Thread: The Corn House (A real-life experience in rehab and flip)

Originally Posted by msa1

There's no contractors discount at Depot or Lowes. I'm in there everyday and that sometimes gets me 10% off on certain things, but there is not contractor pricing at the big box.

To confirm what everyone else said, yes there is. You would be AMAZED just how much these stores bend over backwards to help the customers they like (and no, Im not talking about the weekend shopper dropping a few hundred here and there who is friendly to the cashiers and waves to the front desk as he/she walks through the store). Im talking about the BIG FISH. Once they recognize you as a professional and start getting an idea as to the caliber of customer you are, you will become their best friend. These stores have margins to meet every month to keep thier "sales plan" in line. When they arent getting the sales they need, employee hours get cut, bonuses get cut, etc. Talk to any department manager in the store towards the end of the month, and their biggest worry for that last week will be "making plan". So if you are someone these managers KNOW will return to the store from week to week if they keep you satisfied, youre in the club! The contractors discount Jscott is referring to is just one of the ways they do this.

And yes, dropping thousands every week on orders is the easiest way to make friends there!

One last tip; for you weekend shoppers of Home Depot and Lowes, begin familiarizing yourself with the Head Cashiers in the store. These are generally the front-end supervisors who handle cashier problems, customer complaints, etc.

Now, heres a little known fact about Head cashiers... EVERY single one of them (there are usually 3-4 to a store) has the ability to mark down ANY item in the store up to $50 without raising an eyebrow. It is called a "Customer Service Mark-down slip", and yes, that means if they feel like it, they could mark a dremel tool selling for $45.99 down to .01 cent for you, for almost any reason they please.

Now, obviously this is not something ANY of them will abuse, and markdowns from $50 to a penny such as that are NOT the norm. These markdown slips are primarily used to "appease" pissed off people when there is a customer complaint. However, it can also be used to match a competitors price, compensate for a missing instruction manual in a ripped box, etc. So next time you are annoyed that you have been standing in the electrical department for a half-hour with NO one to assist you... or that the last item on the shelf has a torn box, etc, you may want to try making some friends up there! The head-cashiers NUMBER ONE PRIORITY on the stores front end is to keep the lines moving. So if you are that "squeaky wheel" and a $25 markdown off your cart will shut you up and get you out the door, youd be surprised how easy it can be!

Its funny, because looking back..i really wouldnt have believed some of the stuff I saw if I hadnt worked there for 3 years. With the money Jscott is spending in the store, I wouldnt be surprised if they had coffee and a hot danish waiting for him when his truck pulled up to the contractor pick-up.

Being a VIP in Home depot has its advantages!

Great post from the insider perspective! I believe that each cashier can do a 10% off right now also without manager approval. I've had several items that the box "looked a little banged up" and they wack off 10% at the register without batting an eyebrow.

- Hakrjak

Great point about slashing prices at the register...

I had a situation today where I bought an exterior door and I had the Pro-Desk hold it for my GC to come pick it up. When he got there, he noticed that there was a big crack in a piece of the attached brick mold, and called me to tell me. I had him ask the contractor rep if they had anymore of those doors in stock, but unfortunately they didn't. One of the cashiers was standing there and said, "If you want to just take that door, I'll give you $50 off and a free piece of brick mold so you can replace it yourself."

I gave my GC the $50 I saved to install the door and replace the cracked brick mold (great deal for him ), and everyone was happy...

Well, The Corn House is under contract:

REI Startup: House #1: Under Contract

Not a big profit on this one, but selling will allow me to free up more than $100K in cash that can be put into other properties, so a sale is a good thing...

Wow, two properties under contract in one weekend! And I have a potential offer on another one I'm trying to wholesale...

Great news. How many houses have you done now? Any big surprises? Things you would do more (or less) of?

Originally Posted by phlgirl

Great news. How many houses have you done now? Any big surprises? Things you would do more (or less) of?

I close on my 6th and 7th properties this week and next...

Of the first 4 that I rehabbed and put back on the market (in the past 5 months), 2 have already been sold and 2 are currently under contract. House #5 is in the middle of rehab and should go on the market in a couple weeks. House #6 closes in two days, will be a quick rehab, and will be held as my first rental. And House #7 is actually a duplex that I'm wholesaling to another investor; I'm expecting an offer on it this week.

So, things are actually going better than I expected. With the exception of the first project I did, no property has sat on the market more than a month without getting a contract, and I'm finally comfortable that I know my area (and the numbers) well enough that I can confidently put in bids on properties after just a 20 minute walk-through. This allows me to make more offers and jump on great opportunities.

Additionally, my wife and I have made friends with a couple of the big REO agents in the area, so we're starting to get deals handed to us before (or just after) they hit the market. This will go a long way towards helping us find the great deals.

