All Forum Posts by: Will Barnard

Quote from @Yixuan Du:

Quote from @Will Barnard:

Using a price per SF for estimating rehab costs is one of the worst ways to do it as it is the most inaccurate! I have posted many times in many threads on how to perform this task in great detail. Do a search or look through any of my many posts in the past on this topic.

Essentially, you need to NOT rely on others (like contractors or inspectors) to perform this task, you need to know how to do it and after practicing many many times and using the right tools, you can eventually do it in your head in 15-30 minutes while walking through the property.

You need a spreadsheet (several free downloadable ones on the BP file place at the bottom of any thread page), fill in your local numbers for material and labor costs for each line item and then break up the home into sections. Kitchen, bath, flooring, paint, landscape, HVAC, electrical, plumbing, roof, stucco/siding, etc. Once you know the average general price for each area, you simply walk through, label your scope of work and add up the numbers. It is not rocket science but it does take lots of practice so get out there to open houses for fixers and start practicing once you have your spreadsheet filled in.

Thanks for the suggestion! I am a newbie and wonder how do you get an estimate for these each of these line items you mentioned? If I call the contractors in my local area, I would be told that they can’t give me a number and it all depends on the size of the project/current situation/the finish etc, is there a way that I can estimate these more accurately? 

The best way to do this is to get a spreadsheet and then start pricing materials at your local box store and other suppliers. Talking to other rehabbers and individual sub contractors as to what they charge for labor on specific tasks can also help you fill in your spreadsheet price lists. Once you have individual pricing for specific line items, you can calculate sections of the home for quick and easy addition in your head while walking a property (once you do this over and over and over again). Practice, practice, practice on as many listed fixer homes as you can. If you have a general contractor contact willing to help you with the accuracy of your numbers, that would be good too but unless they are a friend or family member, expect to pay them for their time.

In my humble opinion, live in flips are not a good idea. It slows down the rehab process, you expose you and your family to unhealthy conditions, and in the end, your profits tend to be reduced due to the extended holding periods. 

Where I have seen them work well is in a quasi house hack/long term flip where you move in and update room by room over a n extended period of time during a market increase. As an example, bought in 2011 and rehabbed over next 2 years, then sold and bought another, rinse and repeat.

Quote from @Jon Fletcher:

The way I do it sometimes is I have the investor put in 70% of the cash. Then I split the profit 30/70 until everyone makes back their money. Then the profit split increases in my favor to 40/80. Then when everyone has made back their money + 15%, the profit split changes to 50/50. 

This is a sliding scale method which is also common in the syndication space as well and helps align investors with operators. I personally like a sliding scale so that IF the profit exceeds expectations, bonuses go to the active person or persons in the deal that made that happen.

The other suggestions above that reference 70/30 & 80/20% splits via syndications are not appropriate in my opinion for a single home flip with 3 partners. I would have each investors money receive equal annualized rates of return, the active partner managing the acquisition, rehab, and disposition be compensated for that, and if there are extra profits, split them based on the sliding scale method with active investor getting the higher percentage of the 3 partners.

What did your potential partner say the split should be? If your partner offered 50%, I would take that all day long. All you do is supply half the money and he has to source the deal, fund half, perform rehab at cost, and manage the disposition for only 50% of profits. That’s a great deal for you and not so great for him. 

If he is experienced, I would certainly wonder why he would be ok with 50% split.

A lot of investors with this type arrangement pay each party’s money back first, then split the profits on a sliding scale with the party doing all the other tasks retaining a higher split than the other silent partner. The sliding scale version typically has a minimum profit for each and then split the rest on the sliding scale as the profits go up, providing an incentive to the working partner to have the deal come out well.

I did that one time on my personal residence. I intended to flip it and loved the home so I decided to keep it. I purchased it in a trust as an REO and then had the trust sell it to me. Since you already purchased in an LLC, you should speak with your preferred lenders and see what they say would be best for you. Lenders in each state have different rules and regs so your location may have different options than say CA where I am.

You also want to take into consideration transfer taxes (if applicable) as well as getting the title transferred into your personal name or a trust and lastly, your insurance carrier as you will need a new owner occupant policy and have it insured as same as how you end up holding title to the property. 

I especially like the response from @Cole Maurer above and agree. Many sellers, not just flippers make this very same mistake day in and day out. In a hot sellers market (that we have had across the nation for the past few years), it is almost impossible to underprice a listing. The buyers will flock, and once you have multiple offers, the buyers frenzy and competitiveness to win the bid is obtained. I always priced my listings below what I know they would sell for and then, in most cases, got above what I thought it would go for. This benefited my as the flipper and my clients who were flippers or owner occupant sellers.

The market is now shifting (cooling down) so now is even more important to properly price a listing. The try and see what happens is a rookie mistake and a common one at that. In fact, I even see seasoned agents make these errors (albeit some caused by unreasonable home sellers with overly inflated expectations of their home value).

If you transfer title to an LLC, make damn sure you contact your insurance carrier and transfer the policy into the name of the LLC or you could be without coverage.

I see the opposite as a distinct possibility moving forward. While interest rate hikes will hinder some buyers and some valuations, they are still below the average norm and (at least in So Cal) the housing shortage remains. When you consider how many would be buyers of homes have now been priced out of the market due to the massive value appreciations along with the higher interest rate costs, these would be buyers are forced to find a rental unit instead which should generate even more demand for rental units. Rents continue to climb which increases gross rev and in turn, covers the added costs moving forward. Values would only retract if NOI is negatively impacted and I just don't see that yet.

I am a local and highly experienced investor, but I am not sure I fully understand all that Ted wants vs what he is giving in this deal. If he occupies 1 room in the house, that limits renting the house by the room only for the balance of rooms plus the future ADU.

I am familiar with NH and grew up in the SFV which is where most of my investments are. Feel free to have him (or you) reach out to me via email to start a convo on this.

Email in my signature.

Quote from @Nicholas L.:

@Will Barnard completely agree - I think a key part of what you're saying is that if you find a good one it's a lot more passive.  So being clear on what your goals are is critical.  Not everyone has to be a hands-on landlord to invest in RE.

 Exactly!