All Forum Posts by: Dave Schmidt

@Jose Bordes Although most lenders fund construction in "arrears" or after the work is complete, it does not necessarily mean the investor has paid for the work yet. In many parts of the construction business work is billed on a "net 30" schedule, meaning you have 30 days to pay the invoice. 

Also, even if you do pay for the work out of pocket immediately, depending on the length of the project many investors/developers want their money back to invest back into another part of their business such as lining up the next project.

Lastly, getting your draws should not be too difficult. If your lender is resistant and you are not able to get the draws in a timely manner then there is a problem. A true local hard money lender should be able to disburse funds in a matter of a few days. 

@Enis Shehu Great work! Looks really nice!

I can't stress enough about a couple things that you mentioned. First, finding deals and putting in offers (even if people laugh in your face) so many people I talk to rely on a couple deals that they try to "make fit" into their criteria, unfortunately some leads will just never turn into a deal regardless of how bad you want it! 

Speculating works from time to time and people have gotten lucky, but ask many of the people who speculated before the last crash how that worked out for them!

Second, people who are once again emotionally attached to a deal and think that they can somehow "save money" on the rehab. If anything you should be pessimistic about the rehab budget and ALWAYS account for 10-15% extra.

Lastly, people not only speculate about the ARV but a lot of times they flat out don't know how to come up with the correct ARV. They rely on software or agents to tell them the ARV. This is NEVER something that should be outsourced, you should always run the numbers yourself and be able to identify what is a comp or what is not a comp; this will help you understand what is a good or bad deal and save you plenty of time!

Once again great work, sounds like some hard earned profit right there!!

I agree with @Ryan Swan here. Depending on the scope of work, it may be better to be the GC yourself. I have found that once you find one really great sub contractor, they have a whole network of people they are used to working with. Infiltrate their network and connect with as many people as you can. Get references if possible and ask to see some of their other work. 

Another tip that I was taught very early on in my career was to pay early and often if possible. Many subs are used to working for large builders and GC's that can take months to pay them. Although they earn a lot of business from these large companies, they don't always get paid in the most timely matter, so do them a favor and pay them quickly. You will be surprised at how willing they will be to work for you if you can consistently pay them on time...

@Yumiko A. You are going to want to more then likely find a local hard money lender or small bank willing to give you a loan for the property and potential rehab. This is going to allow you to get more from your $40k. Typically there should not be a pre-payment penalty if you have the funds out for a couple months. Something to remember with hard money lenders - they will likely want to know who will be the bank/company refinancing the loan BEFORE they agree to any terms with you. So you will need to get quite a few ducks in a row before you go making a ton of offers!

In regards to the property itself, I don't know if I would focus entirely on run down properties. Something not mentioned above or very often on this site is the ability to cherry pick or being selective. Maybe take some time, energy, money and  then market for the right opportunities. If you have all of your ducks in a row you might just be lucky enough to find a fed up land lord looking to sell fast because a tenant hadn't paid him for the last 18 months!

Hope this helps!

Something I always try to find out from either references or just my conversations with contractors is whether or not they are the perfectionist type who can't give anybody else any control in the job. For example - someone who wants to do all the work on an entire house flip. I appreciate that they want to do the best job in the world, but those types of contractors get in their own way and take FOREVER to complete jobs. Also, they will tend to under estimate the cost of time and materials on there end, often leaving them feeling underpaid after spending every waking hour at the job for the last 3 months. There is certainly a balance here and in my opinion regardless of whether it is a subcontractor or GC, they should have some experience delegating duty and being realistic with time deadlines.

@Andrew Cowles If the property is where I think it is, you should be fine with that ARV, as it is pretty conservative.

The rehab estimate sounds a little light for what is required, and is definitely at the top of the hard money range/70% rule range. I know you said you were planning to do some work yourself to save a little money, well now is the time to figure out everything that needs to get done and dial in the price with all your subs. If your price comes out to $40k with you doing only some painting and landscaping that is great, but did you factor in some construction reserves in case you hit other problems? 

I think your last step here is just to get really sure of what your all your costs are going to be. Remember to be realistic with yourself because some people get emotional on their first deals and tell themselves things like: "I can just do that myself to make the rehab cost less" or "I can just cut a corner here to make the rehab cost less", in more cases than not that does NOT work.

@Joe S. I typically pay around $250-$350 for the whole tub and surround. In some case our painter has had to do 2-3 coats in order to get the color and texture right on a flip house, which in turn will cost extra.

I agree with @Eric Vermilion here. It might be time to look towards a place like South Jersey or the outskirts of Philadelphia or maybe even parts of Central Jersey. Anywhere you go right now it's likely there is very little inventory because there are so many people competing for deals, but there certainly are some places that have a lot less competition than Northern New Jersey. 

@Andrew Cowles Like Ian mentioned above it is going to be hard for somebody to tell whether this a great deal without them knowing a little bit more information. 

Also, depending on where you are located those repair numbers sound like they could be a little low for what you are saying is needed on the repair side of things. Are you planning on doing all of the work yourself or have you consulted a local contractor?

Something else to consider is whether your conventional lender will agree to do a deal like this? You don't want to get it under contract and be in a jam because they won't close on house in need of significant repairs and/or troubles with appraisals. 

@Charles Rogers I don't think a true private money lender would have a problem with this. In some cases if you are dealing with a larger lender that is relying more on your financials, then I would see this as a potential problem, but someone truly focused on the strength of the deal shouldn't really care.

In the past I have used a joint venture agreement structure to work with partners and it has worked great. An attorney or a paid service like Rocket lawyer should be able to put together a simple agreement. This can be as simple as a one page agreement stating what each persons duties are and how much each person will get in return for their capital contribution. Also, the agreement can be made with another person, another business structure, and potentially another persons self directed IRA or solo 401k (I would double check that but I recall hearing about people doing that, not sure whether it is still allowed).