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2017-10-04 The Indispensible Skill | By: Fellow GDREIA Members

The Indispensible Skill
 By Larry D. Hudson
 
(Click Here for Photos)

Everyone knows by now that success in investment real estate depends on making purchase offers to sellers. Most also find it true that making offers is a challenge.
 
Investor and trainer Mike Jacka says he knows why.
 
“People don’t make offers because they don’t know how to estimate repairs,” he told Greater Dayton REIA’s First Wednesday meeting for October (10/4/17).
 
Quickly estimating the cost of repairs is an essential skill, Jacka told attendees, and a skill anyone can learn. In the course of his talk, Jacka offered two ways to get started learning the basics. First, he outlined how to use his repair checklist and ballpark estimates of typical contractor bids for specific repairs. Later, he talked about an online version – available as a premium service on gdreia.com. (Jacka has a background in information technology and designed the platform used by gdreia.com and sites run by other real estate investment associations.)
 
One of those REIAs is the Minnesota Real Estate Investors Association (MnREIA). Jacka, who launched his real estate investment career in the 1990s, is founder and president of the Twin Cities-based association. Over the years Jacka has compiled a list of common repairs and costs for components of typical houses. Contractor prices for repairs vary, of course, but they tend to vary within a narrow range in cities around the country, he said.
 
Jacka urged investors to become familiar with the list – and use it to note needed repairs during a quick walk-through of a potential investment property.
 
Starting with the roof, windows and exterior trim, Jacka said, he makes note of everything that would need to be replaced in a full rehab of the property.
 
The list includes figures for everything from flooring and paint to HVAC and plumbing. There are estimates for bathroom and kitchen replacements.
 
The evaluation of the house, Jacka emphasized, should not take long. Dwelling on one area too long is not a good idea, he said. For example, he avoids lingering in the kitchen.
 
“Don’t go there unless you’ve decided to replace the kitchen,” he said. “As soon as I go into a kitchen, I start thinking and asking questions,” he said. Better to keep moving through the property, looking only for items on the checklist.
 
“The object is to get an overall impression,” Jacka said. “Listen to your subconscious mind.”
 
Next step is to add up the numbers on list. It’s a good idea to add an additional amount to cover miscellaneous repairs -- 20 to 25 percent of the total.
 
Once you have this information in hand, Jacka said, you can determine what you can offer the seller using the MAO formula: Maximum Allowable Offer = After Repaired Value X 70% minus the cost of repairs.
 
Jacka said the cost estimates he shared with the Greater Dayton REIA audience tend to be very close to what contractors bid for the work in case after case. Knowing the numbers helps make it possible to make offers to sellers that keep the investor and rehabber on the right track, he said.
 
Jacka’s online tools go further, he said, suggesting different possible offers to a seller and producing an estimated seller “net-sheet” that can be used as part of a presentation of the offer. The net sheet spells out what a seller can expect to pocket from a sale – and serves as a great negotiating tool, as well, according to Jacka.
 
“It helps the seller lower his expectations,” Jacka said.
 
It also helps both parties see the scope of the necessary work on a project – and the reasons behind the bottom line figure an investor can offer, Jacka said.
 
 

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