Private Money Partnering

Presenting The Deal

Chapter K. (continued)

What You Say Makes A Difference
Words To The Wise

Forms:
Flip chart Presentation
Flip chart Presentation With Script

JOHN: Allen, what I do is buy what I endearingly call junker houses. Houses that have been abused and not cared for by their current or previous owner.

ALLEN: Yeah, but how do you make money on junkers? Nobody wants those.

JOHN: That’s right, and that’s why you can buy them at a very, very attractive price. And what I do is I contract the fix up, and I stick pretty much to cosmetics, things like putting on a new roof, new kitchen, new carpet, new paint, landscaping. Making the house back to what it should have looked like if somebody had cared for it. In fact what my target objective is always to make it the nicest house on the block. So you buy a very rundown property that is a good, solid house in a good, solid salable neighborhood, but the house has been abused or not cared for or somebody had some financial problems and just didn't maintain the house. You buy it at a very attractive price. We fix it up in the cosmetic areas, as I said, we don't get into major remodeling. We don't move walls, we don't add rooms. Every once in awhile we may take an empty room and convert it to a bathroom if that’s the right thing to do. We do things only that add real value to the house and keep it priced right for the neighborhood. Typically I buy on what I call fifty cents on the dollar. If I buy a house for $25,000 I expect it to sell for at least $50,000. If I buy it for $30,000 I expect to resell it for at least $60,000.

JOHN: But, it seems to me, you’re talking about a lot of work. These guys that do this kind of work, I've done some remodeling on my own personal residence and I've had some bad experience with those guys. Sometimes they don't show up for the job, sometimes they quit and the foreman has to go out and scrounge up new people to help him finish the job. Isn't there kind of a risk associated in fixing these houses up and potential expense if they don't do the job?

ALLEN: I think if you don't know what you’re doing, there definitely is a risk. Fortunately, because I've been doing this for a number of years, I've established a good care of tradesman that I call on whether it’s plumbing or carpet or paint or roof or whatever. I frankly never had a contractor leave a job and not finish. But if a contractor ever did, it really wouldn't be a problem because I never advance money. I only pay for the work as it’s completed. So they’re never into mo, I'm into them effectively.

JOHN: I see. If they leave they don't get paid.

ALLEN: If they leave, the don't get paid. It’s just that simple. It’s a real motivator to them.

JOHN: They have to stay on the job to get their money.

ALLEN: The other thing I do is for most of the jobs, I go buy the materials and deliver them myself. So, there’s no mechanics’ lien involved for the materials because I've gone and paid for the materials and delivered them. The other thing that’s really important to me and I would think to you, is that way we get to select the quality of the materials and we know what the thing is going to look like when it is finished, because it has to be the right level of quality for that priced house. You can't put carpet that you’d put in a $200,000 house in a $50,000 house. You could, but it would be overkill. On the other hand, if you’re doing a $100,000 house, you can't put carpet in for a $30,000 house. That’s too cheap and it won't sell right. That’s where my expertise comes in.

JOHN: Oh, I see.

Presenting The Deal - Chapter K (continued)