The Basics of Turning Ugly Houses Into Gold - by Robyn Thompson

I have made thousands of dollars by taking ugly houses that nobody wants and turning them into nice homes that people want to move into. There is no real magic that is involved, just a few basic principles that you must follow.

You must first determine what the value of the house will be after you've completed the renovations phase. This is a term called "Market Value" or "After Repaired Value" (the "ARV"). Realtors and appraisers are the best source to help you determine what the home will be worth.

The second critical factor is to accurately estimate the repair cost. This can be a difficult task for the beginner. Many first time investors underestimate the cost of repairs because they do not see all the structural issues. A home has to have a new or recently updated furnace, roof, and new kitchen with all the appliances plus a new bath. In my expert opinion the renovated home must be "drop dead gorgeous".

Your house must be better than anything else on the market if you want it to sell quickly. An experienced investor will also spend $3000 to $5000 on "the extras" to enhance the appearance of the property. Items that will increase your home's salability include chandeliers in the dining room and staircases, gold knobs on all cabinetry, mini-blinds in all windows, and gold fixtures for the vanities and kitchen sink.

The next step is to figure out what all of the renovations will cost. If you do not have a construction background, you need to get in touch with 3 contractors. As a beginning investor you should always get 3 written quotes. You must make sure that they include everything you're asking for.

Good sources for an ethical contractor include referrals from your city planning and zoning officials and other investors in Real Estate Association. You should always check at least 3 references and be sure to get a copy of his license before you hire a contractor.

Now you're ready to determine what to pay for your ugly property. Here's the basic buying formula for any home that will sell for between $50,000 and $175,000 after all repairs have been completed:

Multiply the market value (the "ARV") by 70%. Next, subtract out all your repair costs and a flat $5000 for cost of borrowing capital to fund the project. The figure that comes from this equation is the highest purchase price that you can pay for the ugly house. The formula provides the investor a 20% profit and 10% for closing cost.

Expressed as a formula, it looks like this:

AFTER REPAIR VALUE ("ARV") times 70% minus REPAIRS minus $5000 equals MAXIMUM ALLOWABLE PURCHASE PRICE

Let's illustrate with an example. The home will have a market value of $100,000 once all repairs are done, so we multiply $100,000 times 70% and get $70,000. We will do $25,000 in repairs, so we subtract $25,000 from $70,000 and get $45,000. You must then reduce the purchase price by another $5000 for financing the project. The HIGHEST price we could pay for the house would be $40,000. Your initial offer should be between $32,000 and $35,000.

In this game, it's critical that you practice looking at and MAKING OFFERS on junkers. The more you explore, the more you learn. You ill know when you find profitable deals. Use this time-tested buying formula and you too, will begin making thousands of dollars a year in the ugly house business.

++++++++++++++++++++++ Robyn Thompson is known as "The Rehab Queen". Her business is located in central Connecticut. ++++++++++++++++++++++