All Forum Posts by: Will Barnard

 I hear these comments a lot, I agree that you should always ask the wholesaler if he/she is direct to seller. If there is any daisy chain, good luck, the equity is already stripped from too many hands in the pot (in almost every case but not all).

The ARV and rehab costs NOT being the wholesalers job to give: I disagree. As a true wholesaler, how do you bring value to the table if you didn't perform these tasks and how did you ever come up with your offer price if you didn't do this!! Now while I agree many wholesalers, if not most fail miserably at this process and most of that is to make a non deal look like a deal. Inflated ARV's and underestimated rehab costs are common practice with most wholesalers, much of which are newbies who have never flipped a home themselves.

As another stated, there are other ways to land deals besides wholesalers so cast a wide net and use multiple avenues to funnel your leads. This will improve your odds of successful flips.

When a wholesaler has a bunch of flip buyers coming to the house at the same time or throughout different times, your odds of getting that deal at a number that makes sense diminish. Having inside relationships with quality and experienced wholesalers who actually know how to properly evaluate ARV and rehab numbers is a plus. YOu as the buyer showing proof of your ability to pay (through actual bank statements with cash and/or closed sale transaction proof showing you are a proven all cash buyer that closes will instill confidence in the wholesaler and allow them to perhaps make less on the deal but can do more deals knowing they have a quality buyer in hand is a win win. YOU are in control of your money and YOU must also verify the numbers (ARV/Rehab), even if the wholesaler is quality at doing so, verify, verify, verify. Then location, location, location matters after that.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $735,000
Cash invested: $1,060,000
Sale price: $2,825,000

New Construction project in Sherman Oaks. Purchased all cash as a major fire damaged home & knocked almost all of it down and re-built it with new addition and rooftop deck with jet-liner views of the city! A modern contemporary masterpiece, the amenities and finishes in this project are top notch. Rooftop deck has built in BBQ, fire pit, surround sound, & an above ground spa! Listing in zillow: https://www.zillow.com/homedetails/3859-Sherwood-Pl-Sherman-Oaks-CA-91423/19986918_zpid/?view=public

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

Been doing it for years.

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

Connection with listing agent and my agent to strike the deal.

How did you finance this deal?

My Private Investors

How did you add value to the deal?

Demolished it and re-built it with new addition plus rooftop deck.

What was the outcome?

Unfortunately this was held way too long due to a number of factors, including COVID, city planning and permit delays, delays in construction and materials, and additional delays by city.

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

Myself

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $735,000
Cash invested: $1,060,000
Sale price: $2,825,000

Single Family Home New Construction project in Sherman Oaks. Purchased all cash as a major fire damaged home and knocked almost all of it down and re-built it with new addition and rooftop deck with jet-liner views of the city! A modern contemporary masterpiece, the amenities and finishes in this project are top notch.
Currently in escrow and should close this month. Buyer has released all contingencies. Rooftop deck has built in BBQ, fire pit, surround sound, and an above ground spa! Listing in zillow: https://www.zillow.com/homedetails/3859-Sherwood-Pl-Sherman-Oaks-CA-91423/19986918_zpid/?view=public

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

Been doing it for years.

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

Connection with listing agent and my agent to strike the deal.

How did you finance this deal?

My Private Investors

How did you add value to the deal?

Demolished it and re-built it with new addition plus rooftop deck.

What was the outcome?

Unfortunately this was held way too long due to a number of factors, including COVID, city planning and permit delays, delays in construction and materials, and additional delays by city.

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

Myself

Seller carry is a whole different ball game and with that, your options are much better. So certainly you could do a deal like that with a seller carried note on a free and clear property.

This is very tough to answer as each investor and each project is different. How do you currently perform your construction? Hire a GC, hire subs and act as GC, or do you have your own crew (in which you should be licensed)?

When I started out, I did one flip at a time and here in CA, my acquisition prices (back in 2009) ranged from the $250k-$400k range. I hired each individual trade and acted as my own GC as owner builder. Then I started doing multiple at a time and as prices increased, I also increased my acquisition prices into the $600k-$800k. At that time, I even employed a couple GC's as well as doing my own GC work. Finally I got licensed and hired my own crews and continued on to doing multi million dollar projects. I still do that as well as some average starter home flips Though not recently due to market conditions last few years.

