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Tuesday, May 26, 2009

Memorial Weekend Update - To Have and To Hold

Exciting weekend; I picked up a 3/1 in Anaheim for $5,000 cash sub2 the seller's 1st & 2nd totaling $174,000. The house needs about $45,000 to rehab it for retail and I think I could sell it somewhere between $300K~$320K. It has a big deep pool in the backyard that needs to be sand blasted and re-plastered. I am not a big fan of pools ever since the last one I rehabbed and I don't know if re-doing this one will net me a decent return on my money.

Here is the real problem: Sure I could use the $40K profit I will split with my partner ($20K each), but I just bought a house in Anaheim for under $200K!!! If I got the $20K in cash it would just get used up lubricating the corporate machine. This property will rent for $1,800 and if I redo the pool I could probably get closer to $2,000. On a rehab for rent I think I could get it done for under $25K. I would probably cave in the pool and that would save $7~8K alone. The house needs a ton of work, but the roof and water heater are new! I definitely have to gut the bathroom, but I might be able to salvage the kitchen. My retail strategy includes bringing in a private money person I have lined up for $50K. That means at the close of escrow my partner and I will each get checks for about $21K. This money of course is to be used for the rehab, but it is still nice to do a no money down deal AND get paid at the close of escrow. However, I do not believe in pulling out profit before I sell because profit is only realized when the property closes escrow. Everything else is speculation. I think this is a big mistake some investors make. I believe the old saying "you make your profit when you buy" is totally incorrect and actually just plain stupid. How do you make money buying something? The only thing you do when you buy something is spend money. I have reworded this statement and hope you will agree my way makes much more sense; "you establish your profit potential when you buy, you realize your profit when you sell."

If we do not take the private money and instead rehab for rent I think we will each be out of pocket about $15K. We have another deal that we haven't been able to sell yet, but if we get it sold soon we will take the money we recapture from that deal and use it to fund this long term hold. We will have a cash flowing rental in a great location. Decisions, decisions.....

2 comments:

  1. Aaron, I LOVE what you've done with the bathroom. Maybe you could open a day spa?
    Trent

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  2. From the owner's perspective it is a pile of money to fix. From my perspective it is a pile of money to fix and another pile of money I will make.

    "I love the smell of cat urine in the carpet."

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