Thinking of rehabbing as a career

[Biff_Loman]

Hey guys.  I already started a thread, so I should probably introduce myself.

Long story made short: I'm 25, qualified to be a teacher, don't want to teach, was going to do graduate studies but decided to work for myself.  My wife's grandfather made his fortune (I don't use the word lightly) rehabbing houses in the '60s and '70s.  

Opa (that's German for grandpa) has strongly encouraged me to pursue rehabbing, which has led me to renovate a fixer-upper as kind of a trial run.  I estimate that I'm about half-way through with respect to time.  I'm loving it..  What a sense of achievement.  And yes, I need a certain amount of stress in my life or I get bored.  A regular job is just too predictable for me.  

I'm wondering about the long-term forecast for the real-estate market.  It seems everyone expects the bubble to burst in another couple years.  I'm not sure if I should be concerned about this.  Although the ARV of houses would be lower, I imagine there would be fewer newbies (yeah, like me) running around paying too much for run-down homes.  The competition might thin out some.

Well, I mainly wanted to say hi.  So: hi.

Edit: Although Opa did fairly well, I have no dreams of getting rich, let alone quickly.  I want to make a living.  

[black95gt]

I too am 26 and would like to eventually make a living rehabing houses and doing rentals.  I have rehabbed 2 houses, but couldnt get tehm sold so i have them as rentals.  I am getting a positive cash flow of $175 per month on one, and positive cash flow of $25 on the other(I refi all my bad debt from college and shortly after).  On the other one i refi. the house so that i got $11,000 in my pocket and now have it as a rental profiting $175.  For you to make a sole living at it, would probably require a big chunk of cash on hand.  But if your doing it strictly as a living, you might as well start your own home imporvement company and do work for other people as well so when you dont have a house to work on of your own, you can do it for other people and put cash in your pocket.. This is what i am looking at doing

[aak5454]

here's some thoughts form a guy who has done REI for 8 yrs.  During that time I've been an investment partner in an LLC (doing rehabs/rentals) as well as doing a couple of rehabs myself (I'm a weekend Joe-Tool-belt guy).   Also, I did a couple year stint of being a self-employed consultant (i.e. lumpy income flow like you might see in a full-time REI business).  One should not underestimate the value of your health benefits, paid vaction and the face that cash money shows up in your bank acct every two weeks/once a month when you get paid by your employer.   As such, I've considered such things as going fullt-ime in rehab, but I think there is a few things to consider.

First and foremost is the change from having the flexiblity to pick and chose deals when and if its convenient (both buying and selling) to "I've got to make some thing happen to earn income/pay my bills".  As a guy with a steady job, I just today walked from a deal due to structural problems revealed by the inspection.  The price was cheap and it cash flowed, but I did not want take a chance of having to spend big money for improvements in the future and/or have a hard time selling it on the back-end.  Likewise, I put REI on the back-burner for most of the year as we had our first child in the middle of year (busy changing diapers instead of hunting for deals).

Second is you are going to pay tax like regular income couple with self-employed half of Soc. Sec.  Also, you lose the ability to do nice things like 1031 exchanges, etc.  As an example, as an investor, if I make $40k on a deal, I can keep the whole thing if I roll it into some other properties with a 1031 echange (which is tax defferred, but not tax-free), vs if you are a full-time rehabber, you might end up with $20-25k in your pocket after you pay fed taxes, SS (7.5%) and state and local taxes.  Plus you are not as likely to net as much as I might as an investor (and probably will not) as you are more likely to take a low or medicore offer on the sell side.

Third is I have to say that I have made plenty of money doing rehabs, but a large faction of that was becuase the market I'm in (SoCalif) was appreciating; not so much that I'm a great rehabber.  In a flat or moderately slow market, I think you find when you back out the per hour rate you end up getting paid, the number is not so great.

In the end, I think many people that start out as full-time rehabbers (actually doing the work) end up becomingf a constrcution company.  That's what happen to my two partners in the LLC when they took it full-time.  That's not to say you can not start out working by yourself and building it up to have a small crew of guys doing the work for you, but its a tough road (IMHO)

Some food for thought.

Happy Investing in '06

Mike

[black95gt]

I agree Mike. I hope to have enough rentals in 8-10 years with enough cash flow that i can make ends meet while i try to sell rehab and sell properties.  But  definitly in the meantime i will keep my fulltime job to keep money flowing in every month and be able to take a vacation now and then and know that when i get back i have a paycheck waiting for me