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J Scott - Author of Flipping/Estimating Book - Ask Me Anything!
Hey everyone!
First, thank you so much for all the support after my recent Podcast episode and the recent BiggerPockets release of the 2nd Editions of The Book on Flipping Houses and The Book on Estimating Rehab Costs. I've gotten a tremendous amount of email and private messages with the kindest of words, and I sincerely appreciate it.
Unfortunately, there's been so many emails and messages that I haven't had the ability to respond to everyone, despite my best attempts. Many of them contained questions -- and I hate not being able to respond to all the questions I get! So, I wanted to start a thread to give everyone an opportunity to ask questions -- and since I get many of the same questions over and over, I thought this might be a good resource for future questions I may get.
Anyway, if you have any questions about the Flipping/Estimating books, about any aspects of real estate strategies, about investing in general, about running a real estate business (or any business), etc., I'm happy to do my best to answer.
There are a lot of tremendously knowledgeable people on this forum, so don't post here if you have a question best answered by the whole community.
But, if you want to address something specifically towards me, this is the place! Feel free to post in this thread and I'll do my best to respond to everyone!
Also note that I created this thread a few years back -- might be worth checking first to see if I've answered it there:
Looking forward to the release of the 2nd edition of your Estimating book. I've already pre-ordered the print version from Amazon and expect it this week. However, will this include access to the audiobook...like several other BP books?
#3 Investor Mindset Contributor
- Handyman
- Pittsburgh, PA
I bought both your books two years ago and while the information in the books was not always applicable to my situation (I'm a DIY landlord, not a flipper), I'd like to take this opportunity to thank you for helping to teach me how to work through pricing and carrying out the project management aspects of larger residential renovations.
Originally posted by @Chris J.:
Looking forward to the release of the 2nd edition of your Estimating book. I've already pre-ordered the print version from Amazon and expect it this week. However, will this include access to the audiobook...like several other BP books?
Hi Chris,
You can buy book bundles that include combinations of the digital book(s), audio book(s) and paperback book(s) here on BP, but if you purchase from Amazon, you're buying the book version a la carte. Also, BP offers a bunch of bonus materials if you purchase here on the site.
To see the bundles that BP is selling, go here:
Flipping/Estimating Book Bundles
And thanks for your support!
Originally posted by @Jim K.:
I bought both your books two years ago and while the information in the books was not always applicable to my situation (I'm a DIY landlord, not a flipper), I'd like to take this opportunity to thank you for helping to teach me how to work through pricing and carrying out the project management aspects of larger residential renovations.
Thank you, Jim... I sincerely appreciate the kind words!
Thanks again @J Scott for answering my question last week via email. Your new podcast rocked, and was so full of info, that I listened to it twice. I'll post the question that I had asked you here in this thread, so maybe it can help others with a similar question:
Shawn: In the podcast, you mentioned that rehab costs for northern CA, LA, Boston are "whole worlds by themselves." Does this mean that the numbers won't really mesh with the Los Angeles market?
J: Are you talking about the estimating rehab book? Assuming so, that's correct, the price ranges I list in the book will not mesh with what you could expect to see in Southern California.
That said, the book is more about providing a methodology for figuring out your rehab costs than it is for giving you the number. It lays out a system and process for creating a scope of work that can then be used to get bit to figure out actual renovation costs.
Even if the price ranges aren't going to be accurate for you, if you are looking for a process estimating, I think you'll find the book very valuable.
Pumped to read these. I've gained so much knowledge through BP but this is definitely where I feel the least knowledgeable. Luckily, I've taken advice from all the podcasts and the local community and started forming relationships and a network where I'm sure I could get a hold of someone who could help me... but estimating rehab costs for assigning contracts, taking on rehabs for both flips and or buy and holds will be extremely valuable and give me waaay more confidence pursuing our new REI endeavors. My wife and I just finished your money podcast in the car on the way home from a birthday party yesterday and just wanted to let you know that you're a huge inspiration, we can't wait to chew through your books!
I have the older versions of both books. You knocked it out of the park with both. What value would someone get out of the newer versions if they own the older versions of the books. Thanks ~ !
Originally posted by @Olaf Stieber:
I have the older versions of both books. You knocked it out of the park with both. What value would someone get out of the newer versions if they own the older versions of the books. Thanks ~ !
