ForeclosuresMass - ForeclosuresMass Monthly - Interview with the Expert - The Nitty-Gritty Rehabbing Tips You Must Know (June 2007)

A real estate investor since 2000, Kevin Lacasse is the Principal of New England Family Housing, a company specializing in residential, multi-family and commercial acquisitions and re-development.

Bitten by the real estate bug after buying his first duplex eight years ago for $32K and moving his family into it the weekend they closed - "it was so bad it was almost condemned" he jokes -- he continued to work a fulltime job while investing on the side. Three years ago he quit his job and started his real estate business.

To date he's done almost 50 deals and owns 53 apartment units; consequently he spends most of his time rehabbing.

We asked Kevin for his nitty-gritty tips on what makes for successful rehab projects.

ForeclosuresMass Monthly: Kevin, what's the biggest mistake new investors make when rehabbing properties?

* Next 37 17 investors only!

Kevin Lacasse: The biggest mistake? People pay too much to purchase the property. Most people will buy a property and rehab it, and then can't figure out why the house doesn't sell. I've had people ask me for help and when I recommend they lower the selling price, they'll often say, "We can't do that because we won't break even." That's a tough way to get into a property.

KL: Most investors are pretty good at figuring out the After Repair Value (ARV) and then subtracting out the rehab costs. But, they'll often forget things like closing costs and real estate agent fees.

I have a worksheet that includes all my costs. The first thing I do is look at the purchase price and the comps. I'll then take the ARV and subtract from it the following:

I also subtract 10% off the ARV because I like to sell below market value in order to offload properties faster.

Once I subtract all these costs, I then come up with a final number - this is the amount I'll pay for the property. If the seller can't come close to that price, I walk away.

KL: I've been working with a contractor for two years now - in fact, I keep him so busy he doesn't work with anyone else. He and I will walk through a property and make a list of everything that needs to be done. I act as my own general contractor. My contractor does carpentry and clean-up, no plumbing or electrical, so I have separate guys for that.

Costs are dependent on how much work needs to be done. A "fluff and buff," as we call them, may need only paint and carpets; we can bang those out in a few weeks. However, we just finished a seven-family rehab - that took us five months and it went over budget.

KL: Even experienced investors like me get into trouble. I got killed because I didn't talk to the town before the purchase. Because it's a seven-family, it had to meet the 2005 International Building Code (IBC) regulations. [States across the country, including Massachusetts and New Hampshire, have been updating their building codes to comply with the new IBC.]

I had to put in a sprinkler system and have an engineer do a full site plan that included drainage and lighting reports. I also had to redo three levels of railings because they were built to the residential code but not the commercial code, under which the seven-family fell, so they were two inches too short.

Although I ran over budget by $40K, I didn't lose money because I was able to refinance the property at its appraised value. I still have $70K of equity in it.

FMM: Your story brings up a good question. How do you deal with unforeseen issues?

KL: With real estate, it's a fact of life that you'll have unforeseen conditions - which will always push you over budget. To cover these types of things, I designate 10% of my rehab budget for the "oops factor."

Here's a good example: Last year I bought a 1,000 square foot property. This place was covered in five to six feet of junk. We used six 30-yard dumpsters - the really long ones - and cleaned the place out.

Once it was clean, we could see what we were dealing with, and that's when we noticed the whole back of the house was pulling away from the main section. The foundation was failing as well. We had to tear off the whole back section and rebuild the foundation using post and pier as well as completely rebuilding the kitchen and laundry room.

However, I still made a $25K profit - because I had room in the budget for the "oops factor."

KL: Have several exit strategies. If the market slows or something happens, what are your options? Will you keep the property? Can you sell it on rent-to-own or through a lease option? Do you still have room to wholesale it or can you refinance it?

Bottom line with real estate investing - always consider your profit before making any moves!

Kevin Lacasse is the Principal of New England Family Housing. He can be reached by phone at 603-279-4557 or by email at dnlhomes@metrocast.com

Did you like this article? You May Also Like:

	Nothing Succeeds Like Success: An interview with full time investor, Derek Ebrecht Derek Ebrecht Derek Ebrecht's got focus, drive and insight into what makes for successful investing. He's also got several profitable deals under his belt, despite his relative newness to the foreclosures field. We spent some time with Derek this month to understand the reasons behind his success.
	Success Strategies: Establish Your Credibility as a Serious Real Estate Investor Ann Bellamy In a business where most deals are based on referrals by trusted associates, building your credibility is as essential as carrying a cell phone. Networking alone is not enough - you need to establish yourself as a trusted and knowledgeable partner. In this article, Ann Bellamy shares eight strategies to help you build a reputation as a trusted expert in your field so that others think of you first when an opportunity arises to partner on an important deal.
	Interview with the Expert: The Nitty-Gritty Rehabbing Tips You Must Know Kevin Lacasse What's the biggest mistake real estate investors make when it comes to rehabbing properties? According to expert rehabber Kevin Lacasse, it's paying too much for a property! Read his tips for figuring out how much you should pay - and how to budget for those unexpected cost overruns.
	Feature Article: How to Successfully Sell Your Property Via an Online Auction Site Neil Kaplan Newcomers to the real estate game, online auctions generate excitement and allow real estate investors to bid 24/7. Plus, you can sell your property within weeks, instead of the months that traditional methods can take, while still generating healthy profits. Like traditional auctions, you can lose money if you make a misstep. In his informative article, Neil Kaplan, founder of online auction site agencybid.com, gives you three strategies for successfully auctioning your property online.
	Feature Article: Three Common Mistakes New Investors Make - And How To Avoid Them Sheila Farragher-Gemma, ForeclosuresMass, Corp. Success in real estate investing requires a commitment to keeping emotions out of the picture. Anyone who has plunked down hard-earned savings or leveraged their good credit to fund a real estate investment...
	ForeclosuresMass Tips: Maximizing the ForeclosuresMass Website Jeremy B. Shapiro, ForeclosuresMass, Corp. "There are 142 NEW Foreclosures in your counties!" Each week, a message similar to this one appears in your inbox, notifying you of all the new foreclosures that have started in your counties. With so many new foreclosures filed each week, knowing what to do with them is as critical as knowing that there are new foreclosures...
	Legal Corner: The Foreclosure Process Charles R. Levin, Esquire Whether you're an investor, home buyer, realtor or mortgage broker interested in working with foreclosures, it's important to understand how the process works from the bank's perspective. Take a moment to put yourself in the shoes of the mortgage holder...
	Nothing Succeeds Like Success: An interview with investor and realtor, Dana Robinson Dana Robinson In seven years as a real estate investor, Dana Robinson has done everything from buying and rehabbing commercial properties to investing in and flipping multifamily foreclosures. We caught up with Dana recently, to learn more about his "CRE Kit," a simple, but effective, tool for introducing himself and gaining the trust of homeowners and potential partners.
	Interview with the Expert: Strategies for Building Your Real Estate Network Cathy Toomey, Broker / Owner, Stone Ridge Properties Real estate agents are often the first people homeowners call before their home goes into foreclosure. In this interview, Cathy Toomey, a real estate broker, tells you how to build a solid network of real estate professionals - and how to use this network to find homeowners "motivated to sell."
	Feature Article: Four Marketing Secrets Turn Connections into Gold Ken Lizotte, CMC Beyond the usual blah-blah marketing advice of putting up a website, printing out a stack of business cards and designing a lavish four-color brochure, exists four powerful marketing techniques that are so little-used, they can for all practical purposes be labeled "secret." Read on as Ken Lizotte tells all...