All Forum Posts by: Scott E.

@Chris Cranias and @Tyler Divin - Was interesting to see this old post brought back! I still am running the company and have since onboarded 4 clients. I've learned a ton, gained a ton of experience, had some long nights, but overall very pleased with the first year in business.

Once I onboarded property #4 I realized I was getting close to my max in terms of how many properties I can take on with no other employees or outside help, while still being able to dedicate ample time to my 2 other businesses (I'm also a general contractor and content creator).

My plan is to hover around 5 properties for the long haul. It's a small enough number of properties to allow me the opportunity to provide white glove service to my owners and my guests, but it's enough properties to still create a good source of cash flow for me. If I was dedicating myself to this business full time, I think I could get to 10 properties before needing outside help.

Spent the next couple weeks calling the top performing agents and wholesalers in your submarket. Build relationships. You'll find cash buyers quick.

Pretty early on I had a mentor explain to me this: 

You can buy a $300,000 house, do $50,000 worth of work, sell it, and walk away with a $50,000 profit in about a year's time.

Or you can follow the exact same formula but buy a $1,000,000 house, do $500,000 worth of work, sell it, and walk away with a $500,000 profit in about a year's time.

The latter of course generally takes a little bit more time (and of course more capital) but it was a very eye opening realization for me. From that moment forward I did everything I could to scale up just a little bit on every project.

Much like you I really enjoy improving neighborhoods and seeing the before and afters. Very fulfilling work. But it became too hard of work and too much risk to be making just $30,000-$50,000 per flip (before tax).

I'm surprised this hasn't been said yet but I just want to set you up to have good expectations going forward for future projects - This is not really a crappy situation, you don't need to go looking for another contractor. This is just how it goes, every time. 

Every project takes longer than you expect it will. Every project costs more than you think it will cost. And most contractors, even the best ones, start to lose some steam at the tail end of the project (especially if you have already nearly paid them in full).

Your best course of action is to do what you can to maintain a friendly and cordial relationship with the contractor. Make sure they understand things like the fact that this project is taking a financial toll on you, that you need to get it on the market before the good selling season is over, stuff like that. And show empathy for their workload... you know they have a lot on their plate but you're willing to help. Based on what you've shared it doesn't sound like they are trying to screw you around. They're just busy and need to get their priorities in a row. Most contractors are decent at performing the work or managing subs, but they are not so good at staying organized or managing their schedules.

You may or may not ever work with this contractor again, but what's important right now is that you get this project finished, then you can assess their performance overall. 

Rehab, refinance, rent, repeat

How do you secure funds quickly? Hard money or private equity lender who you have established a relationship with.

How do you keep costs manageable? Shop around for terms that meets your needs. Some lenders charge points, others charge more interest. Most can close quick. Each have a slightly different draw process. In the end you always end up paying somewhere between 8-12% on your money. The debt terms on a rehab shouldn't make or break your deal.

You're following the same path that I followed Jaron. I started with very light cosmetic remodels, transitioned into larger more gut renovations, then got into adding square footage, and lately I've been tearing the whole house down and down ground up spec homes.

The path you are considering is totally realistic, but also risky. The biggest challenges as you get into more complex builds are if you are dealing with anything structural (rearranging the floor plan, removing load bearing walls), if you are adding square footage (it sometimes is tricky to tie the old building into the new building), or if you are relocating a lot of plumbing (moving sewer lines is messy).

My recommendation would be to hire a qualified general contractor and you have way less to worry about. But if you're wanting to GC the project yourself, then you instead need to hire a really good architect/draftsmen. If they give you detailed blueprints, you should be able to sub out the job and give your crews clear direction.

I'm just going to chime in here to say that I'm fascinated that mini-splits have gained so much popularity in Denver! Out here in Phoenix/Scottsdale you're only putting a mini split into an addition that you can't run duct work to, a detached shed/guest house, or a garage. Otherwise the expectation is central air, 100% of the time. We have a very different climate though...

Worked with a similar client out here in Phoenix recently. Will use round numbers to simplify the conclusion we came to, but it ended up making more sense for them to sell as-is versus go through the remodel process...

AS-IS VALUE: $550,000

REHAB ESTIMATE: $250,000

AFTER-REPAIR-VALUE: $850,000-$900,000

There was the possibility of making a *little* bit more if they went the rehab route. But after they dealt with the remodel process, paid holding costs and commissions, etc, they decided that "a bird in the hand is worth more than 2 in the bush"

Could end up being a similar situation for you so figured I'd share the story. Also as others have said, talk to an accountant about tax implications.

Out here in AZ you're going to need to do a STR or MTR if you want to break even on a property with only ~20% down, but if you pick the right location appreciation should beat the national average. There are some nice pockets in both Chandler and Gilbert that do well as short term rentals. If you'd like more info send me a private message. I'd be happy to talk to you about these sub-markets in a little more detail.