We picked up our 30th house last week (in the same neighborhood as The Drought House)!
This one is a Fannie Mae property that has a 90 day deed restriction — which means we are legally forbidden from reselling it within the first 90 days of ownership for more than 20% above what we purchased it for. In other words, if we purchase it for $50,000, we have two choices:
- Sell it for less than $60,000 in the first 90 days; or
- Wait more than 90 days and sell it for whatever we want.
This means that we can either try to wholesale it (sell it to another investor) quickly for a small profit or rehab it and have to wait three months to sell it. If we decide to wait the 90 days to sell it, we can actually sell on day 91, so we can still spend the 90 days rehabbing, finding a buyer and getting their financing lined up.
Since we don’t know if this would be an attractive wholesale deal or not, what we’ll likely do is the following:
- First, we’ll do a very minor rehab — clean the carpets, paint touch-up, ensure the utilities work, etc — and get it into rental condition. We’ll relist it, trying to wholesale to a landlord for a small — but quick — profit. The actual purchase price is $53,000, so the maximum resale amount in the first 90 days is $63,600 (20% above purchase price).
- If, after a month or so, we haven’t sold it, we’ll do a more substantial rehab and start marketing it to retail buyers.
I’m calling this one The Easy House, as the rehab on this one will be about as minor as we’ve ever done. The retail comps for this house will be pretty low, so even if we decide to get this one into retail shape to sell to an owner occupant, the rehab will likely be less than $10,000 — the smallest rehab we’ve ever done for a retail sale.
Congrats on another purchase! Curious about the numbers for a full rehab on this one. What’s your estimated re-sale value after the 10K rehab? Retail sales to FHA buyers use up so much profit because of commissions and paying buyer’s closing costs. I’m not an agent so I pay full 6% here. I sold an unfinished rehab to an investor cash buyer last week (still needed flooring). I came out exactly the same as I would have if I’d finished the rehab, listed and got an FHA buyer. That being said an almost-ready to go 3/2 with new paint, sinks, granite counters and trim plumbing is what sold it to the investor. He thinks he’s getting a deal because he’s not paying retail.
I’m also curious about the technical side of the 90 day restriction. My understanding is that you can’t go into contract for 90 days. Flipping Junkie posted on his site that he’s gone into contract on such properties, waited the 90 days and then rewrote the contract at that time. I’ve asked agents in my area what they’ve seen and none of them have done one.
Thanks for sharing and looking forward to watching where this one goes. Kristine
Hi Kristine –
I’ll post all the numbers on this house in my next blog post. In the meantime, your question about the “90 day restriction” is a good one, and one that I get asked over and over. The confusion comes about because there are actually a couple different 90 day restrictions in the real estate world, and they are vastly different (the one you’re talking about actually doesn’t exist anymore).
Your question inspired me to write an article on the topic that I’ll post in the next day or two. I’ll send you a copy of it in a follow-up email in a few minutes, and I’m happy to answer any specific questions you might have.
J Scott – can’t wait to see what you do with this one. Question for you –
How do you manage your rehab workflow? Do you leave it up to your contractor to decide what gets done in what order? Also, do you have one crew do everything…or do you hire seperate painters / plumbers / GC’s etc.?
I ask this mainly because I’m still working on dialing in my rehab procedures, particularly when it comes to the timing of my general contracters crew and my painter.
Thanks!
T –
I’ve written a full article about this very question…take a look:
http://www.123flip.com/education/how-i-manage-my-rehabs