I have crews that are 1099 and others on payroll so I have a mixture depending on the trades and the projects I have on my books. That said, having my own GC license (I am also licensed in roofing, HVAC, & plumbing) allows me to to work not just for my own projects but for other developers and retail clients. This has allowed me to build not just my real estate business but also a home services business which has really taken off and provides additional income streams for me between my flip/develoment  paydays.

I concur with @Scott Trench above. Politics and bashing thereof has no place but healthy and pertinent discussions like the one above seem fine to me. Political policy that affects real estate and the investors that buy and sell it should absolutely be talking about the positive and negative effects of said policy's to help make better decisions moving forward. 

As an example, people often bash CA and when it comes to landlord tenant laws, RIGHTFULLY so as CA laws swing way to the tenant's side as if all landlords are billionaires with money to just hand out to any freeloader. So long as people stay on topic of the impacts of these laws, I see only positive coming from discussing it.

 This advice above hits the nail on the head. Clients don't (and should not have to) produce contracts for construction, the contractor does that. Each state has its own laws and regulations and each licensed contractor should know these rules and include, at minimum, what is required by law in their state. 

As both a contractor and a client, I have personal experience on both sides of the fence here. One thing I include (for any significant contract amount) is penalties for contractor being late and bonus for finishing early without sacrificing quality. These terms help keep both parties in complete alignment with the goal, to get the job done efficiently. As a client, paying a bonus to the contractor (typically calculated by my daily cost savings of holding costs) actually has zero cost to me and eliminates that bonus time from opportunity loss, thus a win win for both me and the contractor. As a contractor, same thing, getting a bonus increases my profit margin and not performing to the standards agreed to penalizes my profit margin, a fair trade off.

This issue is not a one off occurrence, it is very common place. Many wholesalers just do not have the skills to properly evaluate rehab costs or exit values and many inflate the ARV to make the deal look better. Like with any industry, you have to weed out the wannabies and keep the small few that actually can provide real deals.

Very general question so difficult to provide precise answers.

First, maximizing ARV: Knowing the market conditions and competition is crucial. Having your finishes at or slightly above the competition will do well in most cases. Ability to add a bedroom or bathroom is a great way to increase value. Adding square footage (addition) is another great way to add value so long as your existing market conditions pencil out that the cost of construction is at a rate below the price per sf of the resale value. Curb appeal is one of the best money making things you can do that is often overlooked and rarely talked about. The front of the home and the yard is the first thing potential buyers see which is their first impression. Fail at that and you miss opportunity for higher resale values. Same goes for the back yard too.

Kitchens and bathrooms are also high on the list of money making upgrades as is paint and flooring. Doors (or even just new door hardware) can also add value with minimal costs as these are things buyers see and touch as opposed to insulation, roof, etc. that are hidden.

Keeping your rehab costs low: The number one way for this is experience and when you lack it, you just have to settle for lower profits at first until you have experience. Experience gives you contacts and better subs, contractors, and material providers. Experience also increases your buying power with material suppliers who can then offer you better discounts. The best way to lower your costs is time (time is your enemy on a flip). Often times, having bid A for $5k, and bid B for $4500, most choose $4500. But if bid B takes 2 weeks longer to complete than bid A, you probably lost more than $500 in holding costs (taxes, insurance, utilities, debt service, maintenance, etc). Once you work with sub contractors and contractors long enough, they too will also give you better deals for that work/loyalty. Lastly, having a good eye for design and picking lighting and plumbing fixtures that appease the masses and look expensive but are not expensive can help keep your costs down while improving the ARV.

One last thought, ability to edit the floor plan to a more open floor plan is very beneficial in most real estate markets these days so finding ways to improve layouts is a key factor. A recent flip I completed did not have a true master bath in the primary bedroom and the tiniest of secondary bathrooms imaginable so by editing the layout and repositioning doors/walls, etc, I was able to deliver a full 2 baths with a true master bed/bath ensuite which adds a ton of value in my market and set my home apart from the others for maximum profits.

Will this be for fix and flips or buy and hold rental units? 

If you want to retain 100% ownership of the company and the property, then the property must be purchased and held in the company name with you as sole owner. The investors would be "lenders" and their security would be a deed of trust, promissory note, and perhaps personal guarantee plus named insured on the hazard insurance policy. You would not need any SEC filings for this unless you were publicly advertising the investment. WIth private lenders, you need to find the lenders who have the capital necessary and have the proper documents for the loan/deed of trust. The deed of trust would need to be filed with the county recorder's office and all of the docs and the funding of the loan should go through escrow with title insurance for the lender.