This is a continuation of my fascinating conversation with remote rehabber Lori Greymont.
Lori’s experience in real estate is varied and diverse. Since 1987 she’s been involved in all matter of traditional and creative deal making – rehabs, wholesale, lease options, sub-2, land contracts, bulk REO, etc...
At the moment Lori’s modus operandi is buying and rehabbing distressed properties across the country, then reselling them in tip top shape to passive cash flow investors as turnkey rentals. She does this remotely from her home base near San Jose, CA, and until recently had never even seen any of the 1,350+ houses she’s turned.
Not long ago I had the chance to corner Lori for an extended, unscripted dialogue about her operation and how she does what she does. I’m in the process of sharing some of the key lessons from our in-depth conversation for anyone in Mogul who may want to learn how one of the greats does it, or maybe even follow in her footsteps.
If you’re new to Lori, you may want to start off with Remote Rehabbing 101: Market Selection or Remote Rehabbing: What I Buy and How I Find Them
Here’s another slice of awesomeness from our little chat. And keep an eye out for even more from Lori to come!
{Mogul Elite members: Download and listen to our conversation in the Power Pack Tools for this lesson.}
Due Diligence from 2,431 Miles Away
If you've been tuning in for our other trainings with Lori, then you already know that she rarely, if ever, actually sees the properties she’s rehabbing. It may be hard to fathom, but she actually has a solid, time-tested system in place to be sure she’s making the right decisions on what types of properties she’s going to buy.
In this lesson Lori’s going to cover her long distance deal analysis process, from the time a deal lands on her plate and she makes her first offer, to the point she actually buys a property and begins repairs.
Before we dive into to Lori’s process let’s all remind ourselves that she makes relatively blind, but safe offers. So whether you’re going to do remote rehabbing like Lori, or you’re rehabbing in your own backyard, the process she’s about to give you is one that you can implement.
From Lori Greymont, Rehabbing Advisor...
It’s a four step process…
Step 1: Evaluate the Neighborhoods and Zip Codes
The first thing you need to do before anything else is to identify specific zip codes and actual neighborhoods you want to be investing in.
And it’s more than just zip codes really, because there might be zip codes with bad neighborhoods and you wouldn't know this just from having a certain zip code.
The way you find this out is to contact someone on the ground who already knows the area. And most people would automatically assume that means calling a local Realtor.
What many don’t realize is that Realtors often can’t give you the best read on a neighborhood or zip code because it’s considered “steering”, and it’s actually illegal for ta Realtor to “steer” you about whether a neighborhood is considered good, bad, marginal or anywhere in between. I won’t go into my thoughts on the Realtor’s code of ethics, but that’s just the way it is.
Which is precisely why we prefer to use property inspectors to give us their pulse read on a zip code or neighborhood. So when we get a lead in an area we’re not quite familiar with, we ask a property inspector to tell us about the neighborhood the property is in.
They’ll let you know if the neighborhood is owner occupied, well maintained, if there is a sense of “pride of ownership,” etc. Likewise, they may not necessarily jump out and say a lot about a neighborhood being particularly bad, but they might say it’s “mostly tenant occupied” or “transitional”, etc. to let you know it’s not the best neighborhood and a neighborhood to possibly consider avoiding.
We’re very specific about neighborhoods – we have very specific market and property selection criteria, and based on this we want to buy houses in in specific zip codes.
Step 2: Write A Lot of Offers
Once we know the exact neighborhoods we want to be investing, in we start writing offers – and a lot of them. On average we write about 40-50 offers per week and get about 2 accepted each week.
There is so much competition in the market place now, I believe we've really moved to a seller’s market in many places. For a while I was losing out on bidding on properties. If I took the time to send someone out to look at the property and then decided to bid on it, I was going to lose out.
So I now have to move quickly and make offers fast, or I’ll simply lose out on deal after deal. And this is why I’m doing all of my offers blind at this point, based on the neighborhoods and zip codes I've identified.
In my remote rehabbing business it’s critical to make decisions based on fundamentals. We know our numbers, what we are looking for in size, bedrooms, baths, etc. and we just right offers. I've invested the time coaching my Realtor to really understand my methodology, what I’m looking for, what I’m not and why. And he makes offers for me on a regular basis.
I hear from people all the time who are terrified at the prospect of making blind offers. I always say it’s only scary until you've done it a few times, then it just becomes normal and easy.
Once my offer gets accepted we usually have 3-5 days to get our inspections done. If you’re a new investor you want to give yourself more time to get your inspections done. However, we know we can get our inspections done in 3 days – and quite honestly, our fast inspection period is why we get a lot of our offers accepted.
