All Forum Posts by: Douglas Gratz

 When you do, make sure you’re financially ready. I went though a lot of stress because of the not knowing if I will have to sell or build. I haven’t gotten to the building stage yet, but so far getting to that stage seems like the hardest part however my good friends @Bruce Woodruff and @Mike Smith say I have more stress coming my way, and they are probably right, I just hope its less stress than what I’ve gone through so far.  Personally I dont think it will be that stressful since the home is sold and any delays and problems hopefully will be like the ones (on a lessor level of course) but the same problem one incurs during a flip, I can handle those type of problems well but the not knowing about the will or wont I be able to finance this, ate at me everyday. But then again I was never very good at coping with any emotion for that matter, so what may be little stress to others is alot to me.

But good luck on your journey , I am glad this journal will be useful to people. For me its been a good outlet for how I am feeling along with the great people to help.

 Will do, waiting on the new take offs to come back, its been a while since we made the budget and the economy has gotten better and worse in different areas, I ythink lumber has come down 20%. But yeah waiting on that and will start to order.

My builder mentioned to me since its no longer a spec home we could maybe try to have the lumber loaned at 5% among other line items, that way I can take less of a loan out…Have you ever done that?

2/24/23 6pm Update

My real estate just called me with some interesting news.  My homes are to be featured in Philly Style Magazine! Well I think it’s just the home that hasn’t been sold yet.  I wanted to share this news because I think it’s pretty cool that my first project in ground up constructions is going to be in a popular magazine. It will have pictures from all the 3d renderings we have, they are going to interview me, which I may turn down or keep to a script. Not sure if it would be good for it to be known these are my first two ground up, so I am going to make sure that its more about me as a person and how I arrived to this project, talk about how I got into real estate, how I feel about building two of the largest and nicest homes in the area etc etc….

I am excited, but it’s been a long road since I started and i am just grateful to get to the stage I got to so far, the odds were highly stacked against me. If I could give any advice to a person new to ground up construction, dont wing it like it did, I took a big risk because I knew I could sell the land quickly and for a good price if I needed (until rates went up, could still sell but not what my exit plan had accounted for)….I bought this land because the opportunity presented itself however I was not ready for what was to come and it would have been a lot less stressful if I had financing in place because I have been stressing over that ever since I got the stamped plans and was the sole reason I almost had to throw in the towel. So if you’re getting into a large project, make sure you can afford it because. I am in a situation where Lady Luck gave me a break yet I still am so tight on money that it has become difficult to pay the bills. I cant take from my construction account, once you dip in, you will keep dipping and that money is set aside so I can pay all interest that comes my way. That said, I had to make some sacaraficed in my comfort of living due to having to have sell 3 of my rentals , bringing my income down, so for the next year, I may get a part time job, my rentals bring in a nice positive cash flow, but I really can’t spend it, I take a small small monthly salary, but overall I dont draw from my rental business, I like to grow that account for repairs or acquisitions and if I take to much the business can come to a halt if I can’t afford to buy more rentals……so I am in a vicious credit card cycle where I get a big check, need to keep my score up so pay off the debt, all of sudden I have little cash left, back to credit, and so on. Covid as made the auctions hard, so a big slow down in acquisitions Grrr….seriously, these online auctions took the edge I had away. I would go house to house when researching homes on the auction block, but now you have 4 hours to do all the research b4 bidding where as it used to be 1 2 3 sold. I hate it! But we all have to adjust and find another way.  When these two homes are done, I made a lot of connections where I can get no doc loans with 25% down on any Multi-family, so all in all I can’t wait to get to the finish line . I will still do new construction, but I excel most with my rental business and want to grow my portfolio so I can or my kids can have real sustainable wealth. In conclusion, make sure you have enough financially before getting into any project, getting into this without the proper amount of liquidity, has made me sell my home and other sacraficed so I can afford to keep going. Don’t get me wrong, in the end , it’ll all be worth it as my net profit will be a good amount, I will have payed the debt to my father offs , and have money in the bank and my rentals to show for it. 

