All Forum Posts by: BOB CRANEY

If you are from Baltimore or nearby area,l i would recommend joining/attending a REIA. Go and meet some people doing rehab and rentals and you will get a better idea of where the better returns are. The key with rentals is to be in a zone where you have 50-70% homeowners. When you have an area with to many renters, the values will be low and will only appreciate at a pathetic rate due to the landlord investors who dont want to put enough money into their properties to maintain them and tenants who are to hood. You need to drive thru blocks and blocks of areas surrounding a house you like to get the local flavor. If there are lots of young boys with pants below their butts, hangin on corners, by liquor stores and markets its a rough/edgy area. Keep driving until you dont see this scenario much anymore. Start looking closer around the inside of 695. Consider small multifamily 2-4 units as they will cash flow much better and you can still finance at good rates.

With that kind of cash available, sell the shell you have for what you have in it, f you can get that much. Then go buy a better house that needs less work in a better area . If you continue with the rehab you will have a lot of trapped cash after you refi. You will not net enough off that mortgaged rental at $1100-1200 per month for it to be worth all the effort. 

You have to work out the math backwards by first establishing the max you can safely rent the property for after the rehab. A basic rule of thumb for rentals is you can rent for at least 1% of the property value, but you dont make any money at 1%. If your value is $120,000 you really need to be able to get 1.3-2% on a single family or small multi family before it starts to make sense. Your $120k property would need to rent for $1560-$2400 per month. You will never get rents that high for a 2br over there and likely not even for a 3 BR. Maybe could get it for a 4 BR over there but you dont have enough gross sqftg to make that happen. Im trying to give you a glimpse from the future. Put what i am saying in an envelope and seal it up, then open it in 1-2 years and tell me how wrong i was. 

Sorry to be a wet blanket but it sounds like you are going to be underwater on this project and will have most of your money stuck when your rehab goes over budget and your cannot refi for enough to pull your money out. Before i spent a penny on underpinning, which i have done before, i would get an appraiser to give you a realistic idea of what your house will be worth after your complete your proposed rehab. Remember that most lenders are not going to be generous with a non owner occupied appraisal in a rough area and you will likely only be able to be get 65-70 LTV. Learning a lot is great but if you cant break even you will be stuck renting for a long time before your loan is paid down enough to get you out without bringing money to settlement. I ran into this exact same situation in 2008 with a rowhome on South Carey st (aka SCAREY st) and the only thing that saved me was i did a lot of the work and acted as my own general contractor. Do you have $120k cash for the rehab ? You need to talk to some local banks to get a better idea of what loan terms you could get. Ask them what appraisers they use regularly and then call them up.

Your post doesnt mention exactly what strategy you are trying to pursue. People getting into real estate often have a preconceived notion of RE based on something they heard, saw, read etc. Everybody has a friend who made a "BIG" profit on a deal and it sounds so easy, you figure why not me to. Depending on your preference of strategy to initially pursue, why not begin to familiarize yourself with the free search methods. Set up some Craigslist alerts, check out FB Marketplace. Join a REIA, pic a farm area and become an expert on values in that are so you can spot an great deal when it pops up. Set some alerts of Redfin or some other Free RE portal to send you listings of new, sold , under contract so you start to know your area as good as the realtors serving it. Call all the realtors and introduce yourself and tell them your plans and ask them to send you listings and junky stuff they might not want to list due to poor condition. Sign up for a Carrot website, not free but cheap and populate it with some articles and creative info to generate activity. If you really want to generate leads, the funnel needs tpo be real big at the top. Daily activity it takes time to gain momentum and your persistence level will dictate the results you will get. Keep at it

are your contractors licensed and insured with general liability and work comp and MHIC ? Being your own general can teach you a lot about contracting but make sure your main trades of plumbing, electric and HVAC are licensed to work in Baltimore City and are not trying to use a proxy to get permits. Most small companies do not have licensed mechanical trades on the payroll as its expensive and they will charge you more for being full service in house. 
Good luck in that type of area getting $1300 for a 2 BR. If you have 1100 sqft, i would try really hard to squeak out a 3rd BR even if its small. I have a really nice 2 BR with a finished basement in Pigtown on a ****** block and am getting $1150 from section 8. Market tenants in rough areas will probably only go $800-1000 max, no matter how nice it is inside due to the poor neighborhood.

