Expert: Russel Ray - 9/29/2009

Question
Hi Russell:
I would like to start a Foreclosure home cleanout business.
Any special licenses and what type of insurance do agents and banks like to see?
What payment terms should be used?
How do you recommend finding out about how to charge? By the sq.ft. or do you inspect first and then give a bid? How quickly should you turn around a house? Should you stick to cleanup inside home and yard or branch out into painting, repairing etc.? How many people do you generally use? Do you recommend getting into this type of business?
Thank you in advance for any help you might give me.
I live in Philadelphia, Pennsylvania

Answer
Hey, Tiffany.

I'm not familiar with the specific business requirements in Pennsylvania, but almost every jurisdiction requires a business license in order to work in that jurisdiction. That's how they get a significant part of their budget each year because businesses are taxed on their income, and knowing which business are operating in their jurisdiction allows them to get that tax revenue. Here in California there are significant civil penalties and fines for not having a business license.

As far as insurance is concerned, I'm a firm believer that if you are going to be on someone else's property, you need liability insurance.

As the business owner, you would get to determine payment methods, but try to be as flexible as possible while you are starting up -- payment up front, payment in 15 days or 30 days, credit card, PayPal, payment upon invoice.

You also get to decide how to charge. By the square foot would probably be easier, but you might find that as you gained experience, you would have to adjust the price. If you went by the square foot, I would work in either 250 or 500-square foot increments. You'll also find that as you get to the bigger properties, say 3,000 SF or more, that you'll need to increase the price because of the interesting amenities they have -- movie theater, too many bathrooms, too many garages, etc.

How quick you can do it will depend on how many employees you have. That's why it might be useful to visit the property before giving a bid so that the bid will have not only the amount but the time frame, as well.

You could add in yard cleanup, but for that, definitely visit the property. Painting and repair I'd leave to the painters and general handypersons, but if you have the experience or the employees to do that, you could certainly use it to differentiate yourself from the competition.

If I were 40 years younger and not in California, which is a very unfriendly business state, I would have no problem getting into that type of business.

Call some of your prospective competitors and ask them the same questions you've asked me. Obviously they won't want to help a prospective newcomer, so you might have to tell them that you're a seller or something.

Hope that helps.