You might look at me and be like well why did you buy the land if you weren’t financially ready to take a project this size on and the answer to that is, it was the only way I saw that I would be able to pay my father back before he gets old and is no longer with us.  Any other way , according to my business plan, is going to take over 10 years and to pay him back is important me and to do it while he’s alive to know its even more so because he did me such a solid that I want to show him it was all worth it and that I did so well I was able to pay it all back . So I bought the land with a plan and enough money to get it to the financing stage, but after that, I was not sure how it would go. I held on longer than expected, it was hard to give up. Before I got the one home sold, part me thought “Douglas you made a mistake and should have sold when you had that great offer” but the other part said “douglas you got this, keep on trying to get it funded, dont stop, go to another bank, and another, talk to friends, just figure it out” If I could do it over, I would sell the land, it would have been the smarter decision because I got lucky, and thats not a good business plan……

Until next post, have a good weekend

@Mike Smith @Bruce Woodruff

Let me add a BIG THANK YOU. Whether I have a good builder and agent and team who have done an outstanding job so far, as an overseer, not in charge per say, I know what to over see and double check to avoid the pitfalls of pre selling and customization. 

You two have been with me the longest on this post and your words of wisdom have not gone to waste, I have taken the things you have said and taught, and used them as a guide in overseeing everything. I have had lengthy conversations with my builder about the concerns you guys have had and we have adjusted accordingly or better yet I have been given the knowledge to make sure my builder and agent are doing it right, without what you guys have advised I would just be a meer bystander at the mercy of my builder hoping he’s doing it right but instead I am able to know he is because you guys have told me what to look for and make sure of. 

So thank you for this pasts years of constructive criticism, advice , and wisdom. So far everything is good and when we break ground I will keep the journal going. Aside from weather, I am confident we will be able to stay within budget and very close give or take a month within our timeline for each step. With 18% construction loan, once I get towards the end, will become costly. I hope by the time interest payments are high, we are working on the inside so that weather wont cause delays. The house being sold , is big in that alot of profit can be wasted, waiting to sell the property, this I do not have to worry about. My builder and I have set a schedule for every step to do our best in starting and completing steps on time and that is my job, to over see the building and to make sure we are on time from ordering material to using it. I have research lead times for almost every material we are going to need, I have talked to the supply houses and suppliers, I know what is backlogged and what is not so that I can order things accordingly. For example Wolf ranges have a 8 months lead time, so I need to order them when I start, windows have a longer lead time than usual due to residual effects of covid and supply chain, so those to I need to order ahead of time (by that i Mean a head of what is normal) 

All I can say is I am doing everything a person can do, to make sure they dont go over budget and time. There are however things I wont be able to control and will adjust and pivot accordingly.

 Understood and taken under advisement you too @Mike Smith and @Joel Forsythe, not meaning to repeat myself, but and luckily my builder and agent had this knowledge since I am just reading tour guys advice, as far as customization, she was given her cans and cants, she was given an upgrade package, the only big thing she wanted to change was elongating the garage, she paid the architects, she is paying for the extra time it will take for the amendment ( so paying interest on the land for any extra time related to waiting for her changes) other than that, we set the rules for her like you guys mentioned. From the gate we gave her a package for upgrades , cans and cannot , and it has gone smoothly. She wanted 3 things that weren’t in the package, that will cost me in terms of time and the cost related, they were 1. Elongate the garage, add a pantry, and make the dining room bigger, since making the dining room bigger meant messing with the deck and zoning, we told her we can’t do it, anything that has to go through zoning we wont do. So after she had the  updgrade pakcet, she made her selections, she changed the garage and pantry, and that’s that, the AOS clearly states everything is final once signed and it is signed. So my builders spared me headache by setting strict guidelines as you advised and that’s why I have complete confidence in them, they did what you advised before I read this, as  for being in charge Bruce, I would say I am more of an overseer, in that i trust my builder , he’s in charge, has to run everything by me, but he’s running the show because I am new I know nothing, he has 40 years experience, I am not stepping on his toes so that he can make sure things are done right and thankfully he is a great builder and things are getting done right.

