BRRRR in a remote market - DIFFICULTIES??

[Leeor Neh]

Hey there!

I'm eager to hear from experienced investors who have tackled long-distance BRRRR projects. I recently had a rough experience attempting a BRRRR in a different market from where I reside. Since I don't have any close contacts who use this strategy, I'm seeking insights from others who have successfully done it and are willing to share their knowledge.

Here are a few specific questions I'd love to hear your thoughts on:

1. Payment Structure: What payment structure do you typically use? Do you pay upfront (what percentage?) or break it into sections? If it's broken down, how many sections do you divide it into, and when and how do you make the payments?

2. Contracts and Additions: Do you create contracts for all the tasks that need to be completed? What do you do if something needs to be added during the project? Is it added to the existing contract or handled differently?

3. Ensuring Comprehensive Work: How do you ensure that when something should be done, it encompasses everything necessary for that task? In my example, a "window replacements" work didn't include all the relevant aspects (that I had no idea are needed, I understood that "replacing a window" means replacing it from A to Z). In practice, I was forced to additionally pay for - inside and outside wrapping, trimming sidings, properly fitting the windows, etc. So, when something is quoted, how can I tell, without construction knowledge, that it includes everything that is needed for this item to be fully completed?

4. Keeping Things on Schedule: How do you motivate contractors to adhere to project timelines? Are there any strategies you employ to ensure timely completion?

5. Checking the work: how do you check the contractor's work? Do you send an inspector each time? It seems costly. However, pictures are easy to manipulate and make it very hard to enforce the quality.

Additionally, I welcome any personal experiences or challenges you've encountered during your projects and how you managed to overcome them.

For those who have already completed a few projects, I'd especially appreciate hearing about your initial struggles and how you persevered. Even if everything is going well for you now, I believe everyone faces difficulties at the start, and I'm determined to push through mine.

Looking forward to hearing your valuable insights and advice!

[Nicholas L.]

@Leeor Neh

wow, a lot of very specific questions here. this is why I'd never long-distance BRRRR - I just don't know how you do this remotely. they're tough enough in person.

what market are you in?

[Eliott Elias]

The biggest difficulty you’ll find is contractors. Especially in low income/low investor activity areas. You are forced to hire within a pool of subpar labor. 

[Leeor Neh]

Thanks, both of you, for your replies!

@Nicholas L., I live in California and invest in Columbus, Ohio. After my recent experience, I've started rethinking whether remote BRRRR is the right choice for me. However, investing in my local area is financially challenging.

Eliott, I completely agree, and that's precisely why I'm reaching out for advice.
Before hiring the contractor, I conducted thorough checks, consulting a few individuals, including my realtor, who I really trust. I even inspected other projects the contractor had completed and had multiple conversations with him.
Yet, what was initially projected as a 14-week job turned into a daunting 26+ weeks. Eventually, I had to terminate the contract. He didn't finish the work, what he did finish, the finishes were poor, we had communication issues, and various other problems.

Thank you both for your insights and suggestions!

[Nicholas L.]

@Leeor Neh

do you have the time to fly out for project kick-off and maybe one check-in?  or to meet a few folks in different trades?

[Leeor Neh]

Thanks, @Nicholas L.

I ended up going there twice. To be honest, not sure if that was the most helpful thing. The money I spent on the trip will be more than my first-year cash flow, and it didn't really push the contractor to finish it faster/better.

For me, I ended up asking that contractor to stop working there, I looked for someone else to finish the major stuff that must have been done, and the rest will be pushed to a later time. So this project is done.

But I'd be happy to hear from folks here if they have any systems/suggestions to help me on my next one. Like you initially said, a long-distance BRRRR is a challenge, but as long as I learn from this experience, it won't be a complete mess.

[Sean Martin]

The book long distance real estate investing by David Greene answers just about all of these questions. Good luck! 

[Leeor Neh]

Thanks, Sean,

I read it about a year ago, and it was very nice. However, I don't remember any of these specifics there.

When building the team, I had to find the contractor, and as I said, I tried to vet him as much as possible; however, things still didn't work out. So, I feel that until you have done 2-3 projects and everything went fine, you still need to look for that person.

[Sonia N.]

I haven't done a full remote BRRR but here's a few pointers I learned from lighter projects:

1. Payment structure: Regardless if it is local or remote, you’d want to structure payment to specific milestones in the payment terms with timelines in the contract.  It's hard to say what % because it depends on what needs to be done.  For repairs like roofing, siding, decks, etc expect that they will want more $ upfront because of materials which would be different than repairs that are more labor intensive and can be paired against rough/final inspection milestones.

2. Contracts and Addendums: Always document, document, document via a contract and you should try to itemize as much as possible and include any warranties in writing. If the scope changes, address it in a Change Order along with the additional scope, fees, timelines for completion and payment terms.  The original contract should also note that "any changes affecting the cost of the job must be priced in writing and signed by both parties before work commences."

3. Comprehensive work: Try to tell them itemize as much as possible but include an overarching disclaimer in each repair section, something to the effect of: "Materials and labor provided by contractor unless otherwise specifically excluded in this section, to be provided by homeowner."  Also include in the end somewhere that it includes all dumping/disposal fees unless that's something you specifically didn't want to include.  Learned the hard way one time when they told me after I signed that I needed to call for a dumpster.

