First post/first investment

[CRAIG BILLINGS]

Hi folks. I've been listening to the Bigger Pockets Real Estate podcast and the newly formed business podcast. I also listened to the audiobook 'BRRRR' by Mr. David Greene. And of course my first real estate book was 'Rich Dad, Poor Dad'. Needless to say the real estate bug has bitten me and it is bad. I blame you guys. LOL I've also had a small business for 7 years so I do have some business experience.
I'll try to keep this short and to the point. My wife and I are looking to buy a property to both live in and rehab to pull out equity for later investment. We have a purchase agreement signed to buy a home for 135K with about 60K-80K (estimated) worth of rehab work to be done. We are using a 203K loan to get started. The goal is to hopefully get this thing appraised for minimum of 30K in equity from the start. The plan is to save more cash and continue to invest in the property for a year then pull out the equity and go find another rehab. Right now the selling agent claims the home can appraise for 240K if it were in good condition. But I'm having issues with .......wait for it......getting contractors to give me good quotes. I'm on my third one now. 

The first one didn't work out because "he misunderstood the scope." This was after spending 4 hours of a walkthrough with him. He is more of a "renovation guy and not a rehab guy". The house needs to be livable. Right now it is not. Like in poo poo shape. LITERALLY on the floor! Yeah, I know. 

Second one never showed up. After 4 calls and waiting twice. He still claims he will visit.

The third one is still getting information. But he is giving me "worst case" estimates before he actually does a complete thorough walkthrough. Right now he is at 60K just with electrical, plumbing, and installing HVAC. He doesn't want to waste his time getting an accurate quote in case it is too much. I get the idea of "we have other jobs going on right now" and I respect that. But I cannot move forward without an actual, written quote.

1. So....I'm looking for a good contractor in the Baton Rouge, Louisiana area. Any suggestions?

2. How am I supposed to know when a contractor is giving a good "estimate" instead of "worst case"?

3. Are my expectations with contractors out of perspective?

Any tips are very much appreciated.

Thanks!!!

[Paul Welden]

@CRAIG BILLINGS

On a 203k, make certain that you have the 203k Consultant's report first ... prior to getting any contractor bids (which they're not really bids ... more on that later). 

Your lender is required to select the 203k Consultant for you. 

The 203k Consultant's report is REQUIRED by FHA to be completed prior to any contractors submitting their proposals. Reference HUD SFH 4000.1. This report is based on the 203k Consultant's FHA inspection which identifies all FHA items that must be addressed as well as the items you want done in addition to the FHA MPS/MPR (minimum property standards/requirements). This report will have a brief description of the project and a cost estimate.

Then you can give that report the the contractors. 

The contractors will submit their proposals based on the 203k Consultant's report. Without that report, the contractors will not know what the FHA minimum items are.

If the contractor pricing comes in higher or lower than the 203k Consultant's cost estimate, then you and the contractor and the consultant will have to have a meeting to get everyone on the same page. If the consultant doesn't agree with the contractor pricing, the consultant does not have to change anything. The consultant's numbers are prevailing. This is why the contractors are not really submitting bids but rather proposals based on the 203k consultant's Work Write-up which includes the cost estimate. 

Any licensed, bonded, insured, experienced residential contractor can do the 203k, but that doesn't mean they actually understand the FHA guidelines, timelines, paperwork, processes, or procedures. The contractor also needs to have strong financials to be able to afford the start up costs and ongoing expenses with the 203k and not many contractors can do that.

For these reasons and many others, I always recommend to use contractors with the designation as a Certified 203k Contractor

You're only as strong as your weakest link. So, select your partners wisely. 

Reference HUD SFH 4000.1