If i was on my own id be done! Straight up, this is so hard and I would not be able to pull it off myself, I dont have the knowledge my builder does and would have very likely made all the mistake you guys are advising me about, but I am not on my own and can confidently say after reading your posts, my builder is doing a great job because he has covered everything or almost everything you guys have mentioned

 @Mike Smith I see where you are coming from, and if I was doing this alone acting as the GC it would be complex, but I am not in this alone, I am working with experienced people and they know how to deal with ore selling a home and adding upgrades , so it is my first build, but not theirs. If i was on my own , yes this would get very complex , hard, and confusing, but I have a good team who has done this many times over and i have complete confidence in them for they have puts alot of sweat equity into this already and the mistakes I could be making on my own are being circumvented because I have a good builder and agent who have handled things great. I have just been an overseer in this customization process, and now that the AOS is signed and all is set in stone from things she wants to change to costs of it , costs related to taking more time. For example, if any of her changes are a cause of a delay, she is responsible for paying that extra time and we had her put 150k in escrow (aside from deposit money) for these maybe delays….So rest easy in that I have crossed and dotted every T and I to take any extra risk stemming from customization off my shoulders to the extent that I can…..We made sure she knows what she is getting and what to expect. We had (with her money) a new set of schematics with her changes, and amended plans, so she knows the floor plan she is getting and to make sure she is good with it. Now that all that is taken care of we can start building

@Mike Smith your are right and I have taken steps. My agent and builder are really good. The buyer does want to change things and is changing things, but my agent amended their AOS to deal with these things properly. The AOS states what she can and cannot do and if she does xyz she has to pay for it upfront and states that if anything she changes, makes the project run longer, she is responsible for paying the interest past a year.

We all had a meeting the other day at the architects office, squared away what is and what isn’t possible, how much time it will add to the project and the costs related to that. Once we signed she is not allowed to make any changes, so we went over the walls she wanted to move, an elonged garage for a 3rd car, the steel and costs of doing that so she can keep the basement, is all covered in the AOS….However before we signed , we made sure that everything was final, she made her changes and payed for them, we adjusted the timeline accordingly, and it did make things a little confusing, but my agent and builder handled it well and now that the AOS is signed and her finishes picked out, she can only change it for a large fee, agreement to pay any costs related to it whether it’s more interest due to more time or just something small…..

Mike I haven’t reach the starting line lol…We start mid march…In conclusion my builder and agent set those expectations the moment she talked about customization , and all is well and good in that regard. @Bruce Woodruff as for upcharging, since we are making her pay for the extra’s directly, we are not upcharging other than charging for our time and work….We did it this way because we thought it would be less confusing. So could i have made a few extra bucks upcharging, yeah, but to me it felt like a headache and risk and decided that she has to pay directly , I was grateful enough to have sold it and just wanted to simply build.. When I become more experienced I will make money from this type of customization but for now I am good with how it is

 AGREED. And your right my apologies for going off the rail

2/24/23- Journal Entry THE MIRACLE (READ THROUGH IT ALL)

                                  I Pre-Sold one of the homes for

                          $2,250,000 but first let me say a few things:

Hello friends who have been with me for this journey ! I am happy to have something great to tell you and post, but before I do I would like to say, that I stood strong! The odds were against me from the very beginning and I knew this, I knew this and I only bought the land because I knew I Could sell it for more as an exit plan if it came to that, BUT I DONT HAVE TO! I have pulled off a miracle.

Filled with mountains of stress, depression, guilt, and sadness, I kept pushing forward. I had decided that if I have not got funded by the end of March I would sell the lots at a loss (due to carrying costs) but not only would I have taken a monetary loss, but I sold my home, and 3 rentals so that I could get more time, so I did that, and when I realized I would have to take this loss, well it was a very hard pill to swallow. The failure hurt, the guilt that my father would not recover the money he so lovingly lent me for this venture, not just this one, but to start my business and buy my rentals, it was his line of credit, and for this particular venture I have drawn it to zero and not only was my livelihood at stake, but so was his. This is why I was feeeling so guilty, sad and depressed, mostly not because I failed but because of the consequences of this failure. As a matter of fact, I only saw it as a failure because of the consequences to others, to me I learned so much, I showed my self I have courage because well to risk it all against all odds , you need courage and bravery. Knowing these things pushed me just a little further before throwing in the towel

So I told my agent, get a HUGE print of a 3d rendering and put the homes for sale, a house near by sold in 15 days for 2.4M and they had a lot of showings. Once on the MLS in two days A MIRACLE HAPPENED, someone who lost out on the bid for the 2.4M house called my agent, signed an AOS, put down 300k and began customizing the home.