4. Keeping on Schedule:  I haven’t found a foolproof way to motivate a contractor besides holding back a sizable installment for them to finish the job. I have read in the David Greene book that you could offer them a bonus incentive if they finish early?

5. Checking Their Work:  Mostly, I have asked my property manager to check the contractor’s work and to send me pictures and/or facetime since they would have to deal with the property going forward and they're there to pick up the keys.  In specific instances, I have had my agent drop by to check in as well. 

Hope some of this helps! 

[Nick Gober-Keller]

Firstly, hats off to you for taking on such an adventurous strategy in real estate! You're clearly not afraid of a challenge and are willing to think outside the box, which are both qualities that are likely to serve you well in this industry.

Your questions are very insightful and it's great that you're doing your due diligence before diving into a remote BRRRR project. However, I'd urge you to consider a few things before making a final decision.

You mentioned you're considering BRRRR remotely, and while that's a valid strategy, it comes with a unique set of hurdles, particularly concerning the management of contractors. Building a trusting and reliable relationship with contractors is key to a successful project, and doing this remotely can be quite tricky. Without the ability to routinely check in on the progress and quality of work, you risk running into issues with inflated costs, missed deadlines, or subpar workmanship.

However, don't let this deter you from pursuing BRRRR as a strategy. Have you considered looking into properties closer to home? Even the outskirts of a city or town in California could present opportunities for BRRRR. This way, you'd be able to keep a closer eye on the rehab process and better manage the entire project.

Remember, each venture in real estate is a learning opportunity. Keep asking questions, seeking advice, and challenging yourself. It's clear you're on the right path.

All the best with your real estate journey!

[Leeor Neh]

Thank you @Sonia N. , for your detailed answer! 

Did you use any of the project management software available? (Like these ones?).
On the one hand, it makes sense to use it. But, on the other hand, I can't imagine a constructor wanting to work with me using it (too clumsy?), and I don't care (or have the knowledge) to prioritize items. For example, I don't care if they do the floors or windows first. As long as they finish on time and the job is done well.

And, thank you, Nick! I did one remote BRRRR. It didn't go too well, and I'm trying to learn from it. Ideally, I'd have the boots on the ground prior, but I have to start somewhere. Also, living in San Diego, current 1/1 (not in a great area), costs $350K+. I don't have 50% of that in cash to do the BRRRR, and I haven't seen a property that is cash-flow positive within its first 2-3 years. So, I'm not sure if this area fits this strategy.

[Darius Ogloza]

It is not enough to "find a contractor."  Geography also does not have much to do with it.  You cannot realistically hope to manage a construction project even at a high level without some construction knowledge.

To a contractor, you, as an investor, are a revenue source.  If you do not have enough construction knowledge to manage a project, you expose yourself to precisely the kind of game-playing you encountered here - where it sounds like you were charged separately for each task that is involved in a simple window replacement and that in the normal course of things should have been included in the quoted price.  

The answer is to get educated about construction, tasks, processes and prices.    

[Sonia N.]

Quote from @Leeor Neh:

Thank you @Sonia N. , for your detailed answer! 

Did you use any of the project management software available? (Like these ones?).
On the one hand, it makes sense to use it. But, on the other hand, I can't imagine a constructor wanting to work with me using it (too clumsy?), and I don't care (or have the knowledge) to prioritize items. For example, I don't care if they do the floors or windows first. As long as they finish on time and the job is done well.

And, thank you, Nick! I did one remote BRRRR. It didn't go too well, and I'm trying to learn from it. Ideally, I'd have the boots on the ground prior, but I have to start somewhere. Also, living in San Diego, current 1/1 (not in a great area), costs $350K+. I don't have 50% of that in cash to do the BRRRR, and I haven't seen a property that is cash-flow positive within its first 2-3 years. So, I'm not sure if this area fits this strategy.

 @Leeor Neh I have not used any PM software and I suspect unless you have your own in-house team where you can implement your own systems or at the very least, multiple projects going on with the same contractor and therefore one of their main clients, most if not all would be relunctant to learn and use new software apps to track the progress.  That is if you are talking about small SFRs and multis but that's just been my experience.  

[Sonia N.]

Quote from @Darius Ogloza:

It is not enough to "find a contractor."  Geography also does not have much to do with it.  You cannot realistically hope to manage a construction project even at a high level without some construction knowledge.

To a contractor, you, as an investor, are a revenue source.  If you do not have enough construction knowledge to manage a project, you expose yourself to precisely the kind of game-playing you encountered here - where it sounds like you were charged separately for each task that is involved in a simple window replacement and that in the normal course of things should have been included in the quoted price.  

The answer is to get educated about construction, tasks, processes and prices.    

@Leeor Neh There's another BP book called "The Book on Estimating Rehab Costs" by J Scott that goes over at a high level rehabbing costs that you might want to look into.  Not inclusive but it's good newbie book to get yourself familiarized as well just to start somewhere.