All Forum Posts by: David B.

Hi all 

I have three duplexes in Columbus Ohio as an out of state investor. Two of them are in North Franklinton off of Hayden Ave. There are a lot of rehabs happening on that block - I just finished one and am about to do a second. 

My plan was to BRRRR Invest these properties, but the interest rates for the refi shot up since my last one (quoted 8.2 percent by CF Bank).

At that price, I will have to leave a bit more money in the deal than I planned (high estimate 25k) and my cash flow will only be about 250 bucks a month. That's without any additional cap ex, which my Columbus properties have so far stung me with a bit. In fact, If i had to bet, I suspect I'd be negative cash flow for a couple years with cap ex issues / turnovers that may arise. (though hopefully my rehabs will help prevent this)

With that said, I'm generally bullish on Columbus. I think it's primed for great growth and appreciation.

I'd really like to hear everyone's thoughts on North Franklinton in general. I know EAST Franklinton has been in high demand over the last few years, and I believe that South Franklinton is sort of a disaster zone. But I don't hear much about North except the comps, rehabs, and rent increases I've seen thus far. It SEEMS to me like it's a hot (ish) area, but that it's sort of is dependent on which block you're on. 

I'm inclined to keep my properties, as I tend to believe there will be growth. But I could also sell these and roll them into a single property (say - a quad) in a A or B class neighborhood potentially. Cash flow would also be low, but potentially a better investment?

I would love some insight from those that live and invest in the area.  Would really help me understand my options better. 

Thanks in advance. 

Really appreciate everyones feedback 

I sent an in depth email explaining that the budget was too high, there were no change orders accepted for this work, and if he was going to continue on this project with me I needed him to come in at the budget he initially wrote. 

I expect to have a follow up convo in the next day (I told him to marinate about how we could fix this situation). On the phone, I intend to bring up the "taxes" he's been charging me... which I now understand are illegal. 

I'm going to give him an opportunity to make this right, and potentially finish this deal together. I think replacing him and finding subs will be time consuming and I'd rather not put myself in position where he could - potentially - sue me (even though I'm certain it woulan't hold up in court given what's happened here). 

But the trust is broken and I don't expect to work with him again. And - if he's defensive and argumentative about what I need from him - I'll let him go and sub it out myself. 

Thanks for everyone's feedback. This has been an eye opening experience. I'll continue to update. 

I’m no expert, but I’d like to offer my two cents. 

First, I’m still finding deal that cash flow. The cash is tight, but they’re there. I also look for projects I can value add too and pull *most of my equity out. Columbus has been good for me in this area. 

I also invest in SLC, where I either house hack or flip properties. It’s not a great cash flow market, but man… appreciation is great here. 

There’s a lot of differences in these markets, but they share some similarities: 

1. They have large economic / population growth 
2. They are limited by where you can build, and therefore properties are appreciating at a faster rate cuz where else would you build? 

So these specific markets, where business is flocking too, appreciation existed before the pandemic and where I expect them to continue after the recession (eventually) are where I put my money. 

I think on a macro level - 1. It’s arguable where inflations really at. The feds official stance is six percent - and I suppose that could be true. But there’s a lot of data to suggest that inflation is MUCH higher, and we just changed how we’re measuring it. I don’t know the answer. I just know that rents are still growing in my areas and that inflation will not return to 2% anytime soon. 

2. The housing market, generally, is extremely depressed from the lack of building we had for over a decade. Yes - there’s a bubble. But underneath that bubble very little inventory for a new generation of home buyers. And it does seem people want to buy home… look at the mass exodus of people from NY and CA that went and bought property in cheaper places across the country.

3. People still need places to live during a recession. Yes - there will be vacancies. Where and how often will depend on the neighborhood you buy in. But it doesn’t mean that every unit you can rent will suddenly be vacant. It means there may be a balancing / turn over act that needs to be navigated. The best reason for doing this is because you value the asset/ neighborhood/ market you’re buying into in the long run. 

If there is a stagflationary event, or if the housing market “crashes”, then the cash I keep on hand is designed to maximize on those opportunities as well. It’s part of the reason I’m still trying to flip… I like the strategy of being in and out on a property too. Doesn’t always have to buy and hold. There’s definitely value in being fleet footed in this market. 

There’s definitely risk right now. The best way to operate (for me) is to find off market deals I can add value to, push rents up, and refinance most of my capital out. Or - for a house hack - I’m buying in A neighborhoods where the odds these markets will collapse long term are slim.

I think people will adjust to new rates. If we get back to 5- 6% percent again, I think that will continue to drive prices up.

Commercial real estate, where interest rates have a direct impact on cap rates, and thus value, is a completely different discussion. I’d be more hesitant there. 
 
thanks for letting me share. Again - not an expert. Still learning. 

 

Hi all,

I have been using a credit line to purchase properties in cash. This gives me better leverage to negotiate with the seller. Then I refinance on the other side after Iv done repairs. 

Recently, I spoke with my lender and they said that if I wanted to refinance, I had to wait for a YEAR before I refinance into a conventional loan. They have another loan (5/1 ARM) that I can use in the meantime, but the rate is awful.

Remember - I bought the property cash. I thought seasoning didn’t apply unless I purchased the original property with a loan, but I guess that’s not true? 

Do cash bought homes also have to season for a year before I can finance my cash out? 