So far, no big surprises. It's been a very big learning process, and I'd say I'm probably to the point where I know about 10% of what I probably need to know to be wildly successful, so there's a lot more work and learning that needs to be done. Hopefully I won't make any serious blunders along the way, and I'll continue to make good choices and decisions.

Perhaps the biggest surprise so far has been the lack of professionalism among the players in this industry. While I expected contractors to be difficult, they're worse than I expected. And I certainly didn't expect real estate agents to be as unmotivated and unprofessional as I've found them to be; it's amazing how little effort people will exert in attempt to take my money...

I have a feeling this new foray into landlording will be a huge learning curve, and am looking forward to learning some tough lessons there...

By the way, the advice you gave me on multiple occasions about getting financing in place *before* starting to do deals was probably the best advice I've gotten in this business...so thanks again for that, Phlgirl!

So glad to hear it, JScott. Sounds like you guys are progressing really well.

Great news about the REO contacts! That's the way to do it. My husband was up in PHL the past few days meeting with several REO agents there. They can make your life so much easier and, in the end, you are both making each others pockets heavier, so it doesn't get much better than that.

I hope to take some of my own advice, with regard to financing, when we get back to PA. It's so much more fun to use someone else's money.

Thanks for the update!

Originally Posted by JScott

Perhaps the biggest surprise so far has been the lack of professionalism among the players in this industry. While I expected contractors to be difficult, they're worse than I expected. And I certainly didn't expect real estate agents to be as unmotivated and unprofessional as I've found them to be; it's amazing how little effort people will exert in attempt to take my money...

I agree with you there; I think thats why if you have your act together, are fairly smart, and willing to work hard, RE usualy pays off very well.

Thats one of the reasons I like RE, the super smart kids who can calculate circles around me in math class don't really have any advantage over me.

This deal fell through earlier in the week:

REI Startup: House #1: Back on Market

That said, this crazy buyer now wants to resubmit her offer! We're still negotiating, and unless she's willing to have a very small due diligence period at this point, and a decent sized earnest money deposit (so I'll at least get something if she flakes again), I'm not even going to bother with her...

Additionally, we have another buyer who wants to do a 4-month Lease Purchase (his credit is "almost" good enough to get the loan, but his broker says it will be another 3 months). If he is willing to put down a good chunk of earnest money (enough to do a lot of rehab in the case he ends up backing out of the deal), and is willing to pay a hefty monthly lease for the next 4 months, I might consider it.

All-in-all, I consider this house cursed...

REI Startup: House #1: Bad Neighbors

Selling stuff in this market sucks, I hate doing it. All the buyers know they have you by the balls and can drag you over the coals. Buying stuff sure is fun though...

I received a second offer on this house yesterday...though it's not a conventional offer...

Would LOVE any feedback others might have on Lease Purchases in general, or the offer, specifically:

REI Startup: House #1: Second Offer

Our friends (whom you have met) did a ton of these, out in Cali. They have had nothing but good things to say about the process.

The way I see it - having glanced over your numbers quickly, worst case is you get a security deposit of 2500 (if they never make another payment) and best case, you get a full price purchase (minus seller assist), after a few months of rental income.

I am going to assume that the $1000 rent covers all of your monthly carrying costs.

I would want to know about the eviction process in GA. How long does it actually take to get someone out. I would want to verify income (actually talk to the employer) and I would want to know how long they had been at their job(s).

If you (or your wife) really want to investigate, ask them if you can meet them at their current house. You can tell a lot about people by the way their house is kept. Likewise, with the car..... might help you assess the potential damage risk to your property.

What if they could not get approved in August and wanted to stay? Would that be okay with you? Would it be tying up funds you would rather use elsewhere?

I might want to have a conversation with my own mortgage broker and ask for odds of their being approved in the coming months.

All in all, it does not sound like a bad gig, to me.

Just an update on this one...

We accepted what turned out to be a GREAT lease purchase agreement on this one:

- It's a 5-month lease purchase;
- Purchase price is full asking, minus $2000 towards closing costs;
- Buyers are paying $2000 in "security deposit" that goes towards down-payment at closing, plus the $500 in earnest money they put down;
- Buyers are paying about double market rent ($1500), with $1000 of it going to us as rent, and $500 going into escrow towards the down payment;
- Buyers have started credit counseling with our lender, and our lender thinks they should be approved sometime between June and August;
- Turns out buyers don't have bad credit, just NO credit. In fact, they only have one credit score among the three agencies. The husband (who grew up in NJ and is about 45 years old) has never had a credit card!

In 5 months, if they're ready to close, we'll get full asking price plus the $5000 we collected in rent. If they don't close, we keep the $10,000 they paid in escrow and rental payments.