The deposit is non refundable as she was taking customization to another level, we met with the architects, she elongated the first floor where the two garages sat, so she could have a third (this requires amended drawings and steel and money), she picked out all her tiles, moved walls, etc etc…..She payed for it of course, anything over out budget was on her, and because of this we knew she was not backing out, it would cost her a lot to do so.

So from the beginning the odds were stacked against me, I have spent the last 7 months trying to get funding. To buy some time I refinanced the land out of hard money and it was a blessing, for the person who held the mortgage on the land was the person who decided to fund the project.

There was a catch though, this person knew I was backed in a corner AND HAD ME BY THE BALLS and offered crazy terms, 18% 2pts in 2pts out, but I was grateful because It was unlikely that I ever got to this stage and 18% or rather building the homes was far better than selling the lots. If I sold the lots I would take a loss HUGE loss and walk away with around 300k. If I build, the first home even at 18% would net 420k and get my expenses back and walk away with close to 600k and still have one house to build.

But I was still not out of the woods, I was just about out of capital, had just enough to pay interest for another year. So I had to find a partner so I could afford the loan and I did. A friend who helped me once when he worked at a rehab and I was the patient. I knew him for only 2 weeks maybe and this was in 2018. I have some rich friends here that I have known for a while and even with the home sold they would not help, but this guy Rudy, who know owned his own rehabs, did not hesitate, as my long term friends should not have for I was offering 50% return on their money.

I needed 220K max, so my friend Rudy signed a contract contribution at first 180k, with a max of 220k if we need it in return for 20% of the net profit which is around 90k. He was wary of the 18% and I was out of options so in the contract I stated he would receive no less than 90k from the net proceeds if the net profit becomes less due to an unvarable loan. I could not afford him to back out, and something was better than nothing. So long as I build I will come out on top, so I agreed or more so gave these terms to my friend freely without him asking, it was my idea for I could not risk him backing away.

So here we are, the proforma

Expenses for one lot- 300k land+1.1M construction cost + 80k soft costs+101k closing costs+45k transfer costs+60k interest for land + 220k interest and costs for loan+50k management fee = $1,906,000

Income- 2,250,000  Net profit = $344,000 - 90,000 for my partner leaves me with $254,000 in my pocket in profit. Upon the sale I get back my 80K in soft, 60 in land interest, 50k management since I am managing 

So at closing I will walk away with $444,000 with still one house to build and profit from and we are inches from having a buyer for that as well. I split up the soft cost unevenly so I could get more back on the first build So on the second home

Expenses, 300k land+1.1M construction +30,000 land interest +40,000 soft costs +45 k transfer +180k construction Internet (I hope to get this down by getting a 12% loan from the bank having shown that I can pull this off already and the house will be pre sold) +50k management+101 closing cost net profit = 2,250,000-1,846,000 =404,000 NET PROFIT + 40K BACK IN SOFT +50K MANAGMENT+30 INTEREST AND I WALK AWAY WITH $524,000+$444,000 FROM THE FIRST HOSUE

TOTAL $968,000 There is something wrong with this math as my proforma shows me walking away with cloister to $750,000, I am writing this on the fly, so to not deceive lets stick to the math I did on excel , So when all is said and done I will walk away in the green plus my costs back and comes out with  $750,000 give or take……compared to selling the lots at a loss and walking away with 250-300k

Some may say 18% is absurd but to me, I am grateful for it because there was slim chances of me getting to this point and even more so, selling the lots would bankrupt me and make life hard on my father, so 18% is fine with me.

