determined by the area and the price of the house more than anything. Where I live, by rehabbing houses that resell for $120-130K, it’s hard to make more than $20-30K on a rehab; that’s just the reality of the numbers. Of course, we’d love to be doing $500K+ types of houses, but those houses are very difficult to sell in this market. When the market turns, we’ll be graduating to those types of projects.