All Forum Posts by: Bill Richard

Choosing the right person to leave in charge is one of the biggest problems. They need to not only be aware of how your system works but also be experienced in construction and remodeling because there will likely be plenty of that. Remember that you will need to pay them VERY well (from the profits) or they will soon just do the same thing and be your competitor. Look for a middle aged family person who is a real estate sales person, preferably a retired contractor or  with a spouse who is one. They will make money on the buy side, the sell side as well as the remodeling side. Look for someone who wants to make their money through selling real estate, not a hustler who will duplicate the system and take deals out from under you.

Expect problems, especially in the beginning. It  takes a while to get the right members in place. Having backup members is recommended. It keeps everyone on track and because things happen-sickness, vacations,retirement, quitting and more. 

Get several financing sources in place early. 

Remember -the first or second time you don't or can't deliver or do what you say, your team will leave/quit. 

As someone who has been doing this for 9+years, I have a few opinions and some advice. 

First, it can be done.

Second, you'd probably be better off picking a fair sized town in the beginning, say over 250,000 population. This should give you a large enough base to feed you enough deals to keep busy. The larger the better. 

Third, pick a place with a GROWING population. 

Fourth, Assemble your real-time re agent, lawyer, banker, contractors, etc. Understand that they will need to be kept busy or they will drop you as a customer. It's just business. Expect turnover. Find a way to deal with it. 

Fifth: Develop a working system that produces a steady supply of places, whatever it is. Do what works for you. 

Sixth, don't try to make the last dollar from any deal. Every team member should want to work with you because they make plenty. As soon as any member thinks it's not worth it, they're gone. It is way more expensive to replace a member than the few dollars you might save. 

Seventh,  Don't try to do it all yourself. Don't do low dollar work, no matter how  much you might want to. 

Eighth, Once you make it work, then you can establish more teams in different places. 

The PAYOFF : You're sitting on the stern of your 50 foot plus boat in the Caribbean, say St. Johns, in Februrary and the phone rings. It's your real estate agent. We've found another one, she says. Details are handled by your team. You reply: fine, I'll have the money sent to the closing agent. Handle all the details, please. A few weeks later, your agent notifies you everything is completed, repairs made and either new tenants are in place or it's  been sold. You verify that the money is in the bank account.  Repeat as often as possible. 

@Rao V.

How much I am at the job depends on the knowledge and skill level of who is doing the work. Since most of these people are new to the trades/business, it requires a lot of supervision in the beginning. I usually am working on site, supervising and making sure I'm work, things are done right. As they get better, step by step, it requires less.

To start, they usually start on demolition and cleanup. Then to preparation, framing, easy roofing, then installing windows and doors, painting, trim work, etc. Each person has their strong and weak points. Some are good at rough work, some good at finish work. A very few are really good at all of it. The thing that makes my business successful is to understand what each worker is best at and utilize them in that area.

A thing to understand also is this: there are lots of ways people try to cut corners on taxes and insurance, especially workman's comp insurance. I've seen most all of them. To sum it up, DON'T. It's not worth it in the long run. The gov't., tax man, states, insurance companies and the lawyers are all well aware of this. They will make your life miserable if you get caught. Just keep in mind, if your bid/price you want to pay is so low you can't afford the insurance and tax bills, you need to be better at negotiating. Every time you might be tempted to try it remember you only need one bad accident or to get caught and audited one time to ruin you and lose years of the profits you made doing it. And that's if you have a real accident, not if some scammer files a fake claim.

Sorry, got carried away. Not trying to give legal advice, just disappointed that these things happen.

Best advice would probably be to talk to a lawyer and determine your best way to resolve this.

You will probably need to be "fair" (they will call it mean) on this one.  You'll need a lawyer on this one.

Declare him in default. Also file on him for fraud.

I believe since you are in second position, you have the right to assume the first. Do that (assume the first).

File against the first guys errors and omissions insurance or his brokers. The state also has a fund for people that get ripped off by real estate agents/brokers. I think the limit on that was 50K, but it might have been raised.