Btw, turns out this family is losing their current lease option in the same neighborhood because their landlord wasn't using the lease payments to pay his mortgage and the house went into foreclosure. This family lost $7000 to the guy (they didn't have an agent or secure contract), and yet, when we went to visit their house, they were having the rugs cleaned because they didn't want to leave the house any messier than when they came in.

When I said, "You realize they've screwed you over, and the bank owns the property now...why are you having the rugs cleaned?" their response was, "We're not going to be bad people just because our landlord was..."

Sounds like we have a winner!!!

Originally Posted by JScott

Sounds like we have a winner!!!

Yes, it does.

Here's hoping everything turns out right!

-Russ H.

Wow, it's been a long time since I re-read this thread...

For anyone wondering, this house has been under lease-purchase for nearly a year now, and the buyer's credit continues to improve. They will likely qualify for an FHA loan in the next month or two. In that time, we've earned about $9000 in rental income and the buyers have saved $6000 towards their down-payment and closing costs.

The best part is that the husband is a contractor, and other than providing them a few materials totaling about $50, they haven't asked us to do any repairs or maintenance on the property since they moved in. They invite us over for coffee every couple months because they want us to see how well they're keeping up the property (it looks as good as the day we finished rehabbing it), and are as excited about purchasing it now as the day they moved in.

Funny, of the 16 houses we've now purchased and rehabbed (or in the process of rehabbing), this is the only one we had trouble selling. It's amazing how much we've learned over the past 16 months, and looking back over this thread, it's amazing that our "strategy" seemed to be pretty much right on track from the beginning.

We were hoping to do a lot more properties than we've done (we're averaging one per month), but my wife got pregnant about 4 months in, so we never spent a lot of time focused on scaling the business.

These days, we have a full-time project manager who oversees the day-to-day aspects of the business (hiring and managing contractors, etc), while I focus on the acquisitions and my wife (who got her real estate license) focuses on the marketing and selling.

While we didn't scale as big as we thought we were going to, my wife and I only work about half-time, and are able to spend full-time with our baby...so the trade-off is well worth it.

We're looking to launch something much bigger over the next two years, but I'll save that for a future thread...

Originally Posted by JScott

Wow, it's been a long time since I re-read this thread...

For anyone wondering, this house has been under lease-purchase for nearly a year now, and the buyer's credit continues to improve. They will likely qualify for an FHA loan in the next month or two. In that time, we've earned about $9000 in rental income and the buyers have saved $6000 towards their down-payment and closing costs.

The best part is that the husband is a contractor, and other than providing them a few materials totaling about $50, they haven't asked us to do any repairs or maintenance on the property since they moved in. They invite us over for coffee every couple months because they want us to see how well they're keeping up the property (it looks as good as the day we finished rehabbing it), and are as excited about purchasing it now as the day they moved in.

It doesn't get any better than that, Jason. My dad's favorite renters were ones that stayed for years and asked him on occasion to buy materials (and they did all the upkeep). Of course, that was in the 1960s!

While we didn't scale as big as we thought we were going to, my wife and I only work about half-time, and are able to spend full-time with our baby...so the trade-off is well worth it.

We're looking to launch something much bigger over the next two years, but I'll save that for a future thread...

Been there w/the baby. Rest assured, I have never regretted one second I've spent NOT working in order to be with our little one.

Every parent-- every single one-- would tell us "it goes so fast". When we were getting no sleep, and she was less than a year old, I had a hard time believing that.

Here it is three years later, and by god, it's true. SO true.

So treasure every single second. It happens so fast.

-Russ H.

I haven't posted here in a while, but since I still get a decent amount of traffic to my blog from this thread, I thought I'd come back and post an update, now that this house is finally sold...

This was our very first investment, and as I mentioned in my last post above, we were in the middle of a great lease-purchase to try to get it sold. Ultimately, after two years, the lease-purchase tenants left (the wife got very sick and had to move for treatment), we did a second rehab on the property (this one went much more smoothly and quickly than the original ), we put it on the market, got an offer within a week, and closed a few weeks later.

Here's the full breakdown all the financial and schedule results: The Corn House: Final Analysis

But, the high-level overview is that after overpaying for the property, holding for 2.5 years, doing 2 rehabs, earning 2 years of rent and option fees and then selling for just a few thousand below our original ARV, we ultimately made about $3000 in profit. That's about 3% annualized ROI, which doesn't take into account the massive headaches this project caused; but ultimately, it led to the next two dozen rehabs we've done...all successfully, profitably and progressively more easily.

Here are some lessons I learned from this first project: Lessons Learned on House #1

Thanks to all who followed this thread, and I'm glad to finally be able to write the final chapter...