Yikes 

Quote from @Lucas Dalton:

Do you have a Statement of Work that goes with the initial contract? If he's now saying it will cost substantially more, then I would think there should be a written Change Order getting generated to document exactly what alterations to the original SOW are being requested (ie increases to labor/materials for X task in Y room). That should let you highlight what projected costs have gone up by comparing the new document to the original SOW. Did he ever supply something detailed, or was the contract bid on with just a ballpark number?

 Hi Lucas 

we definitely had an itemized scope of work to begin with. And - now that you mention it - there were never change orders issued at all. 

It was quite literally “hey we’re moving along great” to “hey bro - let’s hop on and talk about the budget cuz some things are growing” and then that number was 35k higher. 

He acknowledged to me on the phone that it was his fault, and is now trying to find ways to penny pinch. But I don’t really don’t understand what caused the massive overage that put us in this position to begin with. 

I’m considering letting him go and just sub contracting the rest of the work. Between his “taxes” and fee I could significantly reduce the budget. 

Quote from @Allister Long:

Did your overages come from the increase in material costs? Or was the increase in labor cost? For materials you can suggest the contractor use similar products at a cheaper rate to keep the cost online with the first quote? Did the changes come from surprises once you started moving walls? I would through and see where you can save money. Tax is on him not on you.

 Thanks Allister
to my knowledge we have had no significant issues arise once we’ve opened walls. Had we found asbestos or a foundation issue, I would have better context here. But nothing of that nature has happened. 

I am not clear if materials or labor shot up on him. I will get a better picture of this in my next discussion . 

As for tax… do I simply refuse to pay? Is there anything specific to Utah law (I’m in SLC) that would justify extra tax? Or is this all phooey? 

I just want to make clear - we’ve only spent 40k so far. So one of the things I’m wondering is are we speculating on this extra 100k? Cuz we can’t have spent that yet. He’s only used 40k on the draw. 

It’s part of what’s making it so confusing for me. Why is his estimate now growing by 50%?

Hi everyone 

I’m in the middle of my first flip. I locked up a single family home (roughly 2600 sq feet) with 5 beds and 3 baths for $454,000.

The ARV for the area tells us we can probably sell the house for 685-700k on the other side. We underwrote at 650k to be safe.

My contractor initially came in with an estimate of 98k for the rehab. This would encompass new floors, dry wall, electrical/ plumbing, and two new kitchens (upstairs and mother in law suite). Keep in mind, this was for zero exterior work… which I was considering having cash on hand in case we needed a new roof. We couldn’t tell when we bought it cuz it was covered in snow. 

Last week, he mentioned the budget was going over a little and we should talk about it. So we finally hop on the phone and tells me that we’re at 121,000 all of a sudden. 

I was shocked. But rather than freak out I tried to navigate how we could make that money work for us. I also decided to do some light exterior work. So I told him “look - this ain’t great - but if we can cap this at 130k - and ALSO fix the exterior - then I can live with it.” 

He then promptly came back with a bill for 142,000… 9,000 of which was “tax” 

So he’s almost 50% over budget. And frankly, the more I think about it, the less I understand HOW this number has blown up. 

We’ve had a couple overages, but not many, and most of the stuff we’ve done was completely within the scope of work in the initial bid. He also has only taken two draws at this point - for a total of 40k. That 40k has covered the demo of the house, dry wall, and handled most of electrical/ plumbing. We’re *basically ready for cabinets and flooring at this point, and then paint and fixtures. 

So I don’t really understand where this extra 100k would need to go. Or how he ever let it blow up to begin with. I went through the budget with him, but frankly it still doesn’t make sense. The budgeting seems VERY loose. And that 10k tax? As soon as I brought it up he went “oh good catch” and then eliminated about 6k of it. To me, it doesn’t make sense to pay ANY tax… I pay materials and labor and whatever tax there is should be included in that no? 

This is my first flip and while Iv tried to implement all the strategies Iv learned about on BP, this one is throwing me for a doosie. 

What are my options for a contractor who’s  this much over budget? I really like this guy - and had thought we would work together on more projects - but this is pretty inexcusable. He’s taken a deal I worked hard to get, where I thought my floor profit was 50k, and made it so now i could LOSE money if we get stuck holding the property too long. 

Do I fire him? Refuse to pay the overages? 

Any insight would be really helpful. Thanks in advance. 

Hello! I have a SFH property I'm renovating that I'd like to refinance into a DSCR loan.

I'm wondering if anyone in SLC uses a DSCR lender out here I can consult with.

Also open to a nationwide lender 

Thanks in advance,

DC 

Quote from @Theresa Harris:

My mortgage payments come out either once a month or every two weeks (most are the latter).  They come out at different times as I closed on the properties at different times of the month.  I have a single account and they automatically come out.  Less for me to remember.

For property taxes, I pay some directly, another is combined with the mortgage.

Thanks so much Theresa!

So you have one business checking account that all your rentals run through? And they’re all set on auto pay? 

that’s obviously ideal. The only question I have (and it may be a for an attorney) is if the co-mingling of funds would be a liability if a tenant ever sued for some reason? 

it’s part of the reason Iv been debating having one account for all my rentals or multiple accounts for each rental.  

yes - for property taxes I would probably pay those individually as they came in. 

  
thx!