Take the title company guy to court for fraud. File against his errors and omissions as well. HE knew darn well that the first had that clause in it. If he didn't that's his error for not checking. Odds are though he did, especially since he brought in yet another lender in third position.

Notify the TV stations of this. They love these kinds of stories. (Innocent, unsuspecting lender swindled by organized scam-broker, agent, title company).

If you can take over and complete the project, great. If not, maybe you can get your money out of it.

Just my opinion, but when people start giving me the run around and not returning my calls, it is saying "up yours" and hoping you will be too frustrated to follow up. Get yourself a werewolf type lawyer who will chew them up.  

As I understand it, if you have an interest in the property (a signed option or a signed contract to buy the property) that means you DO have an interest in the property. As such, you may sell your interest.

Now if someone just said "I'll let you have this property for XXX dollars and signed nothing and you only had their verbal agreement to sell it, then you would NOT  have an interest in the property and therefore could not legally say you controlled the property or sell it.   Also, as I understand it,  the listing agreement paperwork between real estate brokers and their clients (the owner of the property) is what gives the broker/agent the right to offer a property for sale even though the broker/agent does not actually own the property. The laws of the state are what says if you do not own the property or have an interest in it, you must have a real estate license to offer the property for sale.

Could it be that the states are cracking down on people who are offering property for sale without owning or controlling the property and who do not have the required license?

As I read this information, that's what I'm thinking is happening.

Thanks @Blake Norman

To give a little more detail,  this works better with younger people starting out. Experienced contractors can't work for these kinds of wages. Typical deals run about 10-20K to buy and 5-15K  in rehab costs. They are generally smaller plain one story simple places. When finished they typically rent for 500-550 or sell for 35K-50K.

To make this work with higher priced areas or with full on contractors, the prices would have to be much higher on each deal.

When getting started, if you know how to do the work, it's a great way to quickly build equity while learning the parts you're not great at yet. As you get better at the other parts of investing, letting others do what they do best while you do what you do best generally yields more to you.

At this stage in life, what I do best is put deals together. I do some repairs or remodeling when I feel like it but lately I leave most of that to others who are younger.

Here's an example of one way I do deals with those who want to make sweat equity:

 I will buy the place and provide all materials for repairs and remodeling and pay all carrying costs.

You do the labor for $10.00 per hour 

We do TEN places under this arrangement.

When done, I will buy the eleventh place and give it to you free and clear.   You do your own repairs on it.

All eleven places would be approximately the same general price. That eleventh place would be your bonus (sweat equity).  

Habitat Restore. Get the used ,but in good shape post form Formica tops. About $25 or even less if on sale.

If you want nicer, remember that wood holds bacteria so try to go with something solid.

I've had good luck with a sheet of 3/4 plywood, a layer of hardibacker and those 12x12 granite tiles you can get at HD for about $5 each. Looks good and for $200-300 a nice looking solid surface.

Still, for lower end rentals, I like the Habitat specials. Anytime I go in and they're on sale, I'll pick up a few and store till needed.

I see some potential problems with your deal.

1. Lack of experience. Nothing personal, you're young and starting out. This place is 48 years old. The initial systems that were put in when new are at the end of their lifespan unless they have been replaced already. You'll need to check all this. Roof, electrics, water pipes coming in as well as sewer pipes going out. Heat system. Windows and doors. All of it. It could be ok but it might all need work or replacement.

2. Need more info about garage. One or two car? Condition? Why can't anyone park in it?

3. Getting a FHA loan is not real hard if you have verifiable income. Thing is, FHA likes niece fixed up places. If you look at the FHA 203B loans, these are for people who have fixers and they roll the repairs into the loan. Also, work must be done by regular contractors so that drives up the price.

You might be better looking at a farmers/rural home loan. I think the whole northern half of lower MI is considered rural and they have special programs.

4.I'm also thinking that there's too much money involved for the return. I'd have to crunch the numbers more to be sure but first glance looks marginal to me. Lots would depend on realistic cash flow. Also, I'd check carefully for comparable. I just don't think that prices are that much higher so if that's true you would not gain significant equity by buying this and fixing it.