Bob: Hey guys, it’s Bob [Allwine 00:00:03] here. I’m back at home base in New Market, Maryland, after a day out looking at properties and just recapping the day thinking about what do these properties have in common? The houses that we’re buying or making offers on. What do they have in common with each other?
I’ll tell you, I started the day in North Potomac, went to Silver Spring, went to Baltimore, went back to New Market, and then finished up in Taneytown this afternoon. The same time, Michael was out making offers on properties in Frederick. He had a couple of meetings yesterday. We were up in Rocky Ridge yesterday and Thurmont yesterday and all of these properties have something in common and that is they need a lot of work and, I started thinking about it.
We really specialize in houses that need work; that need renovations, and I was talking to some of these folks today about their house, and some of the houses are a little bit dated. Some of them are in need of some repair; some serious repairs, and those repairs cost money, right? So I do take the time to explain to folks, and I thought I’d share a little bit of that with you today.
The items that we’re looking at when we’re calculating our offer prices. So basically we start with what we think we’re going to be able to sell the property for. So let’s say for example, we think we can sell the house for $200,000 for round numbers. We work backwards from there. We use 10% for our overhead costs; things like taxes, attorney fees, realtor commissions. So we’ll deduct 10% for our overhead expenses. So in the $200,000 scenario, that would leave us $180,000 and we’re working backwards again.
So after that, we deduct our profit on a $200,000 house and we shoot for 15% on average profit for a project that’s going to take us three to six months to complete. So in this case, we’ll subtract $30,000 for the profit on this particular $200,000 house. Again, I’m using round numbers. That leaves us at $150,000 and then what we do is we go back to the computer and we calculate what our exact costs are, our almost exact costs are going to be. There’s always surprises but we calculate what our costs are going to be on the rehab of the property.
So maybe I’ll show you that later. I’ve got a spreadsheet on the computer that I can share with you guys. So we’ll look at the big ticket items first, mechanicals, things that people don’t like to think about that are going to cost a lot of money. HVAC systems, electrical work, plumbing, and repairs to the mechanicals of the house. Then we look at things like the roof and the exterior cosmetics of the house; the windows, things that may or may not be structurally sound, decks, et cetera, and we’ll calculate what we’re going to spend for repairs on the exterior of the house. Roofs are big ticket items. In our area, in Frederick County and Carroll County and Montgomery County, we have a lot of houses with septic systems.
So we do take a look at if it it’s an old septic system, we do budget some money for repairs on that. A new septic system will cost you anywhere from $6,000 to $16,000 if you need a new septic field. So those items are calculated as well.
We look at the interior cosmetics of the homes. A lot of the houses we’re looking at, I’ll call them grandma fixer uppers. We love them. They have wallpaper. They have old cabinets and sometimes they’re pretty clean and pretty nice but we still will demo most of our kitchens and bathrooms and we’ll completely renovate them for you millennials that like all the new stuff.
So we take the big ticket items off the top. We take the repairs, the cosmetic repairs off and then we throw some fancy stuff in there for the new buyers. Then that leaves us our offer price. So, let’s just pretend all those items add up to maybe we need some windows and a couple of new doors, kitchen, bathroom and it all adds up to $25,000. So we’ve taken, we were at $150,000, we take off another $25,000 for the repairs, that leaves us $150,000 and that’s our offer price which we would offer you for that particular house.
Sometimes it works and sometimes it doesn’t. A lot of times it does work; everybody’s happy. We buy the property for $125,000. We put our $25,000 into it. We fix it all up and three to six months later we sell it again to a new millennial buyer. I say millennial but they’re not all millennials.
All right, so that’s where we’re at. I will show you that spreadsheet a little bit later.
Thanks for tuning in. See yeah.