Hey Olaf,
For the flipping book, we did a LOT of basic editing -- grammar, spelling, rearranging ambiguous sentences, etc. I wasn't happy with the original editing, so that was the most basic thing. From a content perspective, the original book was written back in 2012/2013, when most markets were buyer's markets -- house flippers needed to be more skilled at selling property than at buying property, as buying was easy. The book reflected this. In the 2nd Edition, I talk more about the acquisition side. I also talk more about finding and managing contractors, as that is a major difference now than it was back then. Finally, I updated the example house with new (more realistic by today's standards) rehab estimates and costs.
For the estimating book, I did two things (in addition to basic editing). I did a national survey with about 50 successful investors from around the country on what they were currently paying for labor and materials, and I updated pricing based on the responses (prices in the original book were from 2012/2013). Second, for each of the 25 major components, I added a section on how to inspect each component, what to look for, and how to decide if something should be added to the SOW or not for that component.
Hope that answers your questions!
- Realtor, General Contractor, and Developer
- Redding, CA & Bend OR
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I appreciate your willingness to reach out like this and offer so much help and advice. Can I ask what you would expect from a partner in starting a real estate business?
I have heard you guys talk repeatedly about how you want to find people who have mastered the things you don't enjoy because they enjoy doing things that you don't.
We should focus on the things that we are really good at, correct?
When you set up the business do you offer to split the business and profits evenly among each person (marketing, finance, etc )?
Thanks so much !
Originally posted by @Nick Elg:
I appreciate your willingness to reach out like this and offer so much help and advice. Can I ask what you would expect from a partner in starting a real estate business?
I have heard you guys talk repeatedly about how you want to find people who have mastered the things you don't enjoy because they enjoy doing things that you don't.
We should focus on the things that we are really good at, correct?
When you set up the business do you offer to split the business and profits evenly among each person (marketing, finance, etc )?
Thanks so much !
Hey Nick,
First, see this article I wrote a few weeks ago:
https://www.biggerpockets.com/renewsblog/questions...
That discusses what I look for in a partner (and don't look for). In terms of how I like to split up the business, here are a few rules I like to follow:
- Only give away equity as a last resort. Too many people are excited about giving away half (or more) of their company in return for someone to help them. Personally, I never want to give away any of my companies, and only do so if there is no better way to get that help. For example, I'll always try to hire someone or find someone to work on a contractor basis, before I will give away equity to a partner.
- There's no reason to give 50% to a partner unless that partner is contributing 50% of the knowledge, effort and expertise to the business. Too many people think you need to have equal partnerships for things to work, but that's not the case. Figure out exactly what each person is bringing to the business, how much time they'll be spending, and then work the percentages from there. If one partners is mostly going to be doing things like sales or acquisitions, perhaps give that partner less equity, but give bonus/commission incentives to do their portion of the job well. I've had plenty of partnerships where the splits were not equal.
- The more partners you have, the more headaches you'll have. Never have three partners when two will do. Never have four partners when three will do. Too many people say, "Hey, let's all start a business together, and think that more people will make for an easier business/partnership. That's generally not the case -- more people generally makes for a more complicated business with higher overhead and less getting done.
Great advice.
Thats what I thought but I wasn't sure if I was being too greedy with business partners. It makes sense though; if you find a great deal or if you have a great business idea, you don't need to offer to give someone a really high return on their money or give away your business..
Thanks again. Happy New Year!
I am looking into my first deal, I was curious about talking to a CPA or someone on the legal side, where are the places that I should be looking or asking around to meet someone who will look out for my legal interests and potentially show me some shortcuts or find profits for me I otherwise would not have known about?
I am looking at a brand new house in the 140-150k range that will bring in about 1200-1300 per month in rent.
I have about 60k to invest. Should I put it all down to pay it off quicker so I can move on to my second house investment after paying off the first or should I just put 20% down and purchase another house similar to the first with 20% down as well. I am 42 and looking to pay it off with a 10 year mortgage. My thinking is to put the 60k down and finance 80k on a 10 year mortgage which will definitely have positive flow coming in. I guess I like the idea more of a house that is paid off generating revenue than 2 houses generating less revenue. Hope this makes sense. Thoughts please.
When will your Flip or Flop show come out?
Originally posted by @Cory Mortensen:
I am looking into my first deal, I was curious about talking to a CPA or someone on the legal side, where are the places that I should be looking or asking around to meet someone who will look out for my legal interests and potentially show me some shortcuts or find profits for me I otherwise would not have known about?
Hey Cory,
I always recommend starting by talking to local investors -- find out which accountants, CPA and attorney they use for their businesses, and then interview those professionals to see which one might be right for your business. In general, you're looking for someone(s) who specialize in real estate and understand your business.