I dont know if I ever mention this, but I bought this land and took this risk for the sole purpose of being able to pay my dads Line of Credit back in full and have 6 duplex,s 12 doors to show for it. My father is the best man I know for he risked his lively hood to see his son succeed in what was a very unlikely situation. He told me that I could keep 150 of the total so that I can keep going forward and with the experience of this build, I should be able to set my eyes on large ambitions with experience to show the banks that I can take on and complete large project and with this I hope they will lend for future and bigger projects. I have my eyes set on an apartment complex, but who knows where life will lead me, however that is the end goal and willlretire on that apartment complex when ever that maybe

So to those out there who have been following this post. Let this story give hope! Let this story show that if you work harder than everyone else, you will succeed, that with courage, bravery, and the guts to stick it out, things that seem impossible become that much more attainable….I have truly been given a miracle, for without selling the home (never breaking ground yet) this would not be possible , and to sell without breaking ground,well other than larger communities, I have not seen it much. But be wary, things are still tough, even with the AOS, I could not get a bank to lend.

I didn’t really understand why being there there was relatively no risk anymore. God forbid the buyer passed away, her 300k would cover the loan, I could keep building and the home would sell. Having pre-sold such an expensive home is proof the high demand and low supply of “forever homes” Most homes in this area are for young working adults that make a good salary, but are too small to start a family in, so after a lot of research and pivoting I came to building 2 large homes instead of 4 smaller ones, for my research showed that people who love this area, want to stay there and build a family so 3 parking spots in the city, a grass backyard in the city, these things are hard to find, so I will build it and they will come. And so they did.

We break ground in 2 weeks, maybe a little longer as we await the amended plans, but WE BREAK GROUND! I can’t believe I am saying that.

There is a crux though, I need to pour the foundation on the home not sold yet because that street is to narrow for concrete truck, so I need to find a little extra cash (maybe max out my credit cards to do it) and or, not do the foundation and figure it out later (possible a pump to bring the concrete to where in needs to be instead of the truck needing to pour it) there is also the crux that if I pre sell it, how will I fund it? I hope the current lender who hold hte mortgage on the land will dish out another 1.1M since at 18% he is making good money and with the home sold, there should be no reason other than he doesn’t want that much on his balance sheet, so fingers crossed there. This lender is not even a lender by trade, he owned a roofing company and his son has been my consultant. He used his own money to give the loan for the land, and borrowed money from a bank at 9% for construction to give to me at 18%….But I will cross that bridge when it comes. FOR NOW I MUST LIVE VERY FRUGILE BECUASE UNTIL CLOSING I AM BROKE AND WILL HAVE TO LIVE OFF CREDIT CARDS UNLESS I CAN GET A SMALL 50K BRIDGE LOAN AND USE THE DEPOSIT MONEY AS COLLATERAL (I AM NOT SURE YET) BUT I KNOW THE NEXT YEAR WILL BE TOUGH

FOR NOW I BUILD! I MAKE A NICE PROFIT, PAY MY FATHER BACK IN FULL, AND GROW MY BUSINESS with all the things I have learned, the people I have met and networked with, and bank relations. Once both are built I will be able to show experience and I hope this helps propel my plans. I AM SO GRATEFUL AND CANNOT WAIT TO SEE THE FINISHED PRODUCT AND THE MARK I LEAVE ON THE GREAT CITY OF PHILADELPHIA!

TO BE CONTINUED…..WHEN CONSTRUCTION STARTS I WILL MAKE ENTRIES TO TELL ALL ABOUT THE CONSTRUCTION PROCESS AND HOW IT IS GOING GOOD OR BAD FOR ME AND WHY OR WHYNOT SO STAY TUNED! AND HEY IF YOUR READING THIS AND ODDS ARE AGAINST YOU, WORK HARD AND HAVE HOPE, YOU ARE MORE LIKELY TO SUCCEED THAT WAY.

@Bruce Woodruff I feel ya, I am a little amped and tight. Its been tough, and to have an AOS and still trouble funding, those comment straight made me angry I suppose from you " this is how newbies get into trouble"  to @Derek Bell making assumptions and @Paul H. saying "This is not a risk I would take or even feel comfortable reading about"

All that yeah, made me pissed, because it wasnt at all what I said nor implied