All Forum Posts by: Aaron White

@Sterling Wyatt can you take out a loan on any existing equity you have? It is a good time to cash out with a low rate and scale to other properties. I like how @Brandon Turner talks about how to look at debt when explaining ROI in the book of rental property investing. Keeping your money in the deal low while maximizing loans.

@Dave Spooner

The permit point you make above is a good point I didn't consider. I did get 3 bids but foolishly went for the lowest.  The things that went well were:

1) I had them give me a scope of work which I fine tuned to be more specific.

2)I told them I would be paying the contractor by portions of the scope of work being completed.  Everyone wanted to be paid by number of days which I have heard many investors got burned on.  This kept me from loosing more money. It also aligned nicely with how I would receive hard money payouts.

Some things I learned with the GC:

1) If you break down the scope of work and find your GC is priced too high on a specific area you can ask them to drop that and outsource it yourself.  ( I did this with flooring and Granite counter tops)

2) If your GC says he can do ANYTHING you throw at him question it.  He also was not concerned about his bid going up as I added a few things.  Should have seen the red flag but didn't #rookie

3) I assumed that since he wouldn't get paid until portions of the scope were complete that he would be self motivated to complete the work in a timely manner.  I was so WRONG! This ended up costing me one month of hardmoney interest which was not cheap at all! Not only did I loose $1,200 in Hardmoney but I lost 30 days in rent which is $1,600= $2,800.  With my second GC I clarified he would need to be done by certain dates in a written agreement and explained this was one of the main reasons I took his bid even though it was the higher one.  

Some things I learned about repairs:

1) if they smoke you need to tripple your paint budget!  I priced it at $1.50/ sqft thinking I would be ok but didn't think about Killz being needed.  Rooking mistake on an 1,800 sqft house that we had to Killz twice before we could paint.

2) if the plumbing has a leak just patch it don't replace the whole system. I was used to purchasing FHA previously and didn't realize conventional lenders don't have as strict of guidelines on inspection prior to refinancing. I could have saved 9k right there!!!!

3)I replaced things like doors when they really just needed paint.  Watching too much HGTV and didn't realize that these things don't impact rental decisions much at all.

4)Really large projects always have a lot of unplanned expenses and extra work.  I took most of the extras on myself to stay in budget.  I easily had a good $2,000+ of extra work I should have planned on for little extras.  Tons of extra clean up, yard work, hidden mold etc.  

5) I brought all of the supplies to the property to save money.  I did a really poor job planning and getting my first contractor to give me a concise list of things needed.  This resulted in too many trips back and forth.  On future jobs I will plan more with the scope of work and get a complete list.  If the list is too big to fit in my truck I'll get a uhaul for $50 and make one run instead of 20 or just let the contractor do it.  I now realize why they charge for this, it is a pain.

@Dave Spoonerundefined

@Dave Spooner,

No, I did not do most of the work myself.  The Hardmoney loan I got was for 130k so it helped cover a lot of contractor fees and I still had a lot of out of pocket costs due to the fact I had to fire my first GC.  Not the greatest spread but I learned a ton!

Investment Info:

Single-family residence hard money loan investment.

Purchase price: $105,000
Cash invested: $24,000

Purchased from a wholesaler using hard money lender and equity in home. House had a terrible smoker and cat lady which made it a complete gut job. Great learning experience. Today the house is worth 180-185k. Had to test these strategies I heard of on Bigger Pockets to see if they were true and they are! I made a lot of mistakes on the repairs and overspent due to my lack of understanding of what needed to be done and what is not critical.

What made you interested in investing in this type of deal?

Listening to Bigger Pockets podcasts and hearing different strategies

How did you find this deal and how did you negotiate it?

I met a wholesaler looking at a house on the MLS. He brought me the deal and it met the criteria I wanted and in the area I wanted.

How did you finance this deal?

Hardmoney to purchase then re-financed into a conventional loan. Sort of a BRRRR but I put some of my money in it too.

How did you add value to the deal?

The house had a heavy smoker, WAY too many cats and some how a mice infestation. We had to gut everything and killz the property twice before we could start.

What was the outcome?

I learned a lot on what I should NOT do for repairs and what to look for.

Lessons learned? Challenges?

Don't hire the cheapest contractor/ bid he is much more expensive and annoying.
If it aint broke don't fix it!
if you can patch it don't replace it
This deal probably was a better flip than rental but it would have helped to do repairs right to maximize my profit

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with a wholesaler , HM lender and conventional lender for the refi. Asked a million questions bc it was my first deal and they were all instrumental in my success.

This property I was looking at would be to flip.  That being said even the rentals in this neighborhood have granite and upgraded plumbing for the most part.

So do most of you stick to the big things like painted cabinets, cabinet hardware and granite?  If I dropped light fixtures, plumbing fixtures and a tile shower it would probably drop 6k out of my cosmetic budget.  

I am looking at a 2400 sqft house. 

I am looking for insight to better understand how much is the right amount of repair.  My last deal I did I went way overboard with plumbing the whole house...

I went to see a house today that (NW Houston near Tomball and Spring) was built in 2005 and has never had any upgrades.  The house was in good shape with the exception of the fact it needs new paint and floors.  You could tell it was outdated but it was clean and in good condition.  I wouldn't even have to paint the showers or tubs because they are clean.  

The only major things were:

-Fence 8k

- Floors 9k

-Paint-7k

-Landscaping-$800

Total 25k

When you look at the comps they have granite counter tops, newer paint on cabinets, tile showers, new glass doors, new faucets and sinks, new ceiling fans, lights adding up to another 21k.

Obviously my challenge with only 2 deals complete is learning what I need to repair in order to sell on the back end of the deal.  Knowing this should help me improve my offerings and do more deals.

If the house looks clean and livable do you upgrade the cosmetics when the comps show these cosmetics to be consistent?  Do you have any tips on houses like this?

Thank you all.  I appreciate the input.  From what it sounds like most of you are just fixing what is broken.  Would that be correct?  The last house I did had leaks and I re-did the entire plumbing system with pex per the plumber's recommendation :-)  

If you are doing patch repairs, do you use PVC with galvanized pipe?  I would think the temperature changes would cause trouble and if that is not the case then will lenders approve an inspection where this is noted?

I have been looking at foreclosure homes on the MLS and am wondering if there is any easy way to estimate plumbing and electrical costs looking at a house that does not have water or electricity on? I am trying to avoid the surprise of missing pipes or major electrical jobs. Do you have any pointers on what to look for to at least avoid the big ticket losses?

Alternatively do some of you put in an offer assuming they are good but subject to inspection?  If so do you have an inspector look at this for you or do you get a plumber/ electrician to come out and look at these?  

Awesome!  Thank you both!  I will look at these too.

I live in Houston and found a deal that needs a new driveway but the garage is about 65 yards from the street. Is there a cheaper way to have a nice looking driveway? Not sure gravel would cut it here but a 20k driveway eats away a lot on an offer.