Here is an article I wrote a while back on some questions you'll want to ask potential tax professionals when interviewing them:
If you personally buy and hold properties, how do you research emerging markets in an effort to purchase property in the path of growth and development? I'm currently reading a book about emerging markets, you're supplemental answers would be great. Thank you for taking the time to address questions for everyone.
Originally posted by @Eric Barber:
I am looking at a brand new house in the 140-150k range that will bring in about 1200-1300 per month in rent.
I have about 60k to invest. Should I put it all down to pay it off quicker so I can move on to my second house investment after paying off the first or should I just put 20% down and purchase another house similar to the first with 20% down as well. I am 42 and looking to pay it off with a 10 year mortgage. My thinking is to put the 60k down and finance 80k on a 10 year mortgage which will definitely have positive flow coming in. I guess I like the idea more of a house that is paid off generating revenue than 2 houses generating less revenue. Hope this makes sense. Thoughts please.
Hey Eric,
First, I would start by making sure you understand how to evaluate/analyze buy-and-hold deals.
A quick analysis tells me that if the following assumptions are true:
- You're buying a house for $140K
- That generates $1250/month in rent
- Assuming you're self-managing with 40% expense/vacancy/capex ratio
- And getting a 10 year fully amortized loan at 5% interest
If you put 20% down you'll be losing about $450/month.
If you put the full $60K down, you're still losing about $100/month.
If you were able to pay for the entire thing with cash, you'd only be generating about 6.4% annualized return on your investment.
Unless you're in a position to lose money every month, this doesn't sound like a very good deal, and certainly not a good idea to do this with a 10 year loan.
Also note that if your calculations indicated that you'd be cash flow positive on this deal, then I'm guessing that you're under-estimating your expenses, under-estimating your vacancy or ignoring capital expenses. Remember, your expenses will likely be low the first couple years if the place is freshly rehabbed, but it won't stay that way. In a few years, your maintenance, capex, etc. will increase, and you'll likely find that your overall expense ratio will be between 45-55% (subtract 10% if you're self-managing).
Even assuming only a 35% expense/vacancy/capex ratio on this property, with $60K downpayment and 10 year loan at 5%, you're still losing about $35/month by my calculations.
Originally posted by @Dieggo Goncalves:
When will your Flip or Flop show come out?
Back in 2014, we spent about 6 months negotiating with HGTV on a show. But, we couldn't come to an agreement -- they wanted another typical flip show, and we wanted something different. We never came to an agreement...
Here's more information (and a sizzle reel) from that adventure:
Originally posted by @Rodney Sums:
If you personally buy and hold properties, how do you research emerging markets in an effort to purchase property in the path of growth and development? I'm currently reading a book about emerging markets, you're supplemental answers would be great. Thank you for taking the time to address questions for everyone.
Hey Rodney,
When it comes to emerging buy-and-hold markets, the most important things are growth.
Specifically:
- Population Growth
- Income/Wage Growth
- Job Growth
If you have those three things, you're potentially looking at a good buy-and-hold market.
Who needs HGTV when you have BP and Youtube!? lol
Thanks for all the great content you provide us aspiring* REI!
Originally posted by @J Scott:
Originally posted by @Dieggo Goncalves:
When will your Flip or Flop show come out?
Back in 2014, we spent about 6 months negotiating with HGTV on a show. But, we couldn't come to an agreement -- they wanted another typical flip show, and we wanted something different. We never came to an agreement...
Here's more information (and a sizzle reel) from that adventure:
Thank you for that answer! I was inquiring more about how you research vs. what you look. For example I've looked up items like that using the census bureau data. Where do you personally go or what do you specifically review when you're monitoring or looking for emerging markets? Thanks again.
Originally posted by @Rodney Sums:
Thank you for that answer! I was inquiring more about how you research vs. what you look. For example I've looked up items like that using the census bureau data. Where do you personally go or what do you specifically review when you're monitoring or looking for emerging markets? Thanks again.
Most of my information will come from talking to local investors (not just real estate), business owners and real estate professionals (agents, brokers, lenders, appraisers, etc)... I'll actually spend time in the markets that I'm consider and literally just network with other investors and seek out people who are knowledgeable about the market.
That said, some of the data sources I like when looking at rental areas:
census.gov
city-data.com
zillow.com
zilpy.com
Local chamber of commerce sites - can provide information about business/job/wage growth
Local real estate associations (members of NAR) - can provide information about local housing stats, housing supply, etc.
@J Scott - How do you manage contractors so you get the price you need, the quality you desire and the timeline you agreed to? (Sometimes “contracts” don’t solve everything.)
