Month: May 2010

by Tim Herriage Tim Herriage No Comments

Understand your financing

#2. So many investors go into a transaction without fully estimating the impact of the financing they are using.  You have to model your transaction out for a minimum of four months.  Here are several items investors forget to put in their cost analysis:

  1. Property Taxes.  This is a daily expense.  Make sure you consider it while a house sits vacant.  On a $100,000 in Dallas County, this can cost you upwards of $8 per day.  If you are planning to hold the property long term, I highly recommend calling Dave Aarant to protest the taxes.
  2. Back end points/prepayment fees.  Make sure you understand how you lender is structuring your loan.  There really isn't much you can do about how a lender structures their transactions, but you must understand it in order to accurately forecast your profit.
  3. Utilities.  This is another silent expense that can “eat your lunch”.  Make sure you account for it.
  4. Closing costs.  When you get the GFE/Term sheet from your lender, really take a look at it.  Many of these will project what your fees are.  If you are paying points on a loan, you can almost always count on the fees totaling about 1% more than the points.

I recommend you have a spreadsheet to project your profit.  Make sure the following lines are included:

Purchase Price
Purchase Title Fees
Purchase Lender Fees
Interest Carry
Property Taxes
Seller Contributions
Real Estate Commissions

Use this spreadsheet to calculate profit, not LTV.  The purpose of all of this is to make a profit, and a LTV isn't always the best way to decide if a house is a good deal or not.



Tim Herriage

by Tim Herriage Tim Herriage No Comments

What now?

If you are an active rehabber, the last sixty days has been a whirlwind, I'm sure.  In my nine years of this business (over 1,000 houses), I have never seen anything like it.  There have been more people trying to buy and flip houses than I have seen before.  Our last five flips have a COLLECTIVE days on the market of 38!  That means we are averaging about 7.5 DOM per house!  It has been a nice ride, but it seems to have come to an abrupt halt now that the first time home buyer tax credit has expired.  You can still take advantage of the seasoning waiver, but you will have to be on your A game.  I am going to devote the next several columns to trying to help you be more profitable with your next rehab.

#1 – Buy the right house.

Don't buy a house because it is a “good deal”.  Make sure it is the RIGHT deal.  Watch for issues like busy streets, commercial properties, and design flaws that will limit the buyers that are willing to live in the home.  These are called white elephant issues.  This is the number one way to loose money on a house.  It can cause a property to sell for 10% – 20% less than projected.  If you do the math, the average profit ratio is 12% – 15%.  So, if you have to discount that much, you might be fighting a loosing battle.  Make sure you have enough in the spread to carry the property for six months.  This should give you ample time to have the right buyer come along.  This is a very important decision before you buy a house.  If you get cashed strapped, you will become a motivated seller.  Once you cross that line, you are almost sure to miss your profit goals.

Tim Herriage

by Tim Herriage Tim Herriage No Comments

Talk to Eddie Speed today at noon

Come listen and learn from W. Eddie Speed the president of Colonial Funding Group, LLC and founder of NoteSchool. He has been buying seller-financed notes for 30 years and has bought over 30,000 Notes, funding in excess of 500 million dollars. Eddie holds the distinction of purchasing more seller carried notes than any other individual in the business.  Dial in number: 1 (605) 475-6190  Access Code: 8027321 Read More »

Tim Herriage