Take my advice and buy in better areas for the long term. There will be little to no chance of real appreciation, unless you have 20+years to wait, and your tenant pool is poor

I@Larry Wilson

Maybe shop the submetering to a few more plumbers/contractors to see if you can know the price down. It seems a little pricey at $1000 per unit.

@Justine Scheuher

How does it benefit you to have them as partners? If they want to put in an equal amount of money now everything gets split 3 ways and you have to do 3 times as many deals or 3 times larger deals to make then same money you would have made on your own. Why not offer them some equity % or debt payment arrangement where you are in control of the deal and management and they can get a piece on the backend when you ever sell it. With 3 partners, deciding on anything is 3x more difficult

@Thien Nguyen

Like Ronald Reagan said “Trust but Verify” . The best contractors are also good salesman and can smell a newbie a mile away. They will only provide you the minimum in documentation to get you hooked and get your money flowing.

No job should be started without the proper permits being pulled and copies provided to you and posted at the property. It’s a big red flag if the contract has dates that are vague or draws that have you paying money for work that isn’t done yet. If you have an experienced construction manager it sounds like he is not doing his job along the way and holding the contractors feet to the fire.

Forget asking for your money back and call a lawyer to sue the contractor if it’s for more than $5-7k, if not the lawyers fees will eat up all you are trying to recover

. Many contractors are so slammed with work now they are running around collecting 1st draws on jobs they know they will not be able to start on time or keep on track. Try to come up with a draw schedule that is equal to the work that is done and don’t pay a penny until all the work for that draw is completed and inspected.

@Hoang Bui

As an inexperienced investor you are in need of a contracting lesson from those who have done it successfully before. You need to be able to control what is being bid and how it’s being bid. Starting with a detailed scope of work that breaks down all labor and materials required to complete the job, will make sure any general contractors you get quotes from will be bidding on the same exact work. I did remodeling for several years and was always happy to see when a prospective client I met with had a firm grasp of what they wanted to do and materials they wanted to use because it meant they had actually put some thought into the project.

You can google Remodeling scopes of work to find lots of examples and you can cut and paste ideas to create your own. Anything not specified in the contract or the scope of work will be open to interpretation by the contractor and not usually to your benefit. An inexperienced client will claim ignorance when something they thought was included in the fixed price turns up as an extra. Clients need to think thru a project completely or they will get hit with change orders that will be at a higher margin than the base contract.

An easy way to have your contractors price materials for a project is to give you a retail $$ allowance for the item you can choose from one of their preferred suppliers or any where else you want to find it. An example might be an appliance pkg where an allowance of $1200 for a refrigerator, $800 for a range, etc, or with flooring it might be a square foot allowance of $3.50 for porcelain tile.

As far as draws go, try to make sure that any schedule of draws actually corresponds to the way the construction is being done. It’s ok if your paying for something like cabinet materials before they are installed because they often have to be ordered ahead of time, but I would not expect to pay early in the draw schedule for labor that will occur halfway or at the end of the project. If you have the time, ask around at a Real estate meeting or local online group and see if there are contractors getting good recommendations and go see jobs they have completed or are Actively working on. Legit contractors have lists of satisfied clients who are happy to talk about their experiences.

@Rebecca McDonald

You might want to reach out to some local lenders, brokers or bank portfolio managers and hard money lenders and tell them what your trying to do. You will get a very clear idea of whether your proposed way to finance/invest will be realistic or not.

As a new agent, you should start to better educate yourself on financing and how to qualify potential prospects. . I imagine if a prospect came to you and told your their plan and it sounded like yours, you would have line of questions that would focus on how they could realistically buy anything without a job or a current income.