How do you manage relationships to request rework (until you get quality you expect) without paying extra or buying extra materials, and having that contractor work for you again / not walk off the job?
Did you ever get your contractor license and insurance in any area to make it easier to manage the permitting process/subs (in case you had to change someone)?
The GCs who bid my job ask for like 200% of any price in your books (in NJ where the home values are 150-200) regardless of how many I contact. The craigslist guys at $100-200/day are hit or miss. My favorite workers are those with a day job doing x and do it for me for an affordable amount but usually aren’t licensed to pull permits.
I got a tile guy to sign a contract he didn’t really read stating he was paying for all materials besides tile and grout and he will get $100 less per day if not finished by yesterday (it’s 80% done and the 10 days to finish 1000sf was generous). He brought me $500 in bills for leveling spacers and thinset and redguard/crack prevention. I don’t know how to keep a relationship with him if I deduct the materials from his completion payout. (He’s very skilled but constantly broke.) I agreed to give him $3psf for 1000 sf of floor tile after having a $1600 “+ materials” competitive bid from my B quality handyman who would have used the cheap spacers and the floor may have been uneven. This tiler’s quality is very good.
Thank you!
Originally posted by @Natalie Schanne:
@J Scott - How do you manage contractors so you get the price you need, the quality you desire and the timeline you agreed to? (Sometimes “contracts” don’t solve everything.)
How do you manage relationships to request rework (until you get quality you expect) without paying extra or buying extra materials, and having that contractor work for you again / not walk off the job?
Did you ever get your contractor license and insurance in any area to make it easier to manage the permitting process/subs (in case you had to change someone)?
The GCs who bid my job ask for like 200% of any price in your books (in NJ where the home values are 150-200) regardless of how many I contact. The craigslist guys at $100-200/day are hit or miss. My favorite workers are those with a day job doing x and do it for me for an affordable amount but usually aren’t licensed to pull permits.
I got a tile guy to sign a contract he didn’t really read stating he was paying for all materials besides tile and grout and he will get $100 less per day if not finished by yesterday (it’s 80% done and the 10 days to finish 1000sf was generous). He brought me $500 in bills for leveling spacers and thinset and redguard/crack prevention. I don’t know how to keep a relationship with him if I deduct the materials from his completion payout. (He’s very skilled but constantly broke.) I agreed to give him $3psf for 1000 sf of floor tile after having a $1600 “+ materials” competitive bid from my B quality handyman who would have used the cheap spacers and the floor may have been uneven. This tiler’s quality is very good.
Thank you!
Hey Natalie,
I believe I say in the new edition of the Flipping book that, in a hot market, contractors are the most difficult part of the job. It didn't use to be that way back when there were fewer investors and contractors needed to do a consistently good job in order to find work. But, these days, contractors just need to have a pulse, and someone will be willing to pay them.
With that in mind, here are a few thoughts:
- First, many parts of NJ are going to be in that 10-20% of the nation that is more expensive than the upper limits indicated in the estimating book. There are just some markets (San Francisco, Southern California, NYC, parts of NY, Washington DC, etc) where labor and materials are much higher than most of the rest of the country, unfortunately. Luckily, home prices typically reflect this as well. If you're working in an area with extremely high labor prices, but low housing prices, you may want to revisit your farm area.
- Don't just have your contractors sign the contract, especially the handymen and small time companies. Actually go through it with them, make sure they understand what they're providing and what you're providing. That way, at the end of the job, when they try to charge you for things not in the contract, you won't have to feel bad saying no. I know one investor who will literally record his discussion with his contractors walking through the contract, so that if they ever end up in court, the contractor can't claim he didn't know what the agreement was.
- In terms of, "How do you manage contractors so you get the price you need, the quality you desire and the timeline you agreed to?" You don't. I write in the book: BETTER, FASTER, CHEAPER - PICK TWO. Typically, you only get two of those with contractors. And you need to decide which two are most important to you. For me, it used to be better and cheaper -- I was willing to compromise on speed. These days, I don't want my projects to drag on (the economy can shift any day now), so I go for better and faster -- I'm willing to pay more. Figure out which two are most important to you, and find the contractors that will satisfy those two. Oh, and some won't even give you two out of three -- try to avoid those.
- In general, when someone tells me that they get royally screwed by a contractor, it was because they didn't check references on that contractor. Most contractors that will screw you do the same thing to all their clients. You certainly aren't the first. Many investors are too lazy to do due diligence (I'm often too lazy myself and I regret it). Check reference, visit past job sites to see quality, check for lawsuits, verify their insurance and license, etc. Most bad contractors don't hid their "badness" very well.