Step 3: Offer Accepted, Real Due Diligence Begins
Once my offers get accepted is when we really do our due diligence. And it all starts with our inspector.
We have our own inspector who we've trained so he knows exactly what we need. He goes out, inspects the property, uploads photos to DropBox and we get them within 24 hours of him being on site.
He knows that we have a short inspection contingency in place and that he needs to go out and do the inspection quickly so I can get the information needed to make a decision on whether to close on the property or not.
(As a side note, he usually charges people $350 per inspection, but I pay him $200 per, because we use him all the time and I have an ongoing relationship with him. Ask for volume discounts like this whenever you’re giving someone repeat business.)
This is also where the property inspector gives us an even better feel for the neighborhood, to help us make sure we are all doing the right thing. If he drives into the neighborhood and realizes it’s not a neighborhood we want to be in we don’t even do the inspection. We've trained him enough to be able to tell us this so we don’t waste any more time on the deal if it’s a “no-go” – in which case we’ll cancel the contract.
Because the neighborhood is such an important key to us getting the higher value out of the deal after we do all the work, we make certain that we are investing in the right neighborhoods, and we will walk away from a solid deal with great numbers if we’re questionable on the neighborhood.
We also have a contractor in the area who we’ll send out simultaneously to give us a rough estimate of repairs we’ll be looking at. It’s not a line-by-line estimate, but a really good rough estimate of what my repairs might be.
We've trained all our contractors we work with so they know exactly what to look for and how to report back to us in order for us to make the best decisions on whether to close or not on the deal.
And I get all of this within 3 days of initial contract acceptance – an inspection report, a solid read on the neighborhood and a rough estimate for repairs. Then I can finally decide if I’m going to stay in or get out of the deal.
Step 4: Close the Deal and Bid for Rehab Work
Once we know we are going to stay in the deal, we do all the contract stuff: send our money, sign the final contracts, close etc. We then get our photographer to go out and take all the “before” pictures.
We have a system of all the pictures we want taken: front, back, we hit every room in some way – it includes about 120 pictures. So we have all these pictures plus the inspector pictures. We use all the pictures and inspectors report and turn it over to our field supervisor.
My field supervisor is one of my team members – his job at this point is to take all the information and create a detailed bid for what we are going to repair. That’s right – we prepare the first repair bid, rather than the contractor!
Line by line – the blinds, the smoke detectors, painting, HVAC, roof, carpet, any hazardous issues, maintenance, etc., - my field supervisor puts together a detailed bid of what we are willing to pay for all of this to be completed.
We then put it out to our “preferred contractor” (which usually means the one with no job right now – we are running 5 contractor crews right now so it’s usually just the one without work ongoing at the moment).
The contractor then goes out and walks the property and comes up with this own bid, and includes anything we may have missed. He determines if there are any change orders or any additions that need to be made to our bid, and then either changes the bid or accepts the bid that we gave him.
This is a little different from how most people deal with their contractors but it works for us and we control the process.
My Process in a Nutshell
So that’s my due diligence process in a nutshell, from the get our offer accepted to the point we go to closing. We have a streamlined process with a team of people working together to be sure our remote rehabbing business is successful.
In the next lesson I’ll share with you in much greater detail how I work with my team and each of their roles. It works really, really well for us, and I’m confident you can follow suit if you wish.
Want to follow in Lori's footsteps? Let’s quickly recap Lori’s due diligence process when evaluating, buying and rehabbing remote properties.
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Evaluate the Neighborhoods and Zip Codes – remember in our previous lessons about identifying areas/cities you want to invest in? Well now you need to dig further and not just find the area or even zip codes you want to invest in. You need to actually get down to the neighborhoods that you want and need to invest in.
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Write a Lot of Offers – this is now a sellers’ market. If you aren't making a lot of offers (and most of the time blind) you’ll never get an offer accepted as you’ll be too late and the offer will be gone.
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Real Due Diligence Begins – employ your team of experts (property inspector and contractor) to help you evaluate your deal further. Is it really in a good neighborhood? Does it have any major damage? Major repairs needed? Foundation or mold issues? (refer back to our Lesson with Lori – “What I Buy and How I Find Them” for more information on evaluating the neighborhood and rehab work)
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Create Your Own Bid for Rehab Work – at this point you want to come up with your own bid for the rehab work if possible. Then ask your contractor to come in and accept or modify your bid if absolutely necessary. This puts you in control, not the contractor.