Diary of a Newbie Real Estate Investor

Bernadette Trafton, Chief ConnectorGood morning folks, Well Mike and Jacqui have been moving forward with their real estate business.  Their website is almost complete, they’ve been doing direct mail marketing and Mike was able to go to a property with Peg and a few others with the agent he’s working with.  A little over a month ago, I got a call about a property in Newton center.  I figured that this would be a great learning opportunity for Mike.  I called my co-mentor Peg Graveline of JEM Property Group and set up a time for them to go view the property.  Mike took all the pictures and got to watch Peg negotiate and sign the contract.  In the Wednesday night mentoring sessions that we do every week, we’ve covered how to put together a package for exit strategies for a property.  This is essential when pulling together funding partners or presenting to investors you may want to wholesale the property to.  We’ve covered the importance of consistent marketing and developing relationships with Realtors.  I introduced them to my favorite account Joe Craft, CPA and in our most recent session introduced them to John Syron of Aurelian Lending to go over the possibility of using their Unsecured Lines of Credit program.  We will be doing a new webinar on this service in May.  Stay tuned.  I also sent them a property in Dorchester that came across my desk this past week.  Not sure if they went to view it, that’s for the next post.  For, now….what have Mike and Jacqui been up to over the past week? mike and jacquiUpdate: Evaluating Potential Rehab Deals Since our last post we have been working with local real estate agents to learn more about the market for single family rehab investments. Last weekend, we went out with Matt Heisler, an investor friendly real estate agent who specializes in the central and metro-west markets.  Matt understands we are looking at properties from an investment point of view and has been a great resource.  With Matt we looked at properties inside the 495 belt, but about 30 minutes away from our target market of Framingham. The first house we saw, the Cat House, was a small 900 sq ft ranch in your average working class neighborhood. We immediately noticed the smell of cat urine and that the house was pretty much a mess. Our hunch is the house is currently rented to tenants and the seller may be motivated due to the extensive deferred maintenance inside and outside of the property. To expand the house, we could potentially add value by finishing the basement and adding a garage. However, we are unsure if the addition of a garage provides a significant enough return on investment to make it worthwhile. Our research suggests you may only get a 1:1 return on the money you invest to build the garage, however you will attract a larger market of potential buyers. Kitchens and bathrooms all need to be gutted and the exterior of the house needs some cleaning up.  House has original hardwoods throughout but the current tenants have let their cat wild and don’t seem to care about cleaning up therefore flooring needs to be replaced.  We are thinking of offering $160k. Estimated rehab costs: $45-60k depending if we add a garage) Potential sale price: $250-275k. House number two, the Old Folks House, seemed much more promising and we will admit, it was a breath of fresh air walking in. No cat urine! This was a much larger ranch in a quiet hill top neighborhood.  Real estate owned property that has been on and off the market for the last year. Needs new kitchen, paint and possibly updating the basement.  The basement was finished probably 25-30 years ago and although it is large and bright with a full bath, it is outdated. We would want to refinish the basement, but are concerned about return on investment. The house is located in a beautiful neighborhood, however across the street is a large Victorian that has been converted to a nursing home.  Not really an eyesore, but definitely out of place in a neighborhood of single family homes.  Is this a deal breaker for buyers? To be on the safe side of the budget we are reducing the estimated after repair value by 5-10%.  We are thinking of offering: $200k. Estimated rehab costs: $50k. Potential sale price: $315k. As we move forward we are still refining our investment criteria for a rehab property, however we are current looking for: 3-4 bedrooms with the potential for 2 full bathrooms, hopefully a master bath or space to add one in.  If the layout is not ideal, is it easy enough to manipulate? After that we don’t really care what the inside looks like because we will probably be replacing most of it, so the uglier the better. We also look outside and at the curb appeal, is there enough yard? How is the neighborhood? Spy on the neighbors, would you buy a house here?  From a numbers perspective we are targeting a minimum of $30k profit and for houses over $300k we are targeting a profit of at least 10% of the purchase price. Stay tuned to hear about any offers we put in and if accepted, how we were able to finance the deal as new investors.  In the meantime we are sending out our next batch of direct mail letters.  With our last mailing we got one response “Please take me off your mailing list”.  Hey, at least we know the letters were read! If you want to get in touch with us please contact us at jacqui@fitzpropery.com or mike@fitzproperty.com.

Comments

  1. Stan Kozlowski says

    Thanks Bernadette, Mike and Jacqui, this was great and useful information!!! Best of luck in your property search.

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