Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
10y
@Richard M. This is when you have to get creative. That's one reason I think a HML would come in handy. Looking for contractors is indeed an art in and of itself. I think if you only look for 203k you are bound to a higher priced company. The nature of a 203K is that the contractor must float the materials and labor to specific milestones to get paid. I'm not sure which specific program but one of the 203K also hold back 10% of each milestone payment until completion. Look into streamlined I heard its a bit better.
A @Shmuel Harris Said the banker who gets the 203K will have some contacts.
I approach things from a very different angle. I GC all my own work. I have a day job and its a PIA but it gets it done at the price I need it to.
I use every ounce of influence I have to get low prices and quality that I need. But if I was asking the contractor to finance my renovation I can't really go to hard on him with pricing after all he is not only your contractor but somewhat your creditor.
Example.
I am gut renovating and 2/1 in bedstuy right now. I moved the kitchen(10k for cabinets, appliances, and countertops) and bath 4K added a bedroom and stripped all the plaster and leveled the floors. Then reframed the whole thing 12k. Brought in all new electric 7k(moved the breaker to the apartment too), plumbing 5K and am installing new hardwoods 2k plus labor and kitchen cabinets. Central heat and Air 7K. 5K for doors paint trim and miscellaneous.The whole thing is looking about 52-55k. I might even have a 6x18 steel deck put on in the back. (7500 materials and labor plus 3k permits and inspections)
Below is a picture of 4K bathroom. Still needs a bit more work(that's as we were applying the grout) but its better than most of the bathrooms in
open houses in the area. I went to a few and they tend to use more modern stuff but the worksmanship is not so nice.
I don't bid for work in Brooklyn but I'm pretty sure it would have been 85-125 depending on the contractor. Plus there is all the red tape in dealing with the 203k!
Any luck with a 203k contractor? Not sure if you know this....ignore this if you do. There are no specific requirements that would make a contractor a 203k contractor. There are requiremements, timetables, payment structures and other things to be done( I'm don't do 203k work so I'm not too familiar with the process) but with a little work any licensed, insured GC that can finance the job till the payments roll in can do the work.
Of course if you find someone that does 203 work that might be easiest...but keep in mind if you have a personal contact with a contractor that is willing to learn the process that could be another route.
I know about this because there is a website that touts 203k certified contractors and they charge you to tell you what you could learn for free from Govt websites....that and a gold star insignia for your website or biz cards if I remember correctly
Investor · Edison, NJ · Member since 2016 · 31 posts · 15 votes
10y
thanks for the tip John.
Sharpened my pencil on the REO property and initial estimates have it at 4% cap rate after major rehab work. The 203k GC that I found said they were busy for the next few months.
This is how inflated the brooklyn bubble has gotten.
I am a realtor working in Brooklyn. Some of my co-workers have done sales with a 203(k) loan attached. I asked them about it and they informed me that the bankers that they work with usually have 203(k) contractors to refer you to.
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
10y
@Richard M. This is when you have to get creative. That's one reason I think a HML would come in handy. Looking for contractors is indeed an art in and of itself. I think if you only look for 203k you are bound to a higher priced company. The nature of a 203K is that the contractor must float the materials and labor to specific milestones to get paid. I'm not sure which specific program but one of the 203K also hold back 10% of each milestone payment until completion. Look into streamlined I heard its a bit better.
A @Shmuel Harris Said the banker who gets the 203K will have some contacts.
I approach things from a very different angle. I GC all my own work. I have a day job and its a PIA but it gets it done at the price I need it to.
I use every ounce of influence I have to get low prices and quality that I need. But if I was asking the contractor to finance my renovation I can't really go to hard on him with pricing after all he is not only your contractor but somewhat your creditor.
Example.
I am gut renovating and 2/1 in bedstuy right now. I moved the kitchen(10k for cabinets, appliances, and countertops) and bath 4K added a bedroom and stripped all the plaster and leveled the floors. Then reframed the whole thing 12k. Brought in all new electric 7k(moved the breaker to the apartment too), plumbing 5K and am installing new hardwoods 2k plus labor and kitchen cabinets. Central heat and Air 7K. 5K for doors paint trim and miscellaneous.The whole thing is looking about 52-55k. I might even have a 6x18 steel deck put on in the back. (7500 materials and labor plus 3k permits and inspections)
Below is a picture of 4K bathroom. Still needs a bit more work(that's as we were applying the grout) but its better than most of the bathrooms in
open houses in the area. I went to a few and they tend to use more modern stuff but the worksmanship is not so nice.
I don't bid for work in Brooklyn but I'm pretty sure it would have been 85-125 depending on the contractor. Plus there is all the red tape in dealing with the 203k!
Investor · Edison, NJ · Member since 2016 · 31 posts · 15 votes
10y
Congrats on nearly finishing what appears to be a home run rehab job! Not sure how you're pulling that off with a full time job; that's pretty impressive.
@John Hickey I agree that your creative approach is definitely the way to go; it's ultimately where I'd like to be in terms of skill set and ability to execute, but I have to learn out to walk before I can run!
I have a decent handle on the deal analytics but I really lack even the most basic rehab skills. Here's where I could have really used a partner with a good handle on estimating rehab costs + rehab execution. Until I scale that learning curve, I think I'm going to have to stick to near rent ready properties, which is going to severely limit the pool of potential deals available to me.
I walked away from this recent Bed-Stuy REO opportunity because I couldn't afford to both overpay for renovations (which I assumed is the cost of learning for a bootstrapping newbie) AND submit a competitive bid... the returns just aren't there.
The other reason is because it's a block from the projects (this is on the southeast edge of Bed-Stuy) and the area has one of the highest crime rates in the city.
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
10y
@Richard M. yes I agree it's a big jump. My apologies. I shouldn't have hijacked your thread! Wednesday was my getting things done day and I had a big cup of coffee. I'll pass along a tip I got years ago. Goto Home Depot, a plumbing supply, an electrical supply, and a masonary supply.Ask for referrals and just look around. If you see a guy who looks like a hard working agreeable contractor ask him for a card and then go visit several of his jobs. Then get references and take the leap.
Investor · Edison, NJ · Member since 2016 · 31 posts · 15 votes
10y
@John Hickey Thanks again for the tip. I really do appreciate it. I have heard a similar tip on BP podcasts about going to Home Depot at 6am and asking around because those are the guys who are really on top of their game.
Investor · New York City Metro area, NY · Member since 2013 · 39 posts · 12 votes
10y
@Richard Mui
Should you ever decide to go for a 203k again, ask your lender for a list of approved contractors. Being a 203k, (a lot of red-tape) with the rehab, lenders pre-screen and approve contractors. Not sure who your lender is, but Wells Fargo is really good in providing this information to their borrowers. Good luck in your future venture! Looking forward to hearing more of your journey in more deals!