All Forum Posts by: Will Barnard

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.

Michelle,

The answers above are all good and correct, so I won't regurgitate them. As for referral's, you can check out preferred lenders here on Biggerpockets or do a google search for them, there are tons in So Cal. Check out The Norris Group, they are very reputable and have been in business for many many years. 

Also, many people often interchange the terms hard money with private money. Make no mistake, there are differences. Hard money lenders are licensed in the state or states they lend in, they often lend other people's money and they often have stricter loan docs, terms and costs. Private money are individuals (who could also hold a license in some cases) who are often friends, family, business associates, doctors, etc who are looking for investment options outside of stocks/bonds/mutual funds/CD's/Etc.

Your current equity position is not enough to qualify for a HELOC so that option is out. YOu could take a personal loan, use credit cards or sell other assets to raise the capital.

As for the repair itself, you state cast iron which is for the sewer line. Plumbing re-pipes for interior are for supply lines. So which is it? Sewer or supply lines need upgrade? If it is sewer, you have several options. There is the excavate and replace method, there is trenchless system option, and their is a relining  option. I suggest you get 2-4 bids for each option from licensed plumbers to see what is best. The lowest price is not always the best option.

If you have a property under contract, nobody can circumvent you or steal your deal, the only way that could happen is if your contract expires in which case, you no longer have any control over the deal. If it is actually a deal, then you should have no problem selling it to any number of your vetted all cash buyers (you need to have buyers in place first before you go locking deals). Others will argue against that advice claiming once you find a good deal, buyers are easy to get, however, there is down side doing it that way and no legit downside doing it with buyers in advance. With having vetted buyers, you should know their criteria and as such, search for properties that meet those criteria, that places you in a much stronger negotiating position with potential sellers when you know you have a buyer or multiple buyers that will fit in this box. Additionally, and probably most importantly, if you don't have vetted buyers in advance and you market the property on FB or other online or direct sources, you are marketing a property without a license which is against the law in just about every state if not all by now. You must have a real estate license to publicly market a property you do not own title to. Also don't listen to those who will tell you that you are marketing a contract and not a property either, that is simply not true and in a court of law, good luck arguing that.

To properly and legally wholesale, you need to know your market, build a qualified and vetted all cash buyers list, build a marketing plan to attract and receive qualified seller leads, and know how to negotiate and properly contract the deal. Without a license, you are not permitted to publically market the property so you either need to get a license, close on the deal with cash or borrowed funds and resale right after (double close), or properly set it up with a set buyer in place. The last of these options has several options. If you are searching for one or two specific buyers, you can prearrange to make offers in a new entity or trust and name the buyer as a member/owner of the entity (or trustee or beneficiary of a trust). Then at closing and in escrow, you simply have that buyer pay you your fee in escrow for the rights to buy you out of the entity or trust. No public marketing to violate the laws, no worry about locating the buyer before your contract expires, etc.

I have posted many times on BP how to properly structure wholesale deals, try and search to find them or search through my specific posts (although they are over 15k).

As others stated, hollow core will suffice unless your flip is high end. Pay more attention to the door hardware, that is what is seen and touched more by buyers.

In your scenario, I would structure that as debt and not a partnership. If you intend to pay 10% of money the contractor invests in your project, then simply do a 2nd trust deed (behind the purchase loan) at 10% for the term you both agree to with a balloon payment rider (this is for no payments during loan but one lump sum balloon payment at sale or end of term, whichever comes first). You should also consult your CPA/Tax advisor to ensure that your flip is best suited in an LLC or another entity. Generally speaking, flips work best using an S-corp for a number of reasons. This is not legal or tax advice, just general experience/knowledge. Consult your CPA.

You will not be able to build a quality ADU for less than $300k at 1200sf. Also, you will not be able to build a 1200SF ADU with the primary house at 1100sf.

All the other negatives are valid regarding the ADU although I would argue that the value after building possibly being underwater is irrelevant so long as your timeline to exit is 7 years plus. Also, appraisals will get better and more inline once there are years of comps for them which should improve over time.

That said, buying a multi could be a better fit if you buy right. Money is made at purchase in multi and then adding value adds to that money/profits.

Construction can certainly be frustrating and time consuming not to mention expensive but in So Cal, it can also be very rewarding too. You have the devils advocate above but having a good contractor & designer can make all the difference. After doing this for over 15 years, I have had my ups and downs and one thing I can say for sure, if you can hold for 10 years plus in so Cal and add value (like construction), you will make out well in the end.

Great, send me message with info for upcoming